Digital Yuan Will Be China's Control Tool, Experts Say

The transaction history that China would maintain with its digital currency or CBDC, would allow keeping a record of national financial data, with potential use in surveillance and state control over its citizens.

Two experts consulted by Chainalysis in its most recent report on China and cryptocurrencies, indicate that the digital yuan can be an absolute surveillance tool on Chinese citizens, as well as a future threat on the hegemony of the United States dollar (USD) around the world.

Dovey Wan , investor and expert in the Asian cryptocurrency markets, and Yaya Fanusie , partner of the Center for the New American Security (CNAS, for its acronym in English), agree that China could contrast the financial information of citizens, with other data or factors to apply restrictions or authoritarian measures .

«The Communist Party of China (CCP) issued a recent warning tell Mongolian families that if they do not send their children to state schools, they will be blacklisted. The digital yuan allows the government to combine financial data with lists like these, “said Fanusie by way of example.

The expert assured that, despite being a tool that the government has stated it wants to use to fight corruption, “these financial surveillance capabilities are most likely to turn against ordinary citizens.”

By For his part, Dovey Wan assured that the digital yuan system could allow having a programmable and predictable monetary policy, as well as providing lower cost per transaction to merchants using the CBDC.

However, according to the analyst, can be used as a financial surveillance tool , and even “to exclude individuals and businesses from the financial system for having committed any infraction.”

Digital Yuan may displace the dollar in the long run

Refering to Presumed threat that the digital yuan represents for the dollar, it does not seem likely that the Chinese currency will succeed in displacing the United States in the short term, according to Fanusie.

However, he does think that the exchange between countries based on their respective CBDCs, can harm the prominence of the dollar as a common currency in international trade.

«I think they will want to make agreements with other countries to exchange CBDC currencies with each other. Think of it as a CBDC atomic swap, ”said Fanusie, referring to the method that allows different cryptocurrencies to be exchanged with each other through a common meeting point between their networks.

If the exchange of digital national currencies on the same platform, the dollar could lose space against the digital yuan .

Imagine that someone in China sends digital money to another person in Malaysia, with an automatic currency exchange that occurs in such a way that the person in Malaysia receives digital ringgits (local Malaysian currency) without any of the parties touch the opposite currency. These transactions would not be based on the SWIFT system. If this becomes the norm, there would be less need for dollars for people outside the United States.

Yaya Fanusie, partner of the Center for the New American Safety.

Fanusie also thinks that China has been more innovative in terms of financial technologies (FinTech) that the US “If that also happens with blockchain technology, the US economy is at risk of missing out on the next wave of data-driven innovation,” he said.

“Any launch of a digital dollar analogous to the digital yuan should consider financial data and how it can use it to create a stronger economy and keep the country in economic competitiveness, while respecting citizen privacy ”, he assured.

The Chainalysis report concludes that China understands the potential of cryptocurrencies, but prefers to use them little or only to the extent that its objectives can be met. For the rest, they will continue to develop their digital yuan with a view to evading financial sanctions and establishing their own global monetary system.

Clearly, this is It is in opposition to the predominant political values ​​in the US, which has confronted representatives of both countries. As reported by CriptoNoticias, representatives of the US government do not like China’s intention for athletes to use the digital yuan during the Beijing 2022 winter Olympics.

For example, the senator Cynthia Lummis acknowledged that CBDCs are inevitable, but considers that China’s policies in this regard are dictatorial.

For the US, issuing the digital dollar is not a priority. China is further ahead in this and according to leading analysts such as fund manager Ray Dalio, the digital yuan could be much more competitive than the dollar in the future .