Will the digital yuan become a surveillance tool?
Today, we are most likely seeing the transition from fiat to digital currency. China is one of the most forward-thinking nations in the transformation. Although the aim appears to adapt to the digital world at first glance, others believe President Xi Jinping and his team will use digitalized money to monitor society more closely.
This allegation is based on the fact that digital currency is easier for the government to track than fiat currency. If the state that provides the digital money wants to, it can monitor all people's actions. Consider the possibilities that your information, from your shopping habits to your political beliefs, will provide to the person in charge. The fact that such a technology would arise in an authoritarian regime like China is alarming. These worries, however, are not restricted to China. Because we have no means of knowing if democratic countries would continue to pursue ways of social surveillance in the future, although this is not the topic of the article, it would be unjust to deal with China's criticisms on its own.
Is the digital yuan a step toward technological revolution or a vital element of the government's mass surveillance plan? To answer this question, we must evaluate the problem from many perspectives.
Could the digital yuan become the global reserve currency?
There have been some people who have heard the news. However, in recent months, Federal Reserve Chairman Jerome Powell stated that they are not in a rush to adopt the digital currencies, saying, "The dollar is not losing any of its global reserve power." FED and the ECB work on the central bank's digital currencies (CDBC). China, on the other hand, is taking more concrete moves. For example, is China's aim to eliminate the dollar's reserve currency status? Is it possible for the yuan to become a worldwide reserve currency if it is digitized?
Yuan being the world's reserve currency, is unlikely to happen shortly. On the other hand, the digital yuan will contain features that will improve China's efficacy in the international economic system. For example, an alternative to SWIFT can partially avoid possible financial sanctions by the United States. This entails the development of new transfer routes as well as the digitization of existing international transfers. However, the possibilities I've described aren't enough to make the digital yuan the world's reserve currency.
Renminbi (yuan) trades account for only 2% of all international SWIFT transactions today. Therefore, it is impossible to compare it to Dollars or Euros in terms of the percentage of transfers it receives. Furthermore, a currency can only be approved and used as a worldwide reserve if specific conditions are met. For example, an independent central bank and solid and functional institutions are required. In addition, the states must implement the rule of law and the checks and balances principle. For other countries, these values reflect the presence of trust and stability.
On the other hand, China has policies that are in direct opposition to these elements and has yet to change this impression. As the world's reserve currency, who can ensure that China will not interfere in the free market? Other countries will not adopt the digital yuan until they have faith in China's policies.
Why is the Chinese government prohibiting the use of cryptocurrencies and digital payment systems?
China has become one of the leading countries in terms of both cryptocurrency mining and cryptocurrency exchanges. Chinese entrepreneurs signed billions of dollars initiatives worth in digital payment systems. However, several recent reports do not match these developments. The Chinese government prohibits cryptocurrency transactions. New generation startups are either blocked or forced to close for some reason. While adapting to technology with the digital yuan, why are cryptocurrencies that hold the same ecosystem banned? Why are attempts at digital payment systems blocked?
Let's begin with the essential inquiry. Digital currencies are more accessible to track than cryptocurrencies. The moves to exclude cryptocurrencies seem logical if China wants to build a system where the government follows all transactions because a citizen who uses an alternate money transmission mechanism is not on the government's radar.
For digital payment service providers, the scenario is nearly the same. Even though ANT Group and Tencent are the two most prominent companies in China's financial sector, the government has stopped its operations. Isn't it ironic that fintech businesses are hindered if the goal is to digitalize the economic system? The number of registered users of ANT Group and Tencent's digital payment systems has surpassed 900 million in China and 1.9 billion worldwide. The fact that billions of individuals use these technologies daily makes this surveillance system vulnerable.
Can the baojia system shed some light on the concerns about the digital yuan?
It would not be inaccurate to remark that the Chinese's move from fiat to digital currency is an example of history repeating itself. Jiaozi, the first example of fiat currency in history and used by the Song Dynasty, was born in the same land. The Jiaozi has come to symbolize the fiat-to-commodity currency shift. China, whose forefathers invented paper money in the 10th century, is at the forefront of digital money development today.
This is not the only thing I want to say about the dynasty. We know that ancient Chinese regimes valued social surveillance just as much as they do today. So much so that Baojia, a classic monitoring system, has its roots in the same period.
When the reign grew too huge to be controlled by Beijing in the 10th, and 11th centuries, the baojia system arose. This method works as follows: spies in every corner of society, spying on the people, but from inside people. Of course, these spies inform the center about what is going on among the population.
Other Chinese emperors that came after the Song Dynasty used strategies based on this system to keep society under surveillance. In this way, the leaders were able to put down Communist outbreaks before they even began. On the historical stage of China's surveillance enthusiasm, Baojia were the first seeds planted.
China's (P.R.C.) identical policies have sparked international debate. One of the most recent examples of such tactics is Hong Kong's security law. As a result, it's conceivable to conclude that the Chinese management mentality still harbors surveillance genes that date back thousands of years. What used to be done with spies is now being done with computers, cameras, and software. In this regard, the digital yuan risks becoming a structure integrated into the existing monitoring system, possibly even becoming the surveillance system's central component.