Ex-PBOC Official: China’s Digital Yuan’s Establishment Isn’t for Spying

A former central bank official stated on Sunday that tracking the payments of citizens was never China’s motivation for developing a sovereign digital currency. China is dominating the world in developing a national digital currency, a project it has been working on since 2014.

The People’s Bank of China (PBOC) has been cutting edge on the digital yuan, a so-called central bank digital currency (CBDC) that targets to replace some cash in circulation.

According to data from Singapore bank DBS, the digital yuan is now the sixth most used currency in international payments and is used to settle about 20% of China’s trade.

Yuan share in global reserves has also risen — from 1% in 2016 to about 2%, data from the International Monetary Fund shows.

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The U.S. dollar is still the world’s reserve currency by a massive margin. According to an IMF study. Around 50% of international trade contracts are still quoted in the U.S. dollar, despite the country accounting for only about 12% of global trade.

Countering Effects of Private Payment Platforms

China has already given away millions of dollars worth of digital currency in real-world trials in several cities, including Shenzhen, Chengdu, and Suzhou.

Yao Qian, former director of the digital currency institute at the People’s Bank of China, during a panel at the International Finance Forum in Beijing, said that China started developing the digital yuan to deal with the impact of private payment platforms becoming increasingly popular.

Yao’s comments were negating to Federal Reserve Chair Jerome Powell, who said last month that digital currencies such as China’s would not work in the U.S. Powell stated that the currency would allow the government to “see every payment that’s used” in real-time.

Legitimate Fiat money

Yao said that assisting the government to identify all transactions in real-time was not the objective of the Chinese central bank. Qian added that central banks must innovate the legal fiat money in the face of the tides of digitalization.

According to Boris Schlossberg, managing director of FX Strategy for BK Asset Management, the digital yuan is programmable and trackable, giving the Chinese government enormous control over the economy. Chinese policymakers will know every consumer choice made in the economy, and they could also directly affect spending behavior by making the currency expirable.

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 BNP Paribas’ China business CEO says that as China promotes its digital currency, it also brings uncertainties through the process.