Even with all the hype and interest in digital currencies like cryptocurrency Bitcoin, China is actually seen to be leading the globe in the creation of a national digital currency that works for its citizens. Written By Matthew Meehan
Since 2014, The People’s Bank of China (PBOC) has been tirelessly working on a form of digital currency that, rather than being freely available, operates from a central bank in the same way that physical cash transactions do.
This form of currency, known as the Yuan, aims to take paper and metal currency and essentially digitalise it to take away the hassle and labour that is currently experienced by the need to print and mint current money.
China is a nation currently considered to be more advanced than many others when regarding uses of digital payments and therefore would simply provide a singular controlled method that would be legal tender across the nation without charging any interest on its usage.
In terms of a question of need, it is globally considered that cash usage has decreased year on year with contactless payments (among others) being much preferred, a system which has considerably accelerated in a Covid pandemic where social distancing has been so paramount to national health concerns.
This growing need is being pushed not only because creating and storing physical money is so expensive, but also because cash usage has always been considered a difficult, yet unavoidable process: counterfeiting is such a common practice due to replicability and the fact that it can be very hard to trace it back to its original source.
A digital platform can be monitored, tracked and easier to control whilst also allowing payments to be anonymous in some regards to protect the privacy of high-net-worth individuals, businesses and even citizens who simply wish to remain legally private.
This could be a huge issue for the businesses currently in the Chinese payment sector such as Alipay and WeChat Pay, who currently dominate and run the market, as they will lose many customers to a governmental system that arguably provides more support, and a clear level playing field that cuts the charges that these companies can levy on businesses and citizens alike.
However, for other businesses, it is a form of protection should these companies go bankrupt, or just to be saved from paying any of the extra costs they are accustomed to paying, with the added benefits of efficiency and simplicity.
With 4 in every 5 payments being cashless in China last year, there is also great opportunity to ensure that smaller businesses are fairly treated, with the activation of money given to commercial banks for specific purposes such as small business loans only happening when transfer is proven. Therefore there are greater assurances of a fair and appropriate playing field that allows for all to prosper in a digital Chinese economy.
Looking long term, this brings great expectations that the infrastructure can be fully established, and this secure digital economy will have a profoundly positive impact on the opportunities that will develop for business over the coming years.
There will be some challenges in this process, as with any new technological advancement there is always the risk of the technology not yet being at the level of capability needed. There will also be a length of time taken for this technology to be adopted in all areas of life.
This shouldn’t be too much of an issue, as in the short-term market forecast, first-mover advantage will drive businesses to compete and gain these new opportunities. Yet in a medium to long term outlook, such matters as the rate of adoption, the retained level of interest and the central bank’s ability to maintain a high level of provision, accessibility and performance will all come into the decision-making process and the Yuan’s future development.
In terms of the effects on China’s citizens, the data available to society would help to improve money supply, and the support mechanisms to boost a post-Covid recovery period, with the new currency being also convenient, easily accessible and securely monitored, with poor citizens taken care of due to not needing a bank account and not requiring internet access for those who live more rurally.
The more pressing concern is the autonomous control that the Chinese Communist Party (CCP) will gain over their people’s bank accounts and finances, as with such direct authority they can financially strangle and suspend the electronic money wallets of those who are seen to disapprove of government action such as dissidents and human rights activists.
This also plays into the current surveillance of 1.4 billion citizens who currently suffer blacklisting on such schemes as social credit, with its international audience set to grow as the digital Yuan is set to be in use for when the 2022 Winter Olympic Games descend on China.
With a fully developed and presented product, other regimes such as Russia who rule under a more autocratic process, may wish to adopt similar processes in order to gain similar control.
Perhaps an underappreciated concern, is the fact that this could cause much international unrest, as a digital currency would be possibly be able to evade foreign sanctions and therefore could be used to support other countries, such as it did in 2018 when digital Yuan was used to purchase Venezuelan cryptocurrency Petro, when they were subject to US sanctions.
Foreign business will also suffer from policy and regulatory issues, including having to have a certain number of digital Yuan to start operations in the Chinese market.
More than 70 percent of registered foreign businesses operating in the company have accepted the presence of CCP cells within the company aimed at influencing and establishing party presence, with global names such as Walmart, Volkswagen, Ford and many others supposedly bribed into silence over human rights violations in the nation, in return for access to the vast and wealthy market of opportunities.
This dark side of a technological revolution will serve as a warning to the international business community to not allow such innovation to spread worldwide, as other democratic countries now need to accelerate and develop their own digital currency advancements, to ensure they can implement global standards and regulations that establish democratic procedure for their own people, and the rest of the world to ensure the protection of billions of citizens and their own data privacy from the governments that may soon seek to control it.