Why China Rushes to Roll Out Digital Currency

A man uses his phone as he walks past ATM machines for bitcoin in Hong Kong on Dec. 18, 2017. (Anthony Wallace/AFP via Getty Images)

Commentary

In April, the Chinese regime announced that it would launch a digital currency pilot program. In early August, China’s four major banks—Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China—expanded digital currency testing in first-tier cities, such as Shenzhen.

By mid-August, the Chinese Communist Party (CCP) suddenly accelerated its pace and planned to quickly promote the program nationwide.

Zhou Xiaochuan, former governor of the People’s Bank of China (2002–2018), said in 2016 that China planned to replace paper currency with digital currency in 10 years. Only a few years have passed, and the CCP hastily launched the digital currency program, way ahead of its original schedule. Apparently, China’s political crisis, economic deterioration, and the CCP’s increasing survival crisis have collectively led to the hasty, earlier-than-scheduled implementation of the plan.

What is the digital currency launched by the CCP all about? It’s an electronic currency used to replace paper money. The digital currency issued by the Central Bank of China is different from the virtual currency in the virtual world; it isn’t anonymous and decentralized accounting. It’s strictly controlled by the Chinese communist government. It isn’t a real cryptocurrency, because its encryption is at the level of users and merchants at most, not the regime and its state-owned banks.

China’s digital yuan is named “digital currency (DC)” or “electronic payment (EP),” and the Central Bank of China is still the issuer of currency. User registrations require real names. At least for the time being, digital yuan and paper yuan are equivalent, and the two are freely exchangeable. The real-name digital currency doesn’t have the characteristics of international encrypted currency, nor does it have the characteristics of true anonymity and security.

Mu Changchun, director of the People’s Bank of China’s digital currency research institute, revealed that as long as people have the DC/EP digital wallets on their mobile phones, transferring funds can be as simple as tapping two phones. They don’t even need the internet. In other words, China’s digital currency doesn’t require internet access, and users can use Bluetooth-like near-field communication (NFC) to complete the payment. This is completely different from Bitcoin and other encrypted digital currencies that are based on blockchain technology. Its confidentiality features are different. It isn’t a decentralized accounting, and much less an anonymous payment.

China’s so-called digital currency is actually a long-established electronic currency, plus the central bank’s gradual removal of paper currency, as simple as that. Many Chinese people have become accustomed to using mobile payment. It has become extremely popular in today’s China, as most transactions and settlements are already in electronic form. But there are still many people who are willing to use paper money because they can trade without revealing their identities or whereabouts. For the CCP’s corrupt and high-ranking officials, paper currencies can be hidden in secret places, whereas using digital currency will expose all their illegal assets.

Winners, Losers of China’s Digital Currency

According to the Chinese-edition BBC, an official of the People’s Bank of China said, “The legal digital currency will replace the total cash in circulation (M0).” Chinese authorities are also asking for digital currency to “replace all currencies” and “realize the reform of the currency operating system.”

The Central Bank of China and state-owned banks are the biggest winners of the digitalization of currencies. They no longer need to print, escort, and store paper currencies. Bank tellers no longer need money counters, and don’t need to count the remaining cash at the end of the day. There is also no need for a bank vault, except for storing gold and jewelry. Chinese e-commerce companies are among the first to cooperate with the government to accept digital currency, and they will also benefit from the program.

The biggest loser is the ordinary Chinese people. As almost everyone in China is already using mobile payment nowadays, switching to digital currencies will not bring more convenience, but will deprive more privacy and rights instead.

The Central Bank of China claims that digital currencies are decentralized and untraceable. This is an outright lie. The Chinese authorities are able to track the transactions all the way, as it is highly centralized and tightly controlled by the government.

The central bank also claimed that “payment data will be anonymous.” In fact, that isn’t the case. The government and banks can easily check the data at any time.

When the CCP formally issues digital currency, will they take back equal values of paper money? If not, it’s the same as printing money without any cost! If paper money is to be collected by Chinese banks in exchange for digital currency, are there going to be any quota as restrictions? When North Korea issued a new currency a few years ago, there was a quota. Many people suffered huge losses from this restriction.

If the same situation occurs in China, corrupt CCP officials will cry, but what they lose is just their illegal and bribery gains; Chinese people will cry because all their hard-earned money will be wiped out by the CCP.

In principle, the yuan digital currency can be used for gold and foreign exchange just like paper currency. However, Chen Sijin, a consultant for the CCTV documentary “Wall Street,” said on Weibo that the head of the central bank’s monetary policy department had made it clear that the yuan digital currency can’t be exchanged for gold and foreign exchange! Has everyone got the message? No wonder that some Chinese netizens say the yuan digital currency is just an electronic food stamp.

Why Did CCP Launch Digital Currency?

One of the reasons may be that it worries about the “Libra” digital currency plan promoted by American technology giants, such as Facebook, and cross-border digital currencies in other Western countries, and even non-government Bitcoin. Therefore, the CCP has a sense of crisis and feels that it needs to take preemptive actions.

China’s state-owned banks recently forcibly acquired private enterprises, such as Jack Ma’s Alipay and Tencent’s WeChat Pay. Apparently, the regime is on its way to play a monopoly role in China’s digital payment through such integration and seizures.

