Soft Launch of the Digital Yuan: A Shift Away From US Dollar?

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On Saturday, China Construction Bank (CCB), one of the big four state-owned commercial banks, quietly opened up a wallet service for China’s CBDC to public users – but quickly disabled it after the feature gained widespread attention. The brief swarm to access the wallet shows the Chinese commercial bank has been working towards adoption for the digital yuan initiative, also known as DCEP, which is led by the People’s Bank of China (PBoC). The digital yuan has become a hot topic as data nationalism and fights over technology standards reign around the world.

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 It’s expected to be a digital ledger that will replace China’s paper RMB currency variants, which will go head-to-head with different cryptocurrencies.

The Deployment Of A Digital Yuan Globally

Jackson Mueller, Director, Policy & Government Relations at Securrency, commented: 

“The CCB’s move here is merely the latest developments in a long list of efforts being taken by China to deploy a Digital Yuan globally. Over the past several years, China has made a number of public announcements regarding the central bank’s effort to develop and deploy a Digital Yuan as well as a related national initiative to implement its Blockchain Services Network (BSN), a “blockchain as a utility” concept intended, among other things, to channel global value into China’s networks.

While DCEP will be confined to retail payments within the country at the outset, there’s no question that authorities are looking to promote its use internationally through initiatives such as China’s “One Belt, One Road” trade and infrastructure initiative, through extension of the BSN internationally by connecting with multiple public blockchains, and through regional currency coalitions such as the proposed creation of an East Asia digital currency.

The brief mention of China’s CBDC efforts in recent remarks from US Federal Reserve Board Governor Lael Brainard, indicates that the US is monitoring these developments closely and evaluating what these developments could mean from a monetary policy perspective moving forward. This close scrutiny seems quite justified: combined with other recent moves made by China, most notably its long-standing de-dollarization collaboration with Russia, this centralized, integrated architecture with the PBoC at the helm could threaten the future of the dollar as the world’s reserve currency, raises significant privacy issues, and creates strategic chokepoints of value with the PBoC as the final arbiter of who gets to connect and play within the centralized system.

Central Banks around the world seem to be taking the threats posed by China’s CBDC issuance seriously enough to form their own CBDC coalition of central banks that does not include China. What is critical is that the governments in this coalition develop and promote international technology standards based upon decentralized financial infrastructures that are open, network-agnostic, promote optionality and choice, preserve privacy and transparency, and that do not restrict the flow of value.”

Nicholas Pelecanos, Head of Trading at NEM, commented: 

“There is a global shift away from paper money towards digital currencies, and COVID-19 has certainly accelerated this change. China seems to be at the forefront of this evolution with the Digital Yuan, which in terms of awareness about digital currencies is a positive step. In reality, however, it may be used as a means of further surveillance and control. 

Since China began its technological revolution, the Communist Party of China (CCP) has been using technology to acquire more control over its citizens. A surveillance state with a global credit system and a digital currency sounds awfully Orwellian to me.

The Digital Yuan at odds with what Bitcoin and cryptocurrencies were originally designed for - a decentralized and censorship resistant ledger outside of the control of any government or individual. On that note, it’s interesting to note the release of the digital RMB may actually be bullish for space.”