China’s Changshu City is set to become the latest municipality in the country to pay civil servants’ salaries in the digital yuan, the central bank’s official digital currency. Starting in May 2023, public sector workers in the city will receive a portion of their salaries in the form of digital currency, which they can use for daily expenses such as transportation, shopping, and dining.
This move is part of the Chinese government’s ongoing efforts to promote the adoption of digital currencies and accelerate the shift towards a cashless society. The People’s Bank of China (PBOC) has been testing its digital currency, known as the digital yuan or digital renminbi (RMB), in several pilot projects across the country since 2019. The pilot programs have been successful, with millions of transactions and over $5 billion in digital yuan exchanged in 2021 alone.
While the Chinese government has touted the benefits of the digital yuan, some proponents of decentralized cryptocurrencies are concerned about the risks associated with central bank digital currencies (CBDCs) like the digital yuan. Decentralized cryptocurrencies like Bitcoin and Ethereum operate on a distributed ledger system that is secured by a network of nodes, making it difficult for any one entity to control the system. In contrast, CBDCs are centralized and controlled by the central bank, which has the power to monitor and control transactions on the network.
According to Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation, “CBDCs pose a serious threat to financial privacy and individual freedom.” In an interview with CoinDesk, Gladstein expressed concern about the Chinese government’s use of digital currencies to monitor and control its citizens, stating that “digital currencies enable the government to track and control every transaction.”
Other experts have raised concerns about the potential for CBDCs to be used as a tool for surveillance and censorship. In a recent report, the Electronic Frontier Foundation (EFF) warned that “CBDCs could facilitate unprecedented levels of government surveillance and control over financial transactions, undermining privacy and freedom of expression.” The EFF also noted that CBDCs could be used to enforce financial sanctions and restrict access to financial services for individuals and organizations that are deemed “undesirable” by the government.
Despite these concerns, the Chinese government has been aggressively promoting the adoption of digital currencies, both domestically and internationally. In addition to its pilot programs for the digital yuan, China has also launched its own blockchain-based cross-border payment system, known as the Cross-border Interbank Payment System (CIPS). The CIPS aims to provide a more efficient and secure way for Chinese companies to conduct cross-border transactions, reducing their reliance on traditional payment systems like SWIFT.
The Chinese government has also been actively promoting the adoption of digital currencies in other countries, particularly in the developing world. In 2021, the PBOC signed a memorandum of understanding with the Central Bank of Nigeria to provide technical assistance and support for the development of Nigeria’s own digital currency. China has also been providing loans and aid to other countries in exchange for their commitment to using the digital yuan for trade and investment.
Despite these efforts, some experts remain skeptical about the long-term prospects for CBDCs. “CBDCs are an attempt by governments to maintain control over the financial system,” said Peter McCormack, host of the What Bitcoin Did podcast. “But the more they try to control it, the more people will look for alternatives.”
Hence, while the Chinese government’s push for digital currencies like the digital yuan may have some benefits, such as reducing the cost and increasing the efficiency of financial transactions, it also raises serious concerns about privacy, surveillance, and control. Decentralized cryptocurrencies like Bitcoin and Ethereum offer an alternative model that prioritizes individual freedom and financial privacy, and as such, they are likely to remain popular among those who value these principles.