In the mid-2010s, Chinese in major cities generally switched from using cash to using Alipay and WeChat Pay. By the end of 2021, about 64% of Chinese are using a mobile payment system, according to a report Daxue Consulting’s report, with Alipay and WeChat Pay handling most payments. For city dwellers, this figure is 80%.
One reason the Chinese government is promoting a digital yuan is to try more control on how citizens make payments. For years, big tech companies have been able to operate almost like public utility companies, effectively creating and regulating large sections of the financial industry. Companies also attract mass data of citizens, which eventually led to public backlash and regulatory scrutiny. Currently, users can transfer digital yuan to WeChat Pay or Alipay accounts, but eventually the government may choose to remove those systems from the business. “They see payment platforms as a big part of the economy that is out of their control,” said Mark, of the Atlantic Council.
The digital yuan may in some ways be less invasive than a private network like Tencent’s because it won’t combine payment information with a person’s other digital traces, such as data. whether social network. But it also gives the government a new perspective on people’s lives. “If someone goes against the government, suddenly their wallet might disappear, or they might not even be able to get in a taxi or go to a restaurant,” says Mark. Foreign companies that go against the government — in the face of comments seen as disputing government lines on Taiwan or Xinjiang — may suddenly find that they can no longer receive payments. math anymore. China’s central bank said that for accounts with balances below a certain threshold, only a phone number is needed for verification, but Chinese authorities generally have broad access to personal data.
The Chinese project and the rise of cryptocurrencies like bitcoin have spurred discussion in the US about creating a digital version of the dollar. In some areas of Washington, DC, concerns are raised that the United States could lag behind in financial innovation or lose some of its influence over global finance.
United States congressional hearings in May, lawmakers told Lael Brainard, Vice Chairman of the Federal Reserve, about privacy concerns and whether the Fed could issuing authority any digital currency. Many expressed concern about the government encroaching on areas that were formerly the domain of private banks, or suggested that cryptocurrencies outside of government control could serve a similar purpose.
Brainard, in his testimony, said that no decision has been made on whether the US needs a digital currency, but that they should be prepared to launch a digital currency, a process that she estimates could take five years. “In a world where other major jurisdictions move to issue their own digital currencies, it is important to think about whether the US will continue to have the same kind of dominance. ,” she said.