Since 2014, China’s central bank has been examining the potential for a digital yuan. To date, however, the bank has not launched one, and it warned yesterday (Nov. 13), reports to the contrary are inaccurate and potentially fraudulent.
“The People’s Bank of China [PBOC] has not issued legal digital currency and has not authorized any asset trading platform to conduct transactions,” the central bank wrote, according to a translation by the crypto publication The Block. It added, the digital yuan is “still in the process of research and testing.”
For market watchers, the bank’s announcement may come as a relief. It was rumored, according to Forbes, that the PBOC could unveil the currency on Singles’ Day (Nov. 11), a massive Chinese shopping festival. This year, the one-day event hosted by Alibaba garnered more than $38 billion in sales. The digital yuan, though, was conspicuously absent.
It’s difficult to say if—or when—the PBOC might unveil an electronic payments system. A natural target could be Chinese New Year on Jan. 25, 2020. At this stage, however, any guess at the central bank’s timeline is mere conjecture. In September, PBOC governor Yi Gang said there was no timetable for the digital yuan’s introduction.
There are also many hurdles to clear for a central bank digital currency (CBDC), Chinese or otherwise, from privacy issues and monetary policy (see: negative interest rates) to anti-money laundering provisions. As Quartz previously reported, the US Federal Reserve has raised additional concerns about cybersecurity and how CBDCs might affect the relationships between retail banks and consumers. Rather than use banks like Chase or Wells Fargo, in theory, customers might be able to hold their savings at a central bank. If that were to happen, the Fed could find itself in the position of approving loans or originating mortgages, activities far outside its mandate.
Despite the many potential obstacles, over the last year, the PBOC has reportedly recruited cryptography experts for its Digital Currency Research Institute and information about private partners has trickled out. In October, Bloomberg reported that Ant Financial (owner of Alipay) had interfaced with the Chinese central bank about the digital yuan project.
And earlier this month, Reuters provided insight into the currency’s potential framework, explaining it could give Beijing “unprecedented oversight over money flows.” The magnifying glass into the broader Chinese economy would be unlike the tools available to any other central bank.
Understandably, that has stoked fears among leading economists. This week, Kenneth Rogoff, a professor of economics and public policy at Harvard, penned an op-ed on “The High Stakes of the Coming Digital Currency War.” He writes, “When China announces its new digital currency, it will almost surely be ‘permissioned.'” Envisioning a privately managed system, he says, “A central clearinghouse will in principle allow the Chinese government to see anything and everything. But the US will not.”
Others have echoed Rogoff’s concerns. “There’s a consensus around the world among central bank governors and governments at large that they [the PBOC] want[s] to have control of money and money supply and the seigniorage that comes along with it,” Keyu Jin, a professor at the London School of Economics, told Reuters.
Ultimately, what matters here is control. Who has it—and especially who doesn’t. Doubts about a digital yuan have a sinophobic undercurrent and they may prove unjustified. But a fully digital yuan evokes fears about China’s social credit system and how the Communist Party of China uses technical and social structures to maintain its power. As a result, even if the odds of a Chinese CBDC seem low in the near term, the potential ramifications are so expansive that the rest of the world must approach the initiative with the utmost care.
Read this: Why China’s rushing to mint its own digital currency (Bloomberg)
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Please send news, tips, and number lines to firstname.lastname@example.org. Today’s Private Key was written by Matthew De Silva and edited by Mike Murphy. Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.