If expanded as planned, China would become the most powerful economy to offer a national digital currency, long before the digital euro proposed by the European Central Bank. With more than 750 million people in China purchasing online goods last year, analysts at Goldman Sachs estimate digital yuan could be used by 1 billion people in the next decade. Yet the development of hyper-centralized digital yuan would also create the world’s largest repository of financial transactions data, allowing the authoritarian CCP unprecedented access to ramp up surveillance of ordinary citizens.
The core concept of digital yuan, a focus of China’s central bank since 2014, is central management. Once available, users would download a digital wallet to store their funds, generating a QR code that can be scanned for shopping payments. Unlike online payment apps, the digital yuan aims to replace cash in circulation, not money deposited long-term in bank accounts. These electronic transactions will allow the central bank to track spending activity in ways that are not possible with cash or coins.
China highlights fighting corruption, money laundering, illegal cash flows and tax avoidance as the ostensible benefits of using digital yuan. It also claims data from digital currency would help improve the money supply and support mechanisms for boosting economic recovery in the post-coronavirus era. According to Beijing, the new currency will be convenient, secure and accessible, including to citizens with low incomes who might not have bank accounts, and to those in rural areas, because the transmissions would not require Internet access.
But privacy concerns abound. China’s central bank promises only “controllable anonymity,” meaning digital yuan transactions are anonymous between users, but their private information is still known to the central bank. China, already nearly cashless, relies on private platforms such as Alipay and WeChat Pay for payments. So far, these platforms have operated without direct government oversight. With digital yuan, the CCP will have direct control over and access to the financial lives of individuals, without the need to strong-arm intermediary financial entities. In a digital-yuan-consumed society, the government easily could suspend the digital wallets of dissidents and human rights activists, for example.
Digital yuan will join the CCP’s existing techno-authoritarian tool kit to carry out its surveillance of 1.4 billion Chinese citizens and others around the world. The CCP already ranks loyalty and blacklists “untrustworthy” individuals as part of a social credit system that the digital yuan could be connected to. Biometric technology collects voice patterns of individuals to link to other personal information. The Skynet system collects images at intersections, gathering places and checkpoints for real-time monitoring, and artificial intelligence is used to ethnically profile and repress the Uighurs and other ethnic and religious groups.
The negative impact of the digital currency on the privacy of citizens and businesses could extend beyond China, as Beijing aims to internationalize the digital yuan. Plans to use digital yuan at the 2022 Winter Olympic Games in Beijing and a pilot plan in Hong Kong suggest the CCP intends to showcase the new currency to international audiences. When fully developed, the digital model might become attractive to other autocratic regimes. The CCP could use its digital yuan to evade U.S. sanctions, as professor of economics at Tsinghua University Ju Jiandong suggests, and support other internationally sanctioned regimes. Chinese yuan was used to purchase Venezuela’s cryptocurrency, Petro, when created against U.S. sanctions in 2018.