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Digital Currency in Communist China: A new and even stronger tool of control

During the ancient period leather notes were used as the first kind of paper currency. Created out of a square feet of deer skin leather, the leather currency was accepted in exchange for goods, something that marked a new beginning of currency into the world. This fascinating story makes more sense in our times when we know the country where the invention happened, i.e. China. The Song dynasty was in fact the foremost to use this paper form of currency.

17.04.2022 19:00
Piše: Valerio Fabbri
Ključne besede:   China   e-Yuan   Chinese Electronic Yuan   Central Bank   control   Communist Party   currency   Zou Chuanwei   Alibaba   Tencent   Wechat Pay   Alipay

There is a growing concern among Chinese citizens about the implementation of digital currency in their pockets, given that the project is controlled by the Chinese Communist party.

Looking back over the past years, currency has acquired varying forms all over the world. And the country that was the initial inventor of currency is on another path in making its currency digital. In the first week of April, the People's Bank of China (PBOC), China's central bank, declared its plans for trial extension of a digital currency to several cities around the country, including the areas where Asian games are planned to be conducted this year. The basis for this expansion into digital currency started in 2014, when the PBOC developed its thoughts on currency digitalization under the Digital Currency / Electronic Payment project, which doesn't conceive the idea of virtual payments transfer.  Rather, the project is about initiating the Chinese Electronic Yuan, also known as e-CNY, as a legal tender to replace paper currency in the economy.

 

There is a growing concern among Chinese citizens about the implementation of digital currency in their pockets, given that the PBOC policies are controlled by the Chinese Communist party. One thing that differentiates Central banks in the West and other countries from China’s is the line of control. The PBOC has the authority to take decisions in respect of financial markets and policies, but the ultimate signs of green light are always to be provided by the most senior persons in the Communist party. It is well known that policies are mitigated in the hands of the government. As the bank's responsibilities are restrained by the government, the PBOC governor could be removed at any time at the discretion of the party. Therefore, their voice is not very much considered in the case of monetary policymaking. This is one of the reasons why the digital currency plans are to be viewed with caution, if not suspicion. 

 

 

"Rather than aiming for a cashless economy, the real purpose of this expansion of digital currency trials in China seems to be gaining data monopoly and mass surveillance on the transactions by Chinese Communist Party."

 

The lack of a coherent set of policies that respects the privacy of Chinese generates a greater deal of problems. A Wall Street banker pointed out that every digital currency transaction will be on the radar of the PBOC, which means that the government will have access to every data and information. It is indeed another way of the Chinese government's intrusion on the lives of people. Gradually, this could channel in the efforts of the Party to maintain control over the society as strong as ever. In other words, the whole project is designed in a way where every e-CNY transaction is linked to an individual phone number through the national ID, whereby the government will have full control to the accessibility.

 

As the visibility of government increases, authorities are called upon to monitor and enforce compliance on transactions, with the power to wipe out amounts in digital currency without any permission from its users. In fact, entrusting the PBOC with digital currency policy is another way of targeting private tech firms in the country. Around 90% of mobile payments in China run through two tech giants – Alibaba and Tencent.

 

Zou Chuanwei, a digital currency specialist at a research institute in Shanghai, adds that the government's digital currency expansion is established in a way that could influence the market of Wechat Pay and Alipay. For instance, authorities could mandate compulsory use of e-yuan for citizens and shopping while merchants are at the wisdom to refuse the usage of Alipay and Wechat. Likewise, e-Yuan is directly loaded into the e-wallets of digital users by the state banks, automatically granting access to the digital data that is controlled by these firms. If Chinese citizens begin to use digital yuan widely, a plethora of data would be accumulated in the hands of the government.

 

China considers its central bank as a significant tool for economic power. Whenever it seems that their power is challenged by other groups, they introduce plans to reinstate the control. Rather than aiming for a cashless economy, the real purpose of this expansion of digital currency trials seems to be gaining data monopoly and mass surveillance on the transactions. In a way, authorities can enforce a tool of control on their people and restrain dominance of companies in China.

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