China prepares to launch the world’s first official e-currency
Party leaders believe the country’s big tech platforms have too much power
By Simon Rabinovitch: Asia economics editor, The Economist
THERE IS A good chance that the digital yuan will enter circulation in 2021. It is a debut that will initially make little difference, but could, over time, change the way central banks conduct monetary policy.
The People’s Bank of China has filed more than 100 patent applications for a digital currency and has overseen a range of trials, putting the e-yuan into use in a few cities and on several apps. So far the experiments have gone smoothly, and soon people will have the option of downloading a government-issued digital wallet. Unlike commercial ones such as WeChat Pay and Alipay, the official version will be equivalent to an account at the central bank with the same solidity as hard cash.
For the millions who already use a smartphone instead of a debit card, it will feel like just another payment app. Yet some talk of digital currency as a revolutionary product that could spell trouble for banks as people withdraw money from savings accounts and put it directly into their ultra-safe official e-wallets. What is more, if digital currency were ever to fully replace cash, central banks would, in theory, gain three new powers: to lower interest rates below zero with little difficulty; to issue cash directly to those most in need; and to see more precisely who has money and how it is spent.
In China the central bank is not trying to reinvent monetary policy—at least not yet. Its motivations derive from more immediate challenges. Given the rise of mobile payments, it worries that the big tech platforms have too much power. The digital yuan will offer an alternative. It will also give China a conduit for moving money across its borders without having to rely on swift, a global payments system that comes under American influence. But China’s first objective is much more basic still: to check whether the technology behind the digital yuan works and whether people actually want to use it. Money has been around for some 3,000 years. This update will take time.
Simon Rabinovitch: Asia economics editor, The Economist ■
This article appeared in the Finance section of the print edition of The World in 2021 under the headline “New money”
