China has the world’s most advanced central bank digital currency (CBDC) project. Since 2019, a long phase of largescale testing in the country’s key provinces has already completed $14 billion.
The lead is big on projects like Brazil, which is still studying the digital realworld model to be adopted and is preparing to examine proofs of concept that are still in the development phase. The United States, on the other hand, is even further behind, with no consensus as to whether or not the country needs an official digital government dollar.
However, that doesn’t mean the US isn’t aware of the rise of the Chinese digital currency the concern is indeed public and has intensified in 2022. In February, US Senator Pat Toomey, a member of the Senate Banking Committee, warned of the impact of the digital yuan on US economic and national security interests in a letter to Treasury Secretary Janet Yellen and Secretary of State Antony Blinken.
In the text, he warned of what he called an increase in “the potential of the eCNY (the official name for the digital yuan) to undermine US sanctions, facilitate illicit cash flows, enhance China’s surveillance capabilities and “pioneer” Beijing , such as setting standards in crossborder digital payments”.
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The news was sent in the context of the Winter Olympics taking place in Beijing this month, one of the stages chosen by China to expand digital currency testing. In the Olympic Village, athletes and visitors could only shop with cash, a Visa card or the digital yuan.
“China’s main motive is more internal, to take control of Chinese payment methods from two private companies (Tencent and Alibaba),” explains economist Gustavo Cunha, founder of investment firm Reset Funds, which focuses on blockchain and digital assets, in an interview with Cripto+ (see full text in player above). “But at the same time, it can be a way to strengthen your hegemony in the world,” he says.
Central bank currencies are native digital assets that, depending on the model, can be issued directly to citizens by a country’s central bank without bank intervention in this way, digital money would be a direct liability of the government, not the government institution.
There is also an important technological component that allows this type of asset to be used for innovative financial solutions such as: B. Loans managed by software and instant transaction processing, in addition to the potential for global reach.
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In foreign trade, for example, the speed and reliability of blockchain technology could complete a transaction almost instantly compared to the traditional method.
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“The exchange rate in the world still takes two days to arrive for the vast majority of places. If much the same day. The technology associated with a CBDC can do this in seconds,” explains Cunha. “A soybean producer who wants to export to China can get within seconds instead of days.”
The innovation, according to the expert, poses a challenge for the US, which has a more backward financial system the country, it should be remembered, still does not have a unified system for instant payments like Pix in Brazil.
This year, the digital yuan has also kept US lawmakers up at night over possible geopolitical ramifications amid Russia’s invasion of Ukraine. Also in March, shortly after the war broke out, nine Republican senators introduced a bill to try to regulate the Chinese digital currency.
“Unchecked, technologies like the digital yuan will allow Russia to circumvent global sanctions against schemes like Swift and allow the CCP to continue to monitor and threaten its citizens,” said Senator Blackburn, one of the project’s leaders , in a statement the press at the time.
Last week, Mu Changchun, head of the Bank of China’s Digital Currency Research Institute, said user data is only tracked when criminal activity is suspected. Currently, citizens participating in the tests can open four types of digital wallets, with daily transaction limits corresponding to the amount of personal information provided.
Despite Americans’ concerns, however, there are still technological hurdles to be overcome in order to turn something like the digital yuan into a currency with global reach capable of bypassing economic sanctions, for example.
For Reset Funds’ Cunha, the big challenge remains to build the communication infrastructure between disparate digital currencies, which is not yet in sight given the current testing phase. “Going from testing to a model that is used around the world and that model is interoperable for multiple countries still takes time. From 5 to 10 years”.
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