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OPINION | COLUMNIST: Red China goes cashless

by AKRAM KERAM IN THE WASHINGTON POST | March 4, 2021 at 3:28 a.m.

China is undertaking a huge experiment that could transform the future of money. Through ambitious testing in major cities, the Chinese Communist Party is racing to develop centralized digital currency, also known as digital yuan.

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 that digital yuan could be used by 1 billion people in the next decade.

The development of hyper-centralized digital yuan would also create the world’s largest repository of financial transactions data, allowing the authoritarian Chinese Communist Party 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 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 for citizens with low incomes who might not have bank accounts, and for 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. In a digital-yuan-consumed society, the government easily could suspend the wallets of dissidents and human rights activists.

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 that the CCP intends to showcase the new currency to international audiences. When fully developed, the digital model might become attractive to other autocratic regimes.

And when conditions allow, the CCP may introduce policies and regulations requiring foreign businesses and investments to have a certain amount of digital yuan to get started in China.

Beijing’s push to revolutionize money creates a new level of threat to human rights in China. If digital yuan reaches beyond China borders, it will become another censorship or filtering digital tool to monitor people’s financial life in foreign countries.

The dark side of digital yuan should be a warning, and the international community should prevent it from spreading worldwide. China may be ahead of the curve—its central bank has filed more than 80 patent rights on digital currency—but the United States and other democracies should accelerate research for their own digital currencies so international standards and regulations are set under democratic norms to protect citizens and data privacy.

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Akram Keram is a program officer and regional expert for China at the National Endowment for Democracy.

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