China’s CBDC, the e-CNY, is seeing massive success according to the country’s central bank, the People’s Bank of China. Launched in 2019 for testing, China’s CBDC roll-out culminated in the official release of its payment app last month.
More than 4.6 million merchants are currently using it and more than 261 million digital wallets have been created. In addition, over 150 million users have transacted more than 90 billion Yuan ($12.5 billion) since its inception.
China’s official digital currency comes with a catch, however. The central bank keeps a record of all transactions and users file more information if they need to make bigger payments. By doing this, the bank is trying to assure the Chinese public that the system has “managed anonymity” whereby third parties can’t view the transactions. The system is indeed managed by a centralized digital ledger at the central bank.
China has basically pioneered the introduction of CBDCs and innovated the characteristic that distinguishes it from ‘ordinary’ money. Specifically, the country is classyfing the e-CNY as ‘M0’ instead of ‘M1’ or ‘M2’ meaning that it can’t be used to generate interest or replace bank deposits.
China’s CBDC is raising a lot of concerns from government officials and politicians in the West. Just this week, the UK’s spy chief, Jeremy Fleming argued that it can be used to avoid sanctions, while Australian senator, Andrew Bragg is addressing national security concerns around the Chinese government’s strong financial influence in the Asian-Pacific region once the e-CNY spreads across borders.
Cryptocurrency has been highlighted repeatedly by senators and congress members in the US as a potential means for Russia to avoid sanctions. Just yesterday, crypto exchange Bittrex was fined $29 million by the US Treasury Department for handling up to $261 million from sanctioned countries like Syria, Cuba, Iran, and the Crimea region of Ukraine.
So far, the US can sanction nation-states with great efficiency, given that most of the international payment rails such as SEPA or Visa are of Western origin. But crypto-currencies that use a payment rail system of their own can challenge this effectiveness. The creation and use of digital currencies by nation-states will undoubtedly give them more opportunities to connect even further with the world by simultaneously allowing them to have ownership of their own payment rail.