China’s digital yuan is set to debut on the global stage this week, with foreign athletes and others at the Beijing Olympics being able to use it for the first time.
People can access the digital yuan through an app on their smartphone, for example, but it’s different from other payment apps in that it’s a digital version of the renminbi, issued by the People’s Bank of China.
The digital currency has already been tested in several Chinese cities and was used in transactions totaling more than $8 billion in the second half of 2021.
China’s efforts have also spurred other countries to consider their own digital currencies. Nearly 90 countries, accounting for more than 90% of global GDP, are actively exploring a central bank digital currency (CBDC), according to the Atlantic Council.
Some argue that CBDCs will cancel the need for cryptocurrencies like bitcoin. After all, how many different digital currencies do we really need? But in fact, the opposite is true.
The rise of CBDCs highlights the importance of decentralized cryptocurrencies that are relatively private and not controlled by any government.
While China’s digital currency is an impressive undertaking that can offer many benefits such as ease and efficiency of payments, privacy is not one of them. Either way, the digital yuan will give the government greater visibility into its citizens’ financial transactions.
You may not need to provide an ID to make small payments, Yaya Fanusie, an adjunct senior fellow at the Center for a New American Security, said in an interview. But “the government will be able to track all transactions, in general, whether anonymous or not.”
China already has a very sophisticated mobile payments system, led by WeChat Pay and Alipay. Companies already collect a lot of private financial data, but the digital yuan will make that data even more accessible to the government.
Fanusie said the Chinese government can now go to payment companies and get the data, but with the digital yuan, they won’t have to take that extra step because they already have direct access to it. With the digital yuan, he said, “they barely have to lift a finger. The data comes to them.”
CBDCs are not only traceable, they can also be programmable. After a natural disaster, for example, a government could send digital money to citizens that could be spent on food and medicine, but not alcohol.
This means that governments will have greater ability to decide who has access to digital money. In the case of China, Fanusie said, “it will be easy for the central bank to shut down all the wallets it wants, because of political issues or fighting crime or whatever.”
It’s too early to know exactly how central bank digital currencies will behave in practice, but concerns are so great that Congressman Tom Emmer cited privacy concerns in legislation he introduced that would prohibit the U.S. Federal Reserve from issuing a CBDC directly. for individuals.
Cryptocurrencies offer a fundamentally different approach. Bitcoin, the world’s leading cryptocurrency, was introduced after the 2008 financial crisis as a form of money that was supposed to be independent of government or bank control.
Bitcoin transactions are stored on a decentralized ledger known as a blockchain.
One of the main advantages of bitcoin is that no government can stop citizens from sending or receiving it, and no government can shut down the network.
Bitcoin is also a relatively private form of money in the sense that all you need to send and receive cryptocurrency is an address consisting of a string of numbers and letters.
Some are attracted to cryptocurrencies simply because they believe that even perfectly legal transactions should enjoy basic privacy protections.
Some crypto purists will argue that even bitcoin is not private enough as all bitcoin transactions are recorded on a publicly visible blockchain.
Still, attaching a bitcoin address to a real person’s identity takes work: governments or spy agencies would have to devote a lot of time, skill, and effort to the task of analyzing blockchain data.
CBDCs like the one in China, on the other hand, are designed to be traceable by the government.
Developers are currently working to increase bitcoin’s privacy protections. But there are other digital currencies, for example zcash and monero, which promote privacy protection as a key feature.
Zcash, for example, uses a cryptographic tool known as zero-knowledge proof, which is a way to verify a dataset without revealing that data.
New cryptocurrencies are constantly appearing and we are likely to see even more innovations when it comes to privacy.
China’s digital yuan could eventually become the country’s main form of payment. “Whether I embrace the digital Renminbi or not, it’s not up to me to decide,” Victor Gao, a professor at China’s Soochow University, said in an interview.
“If I stay in China, if I remain a global citizen, I think this wave is going to hit me sooner or later. I cannot fight her, I cannot resist her without being buried.”
Other countries, including the United States, may not be able to resist the temptation to launch a CBDC of their own. But government-backed digital currencies should not reign supreme.
Other cryptocurrencies are needed to preserve an independent and relatively private form of digital money in a world where transactions are becoming easier for governments to track and control.
Source: CNN Brasil
I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.
