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How Worried Should We Be About China’s CBDC Plans?

Last Updated January 6, 2024 1:12 PM
Josh Adams
Last Updated January 6, 2024 1:12 PM

, Key Takeaways

  • China first announced plans to develop its own digital currency in 2014.
  • Ten years later and it is little closer to nationwide adoption of its e-CNY or “digital yuan”.
  • That hasn’t stopped critics calling the central bank digital currency a “disaster for privacy”.

Imagine if your government could track every single purchase you make in real-time, see exactly where you are at all hours, and shut down your access to financial services for political dissent. 

This Orwellian scenario is what critics warn China’s trailblazing digital currency could enable. Touted to respect privacy, the true risks of the country’s Central Bank Digital Currency (CBDC) may be far more sinister.

China Started Its CBDC Project Early

China has outpaced almost all rivals in developing a CBDC, having researched digital currency technology since 2014 in response to Facebook’s now-defunct Libra currency . The “e-CNY” is essentially a digital version of China’s official renminbi currency fully controlled by the People’s Bank of China (PBOC). 

Trials have tested using the e-CNY for payments across the country, but so-far adoption remains low. Although, there are no official statistics. Officials claimed  back in 2022 that anonymity protections are built into its design. Accounts can be created with just a phone number and have daily spending caps limiting traceability.

However, many experts argue all digital currencies allow unprecedented government surveillance compared to paper money. An integrated e-CNY system would give authorities immense power to track incomes, transactions, locations and payments of all users in real-time. 

Big Brother Watch has called them a “disaster for privacy” , and that’s without considering the poor privacy track record of the Chinese state.

Without oversight, massive databases of personal information could be weaponized against dissidents and marginalized groups. While the Chinese public has largely surrendered the use of physical currency by using mobile apps such as WeChat and Alipay, direct state control of payments through a CBDC represents a perilous accumulation of control and data vulnerable to abuse.

Can the Digital Yuan Be Trusted?

According to PBOC chief Mu Changchun , reasonable anonymity ensures the e-CNY “prevents illegal activities including money laundering, terrorist financing and tax evasion while maintaining financial security.” 

Yet human rights advocates consider any promises that users privacy will be protected as dubious. After all, the Chinese government is one of the most authoritarian in the world , with limited freedom of religion, speech, movement and association. Critics often ask: why would it stop at your wallet?

Unlike liberal democracies, China’s unaccountable institutions must simply be trusted to impartially enforce promised anonymity protections and access controls in its CBDC system. For dissidents and, especially, for minorities, that trust is on shaky ground. Without democratic checks on central bank power, critics fear endemic abuse of the vast payment data the digital yuan may gather on citizens.

Through Project mBridge —an experiment to link different CBDCs—the PBOC has trialed cross-border wholesale payments using the e-CNY system. While the digital yuan itself remains years from challenging the US dollar’s dominance in global finance, experts see this as long-term groundwork to align international trade architecture with Chinese interests and values.

The e-CNY May Never Prove Popular

The government claims it has no intention to supplant the ubiquitous mobile payment apps WeChat and Alipay. These services have already made cash obsolete for many vendors in China’s big cities. With in-person transactions fading into memory for most citizens, many question why people would opt to use the e-CNY over the established digital convenience of existing platforms. 

Critics contend that, rather than modernizing payments or boosting financial inclusion, the primary motives behind China’s central bank digital currency are increased state control and greater centralization of the payment system under authorities in Beijing. Although advocates for CBDCs say there are more benign benefits, including an end to all financial crises.

Adoption of Nigeria's CBDC.
Source: International Monetary Fund (IMF)

However, if other countries provide a clue, China’s CBDC project may not prove popular, at least in the medium term. One year after Nigeria launched its own CBDC, the e-Naira, uptake has been minimal, with the IMF calling it “disappointingly low” . So far, there is little evidence that other attempts will have more success.

For now, skepticism is warranted around claims of privacy preservation in China’s digital currency experiments. Unfettered use of an integrated payment system offers authoritarian states unprecedented abilities for financial and social control. As one of the world’s first major CBDC operators, the Chinese state may soon have unparalleled powers to monitor citizens’ lives and punish deviation from party doctrine. 


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