China is expanding its digital currency program to cover 28 provinces and cities, including Hong Kong, Shanghai, and Macau.
The People’s Bank of China is running the program for the digital yuan, and the program for the bank-issued digital currency has been operating in four cities. In addition, the program has also been running in places associated with the upcoming 2020 Beijing Winter Olympics.
China looking to circumvent the dollar
The Chinese Commerce Ministry said the program would “carry out digital RMB pilot programs in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and the pilot regions in the central and western regions where conditions permit.”
One reason for the push for a bank-issued digital currency is to move away from the U.S. dollar in regards to international deals. China has relied upon the dollar for such deals for decades, but such reliance runs the risk of being damaged by U.S.-imposed sanctions.
The ongoing trade disputes between China and the United States has ratcheted up the tension between the two countries. The move by the communist regime to severely curtail promised freedoms to Hong Kong has further increased that tension. The United States recently sanctioned 11 Chinese and Hong Kong officials for their actions in suppressing liberty in Hong Kong.
Yu Yongding, a senior fellow with the Chinese Academy of Social Sciences, said that it is possible that the United States could impose sanctions on Chinese banks. He even brought up the possibility that the U.S. may move to remove China from the SWIFT network, the international financial system that banks around the world use to transfer money to each other.
Another possible reason for the digital yuan push?
There may be another motive for the Chinese government to expand the digital currency program. The communist government of China is big on control. This is evident by the rigid controls placed on internet activity and freedom of expression.
The Chinese government operates a system of social control based upon a person’s behavior. Bad behavior, in the eyes of the government, leads to restrictions, such as the inability to use a train or buy property.
Moving to a digital currency system controlled by the country’s central bank could expand such control over the actions of the country’s citizens. Having people use a bank-issued cryptocurrency means that all transactions can be tracked and recorded, unlike in the case of fiat.
The ongoing COVID-19 pandemic could also spur the use of digital yuan. China expended considerable effort in cleaning physical currency, as well as burning some, in an effort to slow the spread of coronavirus. A number of countries have pushed the use of mobile payments in lieu of cash payments to reduce person-to-person contact.