One of the “36 stratagems” in China for gaining an advantage over an enemy is called “borrowing with a borrowed knife”. It refers to using another person’s strength to achieve one’s goals.
Beijing’s planned release of digital Yuan is a partial issue. It “borrows” technology breakthroughs to lay the foundations for China’s party state to regain control of powerful private sector actors.
The currency – which is being piloted in several major cities and is to be formally launched before China holds next year’s Winter Olympics – is expected to meet a number of targets. achievement.
In fact, it promises to introduce a fully digital payment system in the world’s second largest economy. Christine Lagarde, president of the European Central Bank, has said that China is leading other major economies in preparing to embrace the future of digital currency.
The e-Yuan also has the ability to bring Alibaba Alipaba and Tencent’s WeChat Pay to sea, two private sector services that together make up more than 90% of electronic payments currently made in China.
The threat to Alipay and WeChat is clear from the way the digital Yuan – which is controlled by the central bank – is working. The e-yuan can be used independently from both platforms; customers simply set up digital yuan accounts, or digital wallets at banks where they have investments.
They then install these wallets on their smartphones, allowing them to make payments by placing their wallets near the point of sale or to other smartphones. No internet connection is required for these payments, creating a seamless system that is able to bypass Alipay and WeChat Pay.
A Chinese financial industry operator has a prediction that refused to be identified. “The digital renminbi is a clear competitor to Alipay and WeChat Pay,” he said. “The state sees the official digital renminbi as a tool to boost administrative power, and it does not want to share this power with technology companies like Alibaba and Tencent.
The ability to filter Alipay and WeChat Pay is not the only way digital revenue promises to set up a Chinese state party.
The e-yuan also strengthens scrutiny capability. Much of China’s conventional digital trading data is held by Alibaba and Tencent. But the popularity of official digital money, at least in theory, would make a wealth of commercial data available with the People’s Bank of China, the central bank.
If this happens, it would give Chinese law enforcement authorities a much better ability to detect and crack down on bad actors. It could also help to find some kind of highly responsive monetary policy that takes its view from real-time information on issues across the economy.
But this ability for immediate investigation could translate into a major benefit. Claims from some Chinese analysts that the digital yuan may help break the hegemony of the dollar in international payments appear overwhelming.
While China may be able to do some business in the future with trading partners in digital Yuan, concerns about data privacy appear to be hindering wider adoption.
The U.S. and some Western powers have already indicated their willingness to allow Huawei, the Chinese telecoms company, to install 5G systems due to privacy concerns. The adoption of digital currency that gives China’s central bank a window on real-time transactions in their economies is likely to take hold, analysts say.
In this sense, the use of the digital yuan may reinforce divisions between China and the West. Consumer privacy is a key consideration in efforts to design a digital dollar and euro, although the shape of future protections is unclear at this stage.
James Kynge is the editor of Tech Scroll Asia, a newsletter on technology in Asia that combines the best reporting from Nikkei and the Financial Times. He is also the Global China editor of FT, writing about China’s growing footprint in the world, and won the Wincott Foundation award for Financial Journalist of the Year in 2016. his award-winning book, “China Shakes the World,” translated. 19 languages.