By the mid-2010s, Chinese people in big cities had generally switched from using cash to using Alipay and WeChat Pay. By the end of 2021, about 64 percent of Chinese people were using mobile payment systems, according to a report by Daxue Consulting, with Alipay and WeChat Pay handling most payments. For city dwellers, the figure was 80 percent.
One reason China’s government is pushing the digital yuan is to try to gain more control of how citizens make payments. For years, big tech companies were able to operate almost like public utilities, creating and effectively regulating large parts of the financial industry. The companies also scooped up reams of citizens’ data, which eventually led to public backlash and scrutiny from regulators. For now, users can transfer digital yuan into a WeChat Pay or Alipay account, but the government could eventually choose to edge those systems out of business. “They look at the payment platforms as this massive part of the economy that is strictly speaking outside of their control,” says Mark, of the Atlantic Council.
The digital yuan could in some ways be less invasive than a private network such as Tencent’s because it won’t combine payment information with a person’s other digital traces, such as social networking data. But it also gives the government new visibility into people’s lives. “If somebody goes crosswise with the government, suddenly their e-wallets could disappear, or they can’t even get in a taxi or go to a restaurant,” Mark says. Foreign companies that run afoul of the government—say over comments seen as disputing the government line on Taiwan or Xinjiang—could suddenly find that they can no longer receive payments. China’s central bank says that for accounts with balances below a certain threshold, only a phone number will be required for verification, but Chinese authorities generally have wide powers to gain access to private data.
China’s project and the rise of cryptocurrencies like bitcoin have prompted discussion in the US about creating a digital version of the dollar. In some Washington, DC, circles there is concern that the US could fall behind in financial innovation or lose some of its influence over global finance.
At a US congressional hearing in May, lawmakers grilled Lael Brainard, vice chair of the Federal Reserve, about privacy concerns and whether the Fed had the authority to issue a digital currency at all. Many expressed concern about the government wading into areas that had previously been the domain of private banks, or suggested that cryptocurrencies outside government control could serve the same purpose.
Brainard, in her testimony, said that no decision had been made on whether the US needs a digital currency, but that it should be prepared to launch one, a process she estimates could take five years. “In a world where other major jurisdictions move to the issuance of their own digital currencies, it is important to think about whether the United States would continue to have the same kind of dominance,” she said.
Image and article originally from www.wired.com. Read the original article here.