The electronic Chinese yuan is now being tested in cities such as Shenzhen, Shanghai and Beijing. No other major power is as far along with a homegrown digital currency.
By Nathaniel Popper and Cao Li | 1 March 2021
NYT / WAYBACK MACHINE — … China has charged ahead with a bold effort to remake the way that government-backed money works, rolling out its own digital currency with different qualities than cash or digital deposits. The country’s central bank, which began testing eCNY last year in four cities, recently expanded those trials to bigger cities such as Beijing and Shanghai, according to government presentations.
The effort is one of several by central banks around the world to try new forms of digital money that can move faster and give even the most disadvantaged people access to online financial tools. Many countries have taken action as cryptocurrencies such as Bitcoin, which has recently soared in value, have become more popular.
But while Bitcoin was designed to be decentralized so that no company or government could control it, digital currencies created by central banks give governments more of a financial grip. These currencies can enable direct handouts of money that expire if not used by a particular date and can make it easier for governments to track financial transactions to stamp out tax evasion and crack down on dissidents.
Over the last 12 months, more than 60 countries have experimented with national digital currencies, up from just over 40 a year earlier, according to the Bank for International Settlements. The countries include Sweden, which is conducting real-world trials of a digital krona, and the Bahamas, which has made a digital currency, the Sand Dollar, available to all citizens.
In contrast, the United States has moved slowly and done just basic research. At a New York Times event last week, Treasury Secretary Janet L. Yellen indicated that might change when she said an American digital currency was “absolutely worth looking at” because it “could result in faster, safer and cheaper payments.” …
“The right to issue and control digital currencies will become a ‘new battlefield’ of competition between sovereign states,” read an article in China Finance, the magazine of the central bank, in September. “China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate to seize the first track.” …
“The eCNY is really a defensive mechanism to keep central bank money relevant,” Mr. Prasad said.
If the eCNY is successful, it will give the central bank new powers, including novel types of monetary policy to help the economy grow. In one possibility that economists have discussed, a central bank could program its digital currency to slowly lose value so that consumers are encouraged to spend it immediately.
Some economists said China’s digital currency would also make it easier for the renminbi to compete with the U.S. dollar as a global currency because it can move internationally with fewer barriers. But Chinese officials and analysts have said many other changes would be necessary for that to happen.
Beyond those ambitions, the eCNY could immediately give the Chinese government more power to monitor finance flows because a digital currency system can record every transaction. That poses privacy concerns, with China having used many tools in the past to crack down on dissidents. […]