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A sign for the digital yuan is seen on a vending machine at a subway station in Shanghai on April 21. Photo: Reuters
As countries experiment with central bank digital currencies (CBDCs), China is the only large economy with an actively deployed CBDC: the digital yuan, or e-CNY.
China’s central bank recently announced that the e-CNY will no longer be limited to Chinese people or domestic businesses but can be used by foreigners in China, particularly at the upcoming Beijing Winter Olympics.

China will also explore the applicability of the e-CNY in cross-border transactions, so it may spread globally.

Non-Chinese individuals and businesses need to decide what role, if any, the digital yuan will play for them. As China and other governments across the world adopt CBDCs, individuals should demand transparency on how they work, technically and legally.

First, what’s the point? How is a CBDC different or more valuable than existing forms of money (much of which is already digital anyway)? Is it all that different from money in a current account or payment platform?

CBDCs, like cash, are direct central bank liabilities, rather than commercial bank liabilities. Central banks can always print money so they would not fail in the same way a commercial bank or payment platform could. So CBDCs might arguably be a safer form of payment and currency.

Since the digital yuan serves as legal tender, some might prefer to use it rather than Alipay or WeChat Pay. A potential e-CNY feature is “smart” or programmable money, such as digital currency that can disappear after a certain period of time, to encourage consumption.

However, it’s puzzling what else “programmable” money could involve and why we need it. Specifics matter; as central banks develop digital currencies, they should be as clear as possible about what exactly they will or should be doing.

Second, are you comfortable having China’s central bank clearing, and thus monitoring, these transactions? The quantity or type of information that the central government can collect about these transactions remains unclear.

While China’s central bank says the e-CNY system collects less transaction information than traditional electronic payments, it’s not clear how, because theoretically, China’s central bank manages a central ledger that records all e-CNY transactions.

Unless protections are put in place, this allows government access to your transactions. It’s also not clear how the design of “managed anonymity”, meaning “anonymity for small value [transactions] and traceable for high value [transactions]”, can protect individuals’ information security and privacy.

Small and medium-sized cash transactions are the only truly anonymous payment forms today. Any existing digital payment infrastructure, via mobile phone, credit card or debit card, involves private entities collecting information about you and your transactions, and sharing that information with governments under legally specified circumstances.

How close is China to launching its digital currency?

Third, how could CBDCs affect our practical rights in accessing and using our money? In the United States, there are laws governing who banks can deny their services to and under what circumstances. If all digital money is handled directly by central banks, what laws prevent the government from denying us access to our money?

The answer varies by jurisdiction. With the digital yuan, it is not clear that China’s central bank cannot freeze any individual’s access to their money, directly or through intermediaries such as commercial banks or mobile payment platforms, for any reason whatsoever.

Lastly, what are the geopolitical implications? There are concerns that China intends to use the digital yuan to replace the US dollar as the world’s reserve currency, and increase its financial leverage over other countries. This view is likely to have overestimated the e-CNY’s potential.

The main strengths of the dollar and weaknesses of the yuan respectively are more institutional than technological. China would need to promote market-oriented reforms, develop well-regulated financial markets, welcome foreign investments, eliminate capital controls and much more.

However, widespread digital yuan adoption could increase China’s geopolitical clout. China could have the leverage to convince countries, especially those with closer economic ties but less bargaining power, to use e-CNY for frictionless payments.

The expansion of other CBDCs could similarly bring more international transactions closer to the state power of central banks. This is something users should consider.

China is making headway in deploying its digital currency. Others, including the US, might follow suit.

However, the rise of CBDCs should not be seen as inevitable. Individuals have the right and responsibility to question what they are really for, what good they can really do, and how they can and should compete with existing payment options.

Karman Lucero is a Fellow at Paul Tsai China Centre at Yale Law School. Jiaying Jiang is a Hauser Global Fellow at New York University School of Law

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