Economic growth returned, but Iran’s external purchasing power was significantly reduced. As unlikely as similar U.S. moves against China remain, it is not surprising China wants to insure itself by reducing its reliance on the dollar. (2023, 11 January), China’s central bank includes digital yuan in report on currency circulation, Coin Telegraph. While the internationalization of RMB through e-CNY is unlikely, the concern over the dollar’s potential future seems to be stemming from the use of other modes of settlement created by China.
In 2002, under the supervision of the People’s Bank of China, a card network, China UnionPay was launched (Union Pay International, n.d.). Over the last twenty years, it has been able to create networks into over 100 countries, and partnered with companies such as BNP Paribas, PayPal and Discover to become the third largest card network in the world. In the late 2000s, China was also the first successful playground of mobile wallet applications such as AliPay and TenPay/WePay that converted a mostly cash-dependent society into a largely digital payments based one (Chorzempa, 2022). Together, they now cover more than 90% of China and have over one billion customers, including ones abroad.
Brazil planned to launch a digital real this year but has pushed back its rollout to 2024. The European Central Bank is studying whether to roll out a digital euro, and US president Biden and some members of Congress have called for research into developing a digital version of the dollar. The People’s Bank of China reported that its official eCNY app had 261 million users at the end of 2021, and that by August 31 more than 100 billion yuan (about $14 billion) had changed hands across 360 million transactions. Those numbers are modest compared to the size of China’s population and economy, but they are expected to grow after a recent expansion of digital yuan trials in China from about two dozen cities to four entire provinces.
The e-CNY is not necessarily the primary method by which China might evade sanctions, but it is another arrow in the quiver for China’s goal of internationalizing the renminbi. Should the digital RMB be broadly adopted, Beijing will exercise unprecedented financial insight and real-time monetary and economic oversight. This will no doubt benefit fiscal policy, tax collection, and fighting fraud – but also subject citizens to potentially menacing digital social governance.
“China is clearly the leader globally in terms of how far along they are, how many people are using it, and most importantly, the size of the country,” says Jeremy Mark, a senior fellow at the Atlantic Council. The think tank’s Central Bank Digital Currency Tracker lists 105 countries exploring a central bank digital currency, but only 26 are in pilot programs or fully launched. One of the most immediate and visible impacts of the ban was the exodus of cryptocurrency mining operations from China. China’s dominance in Bitcoin mining, which had persisted for nearly a decade, abruptly ended.
However, American firms that operate in China are already being pressured to use or accept e-CNY. (2020, 11 February), Mastercard given approval to prepare for entry into China’s payments market, Tech Crunch. If Washington is serious about protecting privacy and promoting human rights, it should seize the initiative from China by upholding these standards for everyone who uses U.S. technology, domestically and around the world. Washington and its allies should think ambitiously about how technology can reinvigorate democracies. For instance, they might invest in developing digital public squares—forums for public interaction and collaboration outside big tech’s social media platforms, which sow division and enable disinformation in pursuit of profits.
Otherwise, you should assume that if you’re using the e-CNY, your data will be stored by the People’s Bank of China. And if China’s Communist Party, acting through state security agencies, were to demand data from the People’s Bank of China, the PBOC would be required to comply. A sense that the popularisation of the digital renminbi could come at the expense of Alipay and WeChat Pay is reinforced by Beijing’s messaging through state media coverage.
The drastic shift in China’s cryptocurrency regulation from initial tolerance to complete prohibition was driven by a complex interplay of factors. These motivations can be broadly categorized into concerns about financial risk, capital control, energy consumption, and the pursuit of a centrally controlled digital currency. Prior to 2017, China hosted some of the world’s largest Bitcoin exchanges, such as BTCChina, Huobi, and OKCoin. These exchanges facilitated substantial trading volumes and contributed to China’s prominence in the global cryptocurrency market.
The announcement mandated an immediate halt to all ICO activities and required platforms that had already completed ICOs to arrange for refunds to investors. This effectively banned ICOs in China, cutting off a significant avenue for cryptocurrency fundraising and project development within the country. Furthermore, the 2013 Notice placed restrictions on financial institutions, prohibiting them from engaging in Bitcoin-related businesses.
