The Blockchain maelstrom has taken over China’s Central Bank as well! Recently, news emerged that China will be testing out a new “Digital Yuan” through its own app in the eastern city of Suzhou. Every household was given a certain amount to spend at the local stores with the intentions of testing the app & the Blockchain technology. The payments were facilitated by QR codes, just like AliPay or WeChat Pay (the dominant players in the Chinese market). The only difference was that this time the third party i.e. payment apps were removed from the equation & the central bank itself facilitated the payment. People’s Bank of China has developed a hybrid “centralized” Blockchain for this initiative
The transition for China to such a digital currency would be seamless! This is due to the fact that 86% of the people in China used a mobile phone to make a payment in 2019 which is way above the global average of 34%. This can be attributed to China skipping the “Plastic Revolution” in payment (denoting the usage of debit & credit cards) and directly using mobile payment systems unlike the west. However, this move would prove to be a death knell to fintech giants Ant Financials & Tencent.
This move would help China in monitoring macro trends in the economy & having accurate data on the money supply. It would be able to do a sectoral analysis of the economy & pump money in poorly performing ones. Such insights can truly help China in taking the next step in public policy & economic planning. It would also improve the efficiency of tax collection as the government would have a record of all the transactions making tax evasion a pipe dream. Criminal activities would be harder to execute Another major advantage would be the ease in disbursement of DBT (Direct Benefit Transfer) which has emerged as a very effective economic tool recently.
However, this move has raised red flags about user privacy. The Communist Government would have uninhibited access to all the personal transactions of an individual. Rumors are swirling that China plans to launch a social system in the near future where people would be divided in classes on the basis of “social behavior” (read deference towards the CCP). Obviously, the digital Yuan would have a big role in this dystopian scheme as monitoring would be very easy. It remains to be seen how the people of China react to these developments.
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