China is at it again, this time announcing grand plans to become the world’s first country to launch its own digital currency. But the thing is, China is not the first. To date, Ecuador, Senegal, Singapore and Tunisia have already issued their own cryptocurrencies. Estonia, Japan, Palestine, Russia and Sweden are next on the launchpad, and the European Central Bank (ECB) is reportedly looking at something similar. It looks like a digital cryptocurrency arms race has begun with some of the world’s major economies pouring money and resources into efforts to perfect their digital offering.
So far, no one country has been able to create an effective and stable digital currency. Russia has been plugging away on a state backed “cryptoruble” and Sweden has its “e-krona,” but none have gained traction. A few years back, Venezuela and Ecuador tried and failed.
So why bother?
For the Chinese Communist Party (CCP), it’s all about control and making another power-play move in its rivalry with the US. A digital yuan will be China’s version of a digital currency that is entirely controlled by its central bank. Named the “Digital Currency Electronic Payment (DCEP),” the digital currency is aimed at dethroning and replacing the US dollar as the world’s reserve currency. But that’s not all. This new digital currency will also give the CCP all sorts of authoritarian powers to monitor and control its population. Unlike Bitcoin, which was designed around encryption and anonymity, the Chinese digital yuan is just another eye built for surveillance.
Beijing could potentially track its citizens’ spending habits in real-time. It could control and block transactions in real-time, whether legal or illegal. The CCP can use this opportunity to harvest and collect vast amount of new data, never seen before. According to the Sydney Morning Herald, “It has the potential to create the world’s largest centralised repository of financial transactions data and, while it may address some financial governance challenges, such as money laundering, it would also create unprecedented opportunities for surveillance.”
The Chinese digital currency is a centralised cryptocurrency rather than a decentralised cryptocurrency. As such, it’s the complete opposite of Bitcoin, which uses a decentralised blockchain system to ensure user anonymity.
Irrespective of its structure, almost every country will retain some form of control over their digital currency. What Beijing is looking to do takes centralisation to a whole new level. China will strategically place itself to use the digital yuan to tighten its grip on its population via the collection of data for AI purposes. It will also use the currency to break away from the global financial system and the US dollar.
And then there is a more sinister potential outcome, in which the digital yuan is used to extend surveillance and control over the West via partner countries that have signed up to the Belt and Road project. Countries may be forced to repay loans in the digital yuan, giving China an open door to disrupt and spy on communications. It’s a scary thought.
But there is hope. Despite all the brouhaha, overthrowing the US dollar is not that easy. According to The Australian, “it is difficult to underplay the dominance of the US dollar. More than 60 per cent of global reserves and 90 per cent of foreign exchange transactions are in dollars. This compares to about 2 per cent for the yuan.” With China’s reserves held mainly in US dollars, it raises the question, why?
In one word: Trust.
The US dollar has been and will continue to be the reserve currency because the world trusts it and has confidence in it, based on confidence that the US has the ability to pay its debt obligations. It has taken over a century, but the US has earned this trust, and it remains unmatched. Europe, at one point, came close but failed to gain the world’s trust due to spiralling debts and concerns of the effectiveness of the EU’s multi-country structure. The same applies to China.
The yuan has its own concerns. If it were to become the world’s reserve currency, would we have the same level of confidence and trust? The US dollar is easily tradeable, with no capital controls or restrictions. It’s easy, quick and transparent. The yuan, in contrast, is under heavy control by the CCP, which regularly restricts movement of capital leaving the country.
China’s long list of human rights violations destroys any confidence or trust it may have had. How can any country trust a government that intends to use its digital currency to gain “unprecedented visibility and control” of its own people’s private lives? China’s Orwellian high-tech surveillance systems, and internet censorship systems to monitor and suppress public criticism, which allow it to commit serious human rights violations, aren’t the hallmarks of a country worth trusting.