The transaction scale of third-party mobile payment in China is as high as 50 trillion yuan ($7.23 trillion), with Alipay and Tenpay accounting for 55 percent and 39 percent, respectively. China’s state-owned banks have been absolutely unwilling to face the acceptance pressure of Alipay and Tenpay for a long time. With the digitization of the yuan, they will no longer have this worry. Bank runs have occurred in various regions in China from time to time in recent years. After the issuance of digital currency, the CCP’s burden from small banks running into bank runs will be eased off.

A survey conducted by the Bank for International Settlements (BIS) in 2019 showed that most central banks have sovereign digital currency projects. The “LBCoin” digital currency issued by the European Union country Lithuania in July is the world’s first digital currency issued by the central bank of a sovereign state, but it is only a trial and it is a hybrid currency system, which consists of digital tokens and physical silver coins, mainly used for collection.

The U.S. government has made it clear that the Fed “does not need to issue digital currencies” and that the Fed is only studying the “possibility” of U.S. digital currencies. Japan, on the other hand, hopes the U.S. Federal Reserve will cooperate with the Bank of Japan and six other central banks to jointly study digital currencies. Moreover, Japan’s plan is that if the new digital currency of the G-7 countries is successfully launched, it definitely will not have a place for the CCP’s digital currency.

Why Rush to Launch Digital Currency?

The CCP’s hasty manner when launching its digital currency is actually inconsistent with its usual behavior. The CCP has never been a leader or pioneer researcher in economics and finance, because it dares not take the risk in these fields.

When the CCP promotes digital currency, the risks are extremely high, to the point of being simply astonishing. For example, once the digital currency completely replaces paper money, if any enemy of the CCP is determined to launch a war and attack Bank of China’s computer system using electromagnetic explosion (EMP) technology, it may wipe out all digital currencies’ history of issuance, transactions, transfers, and payments in one fell swoop. Even their backup electromagnetic records, such as the records on backup hosts, disks, and drums, will be erased, because they are all electromagnetic data, and the CCP can’t make a hard copy as a backup, or any other non-electromagnetic method.

How can it be possible that the CCP prints the backup data on paper and uses perforated records? That isn’t feasible at all, because the amount of data is too large, a hard copy is neither economical nor efficient, and it’s difficult to restore.

I pointed out in the article “The Four Major Conspiracies Behind the CCP’s Blockchain Ambition,” published in November 2019, that if there is a country with a super-state-of-art computer system, faster and stronger than all other countries, such as the use of quantum computers and more advanced networks, it’s also possible to forget the digital currency developed by the CCP in the 3G-4G system and encryption system, and use a condescending posture, just like the way the U.S. Army’s fifth-generation stealth fighters attacked Australian natives holding spinners, to crack the CCP’s encryption and destroy the CCP’s digital currency. The United States has already mastered such technology.

When advertising its digital currency program, the CCP claims that it will help China “break the U.S. financial blockade, and it is a milestone in the internationalization of the yuan.” That is simply a dreamer’s wishful thinking.

If the United States really starts the financial blockade, it will make little difference whether the yuan is a paper currency or a digital currency. What’s important is that the value of the yuan would take a nosedive. Moreover, after the digitization of the yuan, the CCP will tighten its control and it will be easier for the CCP to manipulate the exchange rate. It will be even more difficult for other countries to accept it. Therefore, the CCP will achieve the opposite result instead—making the internationalization of the yuan more difficult.

There is also a viewpoint that counterfeit currency won’t be an issue when digital currency is in use. That isn’t the case either. Once the CCP’s system is hacked into, fake digital yuan will still circulate. Others say that if China establishes digital currency, it can “get rid of the restrictions and sanctions of the U.S. dollar, because it can clear international trade without going through the SWIFT system.” This is even more fanciful. The CCP’s digital currency system can’t be connected to SWIFT because the transaction is not in U.S. dollars. How can you get rid of the enemy’s sanctions if you can’t see or touch the enemy at all?

In any case, with regard to why the CCP is forcibly and rapidly launching digital currency, in my opinion, there are seven possible reasons.

1. China’s economy is in dire straits, food crises are emerging, grain purchases from Chinese peasants are insufficient, and state-regulated purchases and sales have reemerged. At this point, the supply and marketing cooperatives, the planned economy, and the “planned currency” are simply a perfect combination.
2. Digital currency can help to conceal and obliterate the evidence of the CCP’s crazy printing of money and causing artificial inflation, plundering ordinary people, and transferring their assets to corrupt officials.
3. Digital currency can digest the huge amount of funds invested in the housing market, which can cool the real estate boom.
4. Getting ready for decoupling from the U.S. dollar. When decoupling, the yuan will depreciate sharply. If cash is recovered and a large amount of cash is destroyed, it is equivalent to issuing new banknotes. The issuance of digital currency as the new currency will make the devaluation controllable.
5. Use digital currency to monitor people, control dissidents, and maintain political power.
6. The CCP has used big data, surveillance cameras, mobile payments, Party branches, neighborhood committees, etc. to build the world’s first-class and most closed “1984” national system. Together with digital currency, the CCP will complement the last element of the “police state.”
7. Compete against the new international digital currencies that may be launched by G-7 countries, such as the United States and Japan.

Frank Tian Xie, Ph.D., is a John M. Olin Palmetto professor in business and associate professor of marketing at the University of South Carolina Aiken, in Aiken, S.C.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.