Experts say that the digital yuan could displace the US dollar in the long term. China’s CBDC would be a surveillance and control system for the government.
The history of transactions with its central bank digital currency (CBDC) would allow China to record national financial data. That would carry a potential use in state surveillance and control over the citizens of the Asian country.
According to a recent Chainalysis report, two experts predict that the digital yuan could become a complete surveillance tool. Besides, they consider that this will threaten the hegemony of the US dollar (USD) around the world.
Dovey Wan, an expert on Asian cryptocurrency markets, and Yaya Fanusie, a partner of the Center for New American Security (CNAS), comment on this. They agree that China could contrast financial information on citizens with other data or factors to introduce restrictions or authoritarian measures.
For example, Fanusie noted that the Chinese Communist Party (CCP) recently sent a warning. The political organization said it would exclude Mongol families who do not send their children to state schools. Fanusie explained that the digital yuan would allow the government to combine financial data with such lists.
Although the government has stated that it wants to fight corruption, Fanusie believes they will turn these financial surveillance capabilities against citizens.
On her part, Dovey Wan said that the digital yuan could allow a programmable and predictable monetary policy. Additionally, she said it could provide a lower cost per transaction to traders who use it.
However, the analyst predicts that the government could use it as a financial surveillance tool. Likewise, they could exclude from the financial system those individuals and businesses that have committed any infraction.
Digital Yuan May Displace the US Dollar in the Long Term
Fenusie also touched on the issue of the alleged threat of the digital yuan on the US dollar. He believes that the Chinese CBDC will not succeed in displacing the US fiat currency any time soon.
However, he does think that the exchange between different CBDCs from different countries would have negative consequences. He believes that this could harm the prominence of the US dollar as a common currency for trade in the world.
The executive said the Chinese government would want to make deals with other countries to exchange CBDCs. That would be an atomic exchange of CBDCs through a common meeting ground between their networks.
If the exchange of CBDCs happens on the same platform, the US dollar could lose ground against the digital yuan, Fenusie said.
Furthermore, the analyst thinks China has been more innovative regarding financial technologies (FinTech) than the United States. He said the US economy could miss out on the next wave of data-driven innovation if that also happens with blockchain technology.
China understands the potential of cryptocurrencies but prefers to use them on rare occasions or only to the extent that it allows meeting its objectives, according to the Chainalysis report. The document stated that the country would continue to develop its digital yuan seeking to evade financial sanctions and establish a global monetary system.
US Senator Cynthia Lummis acknowledged that CBDCs are inevitable, but she sees the policies of China as being dictatorial.
The United States does not consider issuing the digital dollar a priority. In that regard, China is further ahead, leading analysts to predict that the digital yuan could become much more competitive than the US dollar.
By Alexander Salazar
