- China’s CBDC is readying for nationwide retail adoption.
- Several hurdles still exist in achieving digital yuan retail adoption across the country.
- Critics are concerned about expanded state surveillance and the potential for financial tyranny.
The rollout of central bank digital currencies (CBDCs) is gaining steam globally as nations push to capitalize on their potential benefits, including more targeted monetary policies and lower transaction costs.
Among major world economies, China appears furthest along in this race – more so now following a recent push by the People’s Bank of China to expand digital yuan adoption across all retail payment scenarios nationwide.
China Pushes for Digital Yuan Retail Adoption
On September 3, the Director of Digital Currency Research at the People’s Bank of China, Mu Changchun, told attendees at the 2023 China International Financial Annual Forum that “it is necessary” to adopt the digital yuan for all retail transactions.
In selling the concept, the director spoke of the digital yuan incorporating “the latest network and mobile payment technology” while claiming the CBDC featured “property rights characteristics and anonymous functions of cash,” portability, and user-friendliness.
Nonetheless, Mu conceded that several hurdles prevent the central bank from accomplishing its nationwide retail adoption goal. These include:
- Existing payment providers completing “compliance awareness.”
- Payment providers obtaining appropriate licensing.
- Upgrading retail point-of-sale equipment nationwide.
The digital yuan kicked off its pilot program in Shenzhen in October 2020. This was expanded province-wide by September 2022, with Guangdong, Hebei, Jiangsu, and Sichuan the first provinces to participate. The pilot program awarded participants “red envelopes” of digital currency spendable in local retail outlets.
The CBDC program hit a landmark 1.8 trillion yuan (US$249 billion) in transactions in June, but despite the uptake, the digital yuan still faces ongoing criticisms of expanding government surveillance.
CBDC Combined with Social Credit
CBDC critics raise concerns about the possibility of escalating state control and financial surveillance under a digital yuan.
Chief Strategy Officer at the Human Rights Foundation Alex Gladstein warned that this scenario is particularly chilling when incorporated with a social credit system. Gladstein explained that combining financial control with enforcing state-approved behavior would likely force individuals to self-censor over the threat of being financially locked out.
“The end of cash and the insta‐analysis of financial transactions enable surveillance, state control, and, eventually, social engineering on a scale never thought possible,” Gladstein said.
Research conducted by international employment firm Horizons noted that having a low social credit score can prevent individuals from traveling, gaining employment, accessing credit and negatively impact one’s “ability to enter contracts.”
As an evolving system with regional variations on acceptable and unacceptable behavior, Horizons said it is difficult to pinpoint the consequences of a low social credit score.
Nonetheless, according to Horizons, trivial actions such as jaywalking, walking a dog without a leash, and cheating in video games have resulted in individuals losing social points.
On the Flipside
- China experienced an estimated $300 billion in capital flight since 2021. Financial surveillance will likely increase financial outflows before “it’s too late.”
- The US dollar’s entrenched 90% global trade dominance represents a stiff challenge for competitors to overcome.
Why This Matters
China’s development of the digital yuan has reached an advanced stage, and domestic rollout appears imminent regardless of expanded state surveillance concerns.
Find out how the Australian CBDC project is faring here:
Learn more about the latest allegations levied at Worldcoin from the Kenyan government here: