Home Business China wants to weaponize its currency. A digital version could help

China wants to weaponize its currency. A digital version could help

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China wants to weaponize its currency. A digital version could help
China wants to break the US dollar’s stranglehold on the global financial system and gain greater control over how people spend their money.
It’s hoping a digital currency could deliver both. China wants to weaponize its currency. A digital version could help
After years of preparation, the country began an ambitious trial of the digital version of the yuan earlier this year.
The pilots now exist in four Chinese cities, where more than 2 billion yuan ($ 300 million) has already been transacted.

If this program is expanded nationwide.

China will become The most powerful economy ever From the European Central Bank to beat the upcoming digital version of the euro, to offer a national digital currency.

Beijing has seen the digital yuan as the currency of the future that will make buying things more convenient and secure.

 

Officials also say that it can help those who do not have access to bank accounts and other traditional financial services.

While China is already nearly cashless and many transactions happen digitally, they do so beyond the scope of the state on privately owned apps and platforms.

An official digital yuan will change, as it will give Beijing unprecedented information about how and where people are, and who they are spending their money on.

an approach that runs counter to the original intent of digital money in the first place. .

Bitcoin and other digital currencies rely on a decentralized blockchain system that prevents any individual or organization from being put under control.

“In a nutshell, the digital yuan can help strengthen state oversight and control over the economy and society,” said Frank Xie.

a professor in business at South Carolina University. “It increases centralization of authority. This may be the fundamental reason that it has been strongly pushed and run by the state.”

Chinese regulators have also suggested that widespread adoption of a digital yuan may help them to plan much higher:
breaking the US dollar monopoly and increasing the yuan’s influence on the international stage.
For example, last month, Hong Kong leader Carrie Lam revealed that US sanctions have barred her from holding a bank account.

However, there are still many hurdles to overcome in China’s program before the entry of new currency into everyday life.

 

And analysts doubt whether the digital yuan could pick up the traction that Beijing hopes could pose a real threat to the US dollar.

 

The ruling Chinese Communist Party’s desire to control its financial system is the ultimate obstacle to creating any currency that can truly become global.

Keeping the digital economy in mind

The push to develop a digital currency began in 2014, according to the People’s Bank of China.

Officials spent six years in Shenzhen, Suzhou, Chengdu and Geoggin this year researching the project before starting pilot programs.

Like cryptocurrency, the digital yuan incorporates some elements of blockchain technology:

each transaction is recorded and traceable in a digital ledger.

This would divert some of the cash, according to the central bank’s deputy governor, Fan Yufai.

Development of a digital currency performs other functions Purpose also.

A more easily traceable yuan would allow the government to better manage the country’s monetary supply.

It also fulfills Beijing’s desire to curb the growing influence It is on the country’s financial system of private tech firms and their digital payment services.

The Chinese central bank did not clarify its reason for developing the digital currency at that time.

The existence of the program has only come to light in recent years .

the central bank has acknowledged that it realizes how fast digital technology is evolving.

Online payment services, driven by Ant Group’s Alipay and Tencent’s WeChat Pay.

have been growing rapidly over the past decade, raising concerns about whether private companies hold too much sway over digital transactions in China.

For example, in 2013, Alipay launched a money market fund called UAO Bao, or “Leftover Treasure”.

which became so popular that Chinese regulators stepped in and forced the program to reduce its size.

They were concerned about systemic risk:

if the fund failed on a large scale for some reason, it could wreak havoc on China’s economy.

“Beijing has long been concerned about digital currency monopolies by tech giants.

their impact on the financial system beyond central supervision.” 

Anthony Chan publishes Chief Asia Investment Strategist for Swiss bank UBP in a research report earlier this year.

Recent events have served to highlight those concerns.

Last month, for example, the Chinese government put a break on Ant Group’s highly anticipated initial public offerings.
when its shares were scheduled to start trading in Shanghai and Hong Kong.

That decision confirmed that “no entity would be allowed too much power or control over a market without approval or cooperation with the government.” 

James Gillingham is the CEO and co-founder of Singapore-based crypto brokerage firm FinExflow.

The ‘last piece of surveillance state’

China is also worried about being taken out of the country, According to Gillingham.

The Chinese Communist Party has long believed that it is best to maintain a large amount of control over its economic.

financial, and social order in order to maintain stability and political control.

has blamed policies that the country has recently Protects from major financial crises in Asia. world.

“Officials suddenly learn about the challenges posed by monetary outflows,” Gillingham said.

“The introduction of digital yuan will allow them to implement better levels of capital control.”

The money left China at a record clip through unauthorized channels last year.
as the country struggled with an economic crisis and a trade war with the United States.

Professor Zhi of the University of South Carolina called the digital currency the “final piece” of the surveillance state.

China wants to weaponize its currency

China already uses a wide range of technology, including facial recognition and cameras.

to collect large amounts of information on its citizens.

The People’s Bank of China says its digital yuan has “controllable anonymity”.

In other words, while a party involved in the transaction may not know each other.

the general public, their personal information is still known to the central bank.

The Central Bank’s digital currencies are “unlikely to have the same degree of anonymity as cash,” wrote Andrew Tilton.

He said that a key feature of this type of funds is that central banks can “directly monitor their use.”

The Chinese digital currency is not the only one that will be forced to face the issue.

that its digital euro-supporting infrastructure must be “ultimately controlled” by the institution.
with an option that “all transactions” are “recorded in the central bank’s books.”

Christine LeGarde, president of the ECB, however said .

this week that she does not want Europe to be “too fast”, and pointed out that protecting user privacy is important.

More ambitious plans, but challenges ahead

The creation of the digital currency may also help China wants to weaponize its currency.

reduce other economic risks, particularly as tensions continue with the United States.

If the US government were to prohibit Chinese banks on the SWIFT .

messaging service that moves money around the global banking system.

individuals and companies could use the digital yuan in cross-border transactions, according to UBP’s Chan.

However, analysts say it will take a long time to fully realize Beijing’s biggest ambitions.

According to Bank for International Settlements, an international financial institution.

the yuan accounts for more than 4% of international transactions.

The US dollar comprises 88%.

“China is nowhere close to using people Internationally, ”said Scott Kennedy, senior adviser .

It is also unclear whether Chinese consumers will actually flock to Digital Yuan in the first place.

 

According to estimates published by the China Internet Network Information Center.

more than 800 million people, or 86% of mobile Internet users in China.

already use mobile payment services such as Alipay and WeChat Pay.

 

While not entirely the same as digital currency.

which will be fully guaranteed by the central bank – such programs offer the same level of convenience.

The loss of confidentiality surrounding the transaction probably does not help the government’s case.

Xie said that people may hesitate to use the currency, especially for large transactions or for assets they want to transfer overseas.

“Ordinary people can be alert as China wants to weaponize its currency ” He added.

“They risk losing more privacy while not gaining additional convenience.”