Chinese workers are being paid in digital currency

analysis on the diffusion of electronic money in china

Although by now bitcoin (the best known of the crypto currencies) has been in circulation for more than 10 years (since 2009 to be exact) it still does not find a precise and regulated location in the world, and so do the other crypto currencies. Indeed, it was probably the most contradictory technological and digital innovation, which has never found a unilateral consideration, making the path of legalization and diffusion in daily life very complicated. Of course the reason is quite obvious. Being a technology that deals directly with money, it clashes with big powers such as banks or companies that manage electronic card circuits. And so even today the most widespread use is in the online payments of some portals or even on the dark web. But in recent years, a change of course has begun to appear. In fact, in 2021 the state of El Salvador was the first to legalize a cryptocurrency. But later Brazil and the Central African Republic also legalized electronic money. The United Kingdom, on the other hand, has laid the foundations for a regulatory framework that will regulate the cryptocurrency.
In 2023, electronic money is also experiencing a significant diffusion in China. And this is quite paradoxical because before this year the state of Beijing had been the one that had most hindered the diffusion of the new currency. A year ago after imposing a major ban on cryptocurrencies, the Chinese government continued to protect local crypto investors, as the latter were recognized as virtual properties protected by law.

In May, the financial authorities of several Chinese districts and cities announced that civil servants at all levels had begun to be paid entirely in digital yuan. This move is part of a Central Bank Digital Currency (CBDC) pilot program and began in the first quarter of 2023 in Jiangsu province, including Changshu. According to a local report, a practical and convenient operating and management system will be established by 2025. This is the largest initiative to make China's digital currency, also known as e-CNY, widely used as it covers public institutions such as schools, hospitals, libraries, research institutes and media organizations in the city. The country began exploring the potential of a sovereign digital currency in 2014, and pilot programs were launched in 2020 in cities such as Shenzhen, Suzhou, Xiongan and Chengdu. However, the digital yuan is still in its pilot phase and there are hurdles such as limited ability to settle transactions that need to be addressed.

The latest data from the central bank shows that total e-CNY transactions surpassed 100 billion yuan ($14.5 billion) in August and more than 5.6 million shops began accepting the digital currency. Relevant numbers and destined to increase more and more. China's interest in the digital yuan stems from several reasons. First, it aims to improve financial inclusiveness by providing greater access to financial services, especially in rural areas. The digital yuan can facilitate transactions for the non-banking population and help reduce the existing digital divide.

Second, the Chinese government seeks to gain better control over its monetary policy, fight money laundering and strengthen regulatory oversight. By introducing a digital currency, authorities can monitor and trace transactions more efficiently, thus curbing illicit activities. Finally, the digital yuan is seen as a potential tool to challenge the dominance of other global currencies, such as the US dollar, in international trade. A challenge that can also be seen elsewhere, such as in the various agreements signed by China on a bilateral level to introduce the use of national currencies in trade. Starting from the countries of the Brics group.

On the other hand, the digital yuan raises privacy and surveillance concerns. With increased traceability of transactions, the financial activities of individuals may come under greater government scrutiny. Striking a balance between regulatory oversight and individual privacy will be key to ensuring public trust in the system. The successful implementation of the digital yuan relies on a solid technology infrastructure, including widespread access to the internet and mobile devices. And for the most pessimistic, rural areas and less developed regions of China may face difficulties in meeting these requirements, potentially exacerbating existing digital divides. Also for this reason, the Communist Party seems intent on investing more and more in the less central provinces and supporting their digital advancement.