“In general, this does strengthen authoritarianism. Putting the levers of financial power in the government’s hands does increase CCP power,” says Fanusie. However, as he notes, the picture is more nuanced and complex. “This is part of a bigger process. It’s less about what the Digital Yuan will do, but more about what happens when China becomes more data driven, and when the government has significantly more centralised data in general.” Seen in this light, the DCNY is part of a much bigger plan the government has long been pursuing to get a more detailed picture of its population through big data. As an article from MIT Technology Review argued, who needs democracy when you have data? The CCP is trying to leverage the massive amounts of data generated by an increasingly digitised society to try to create more responsive government systems.
Of course, what this means for individuals and the potential for state repression in a regime with a horrendous human rights record is not encouraging. Mu, of the PBOC, did suggest that the DCNY might actually be good for people’s privacy, as it compares favourably with other digital platforms which share data with vendors. According to Xinhua, a Chinese state media outlet, the DCNY will feature “controllable anonymity.” This means that both sides of a trade can remain anonymous to each other (in other words, an online shop would not be able to collect data from a customer) but could remain visible to the government, to ensure that crimes like corruption, money laundering, tax evasion, and terrorist financing can be quickly discovered. Whether the state chooses to stop there or whether this insight into the financial lives of citizens becomes politicised or rolled into the still nascent social credit system remains to be seen.
The questions that the DCNY poses about the future of data in a world of state-produced digital currencies will play out in different ways in different countries with their own norms around privacy. What measures the Eurozone, which has pushed policies like GDPR, might implement to protect data should they pursue their plans for a digital Euro will provide an interesting counterpoint to the DCNY.
The role of private companies and stablecoins – digital currencies pegged to existing fiat currencies but not controlled by states – such as Facebook’s Diem project (formerly Libra) will also be an important future development. Part of China’s impetus to launch the DCNY was its own fear of Facebook’s potential to create a global digital currency: Mu pointed out that Libra, as it was known at the time, could potentially reach all of Facebook’s 2.7 billion users, dwarfing the size of the DCNY. However, in subsequent years, Facebook’s ambitions with Diem have been massively scaled back due to government backlash. Previously, as Libra, the idea was that Facebook would create a universal digital currency based on a basket of fiat currencies. Diem’s current plan is to create stablecoins backed by individual currencies in individual jurisdictions, though even these plans might come under further scrutiny as time goes on. Either way, how sensitive financial data will be protected and to what ends it might be put will create a whole new set of challenges to norms around privacy.
It is some way off before the DCNY could be used to subvert sanctions or to displace the US dollar as the international reserve currency, but US officials are redoubling efforts to investigate the potential long-term effects it might have. The Biden administration is starting to pay attention – and it’s now only a matter of time before it reacts.
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