The Economist Calls China’s CBDC the Anti-Bitcoin

While everyone expects the People’s Bank of China to launch a limited trial of its Central Bank Digital Currency (CBDC) or Digital Currency Electronic Payment (DCEP) as it is called in the country questions have frequently emerged as to how the government will utilize the tech.

While crypto proponents frequently tout the benefits of DeFi or decentralized finance, perhaps best exemplified by Bitcoin, the Chinese digital currency will be nothing like the world’s most popular crypto. In fact, in a recent report, the Economist has described the CBDC as the “Anti-Bitcoin” as the government-supported crypto should provide unparalleled control and insight into payments and transfers.

To quote the write-up:

“But the bigger prize for China is the new powers that would come with a CBDC. China’s version will be a centralized currency, rather like the anti-Bitcoin. Officials will be able to track all digital cash in circulation, making it much harder to launder money or evade taxes. The central bank could also use coding to control how the money is used. For example, if it issues CBDC to a commercial bank for lending on to small businesses, it could ensure that the money is activated only once transferred to a small firm. And China might find it easier to make nominal interest rates negative: cash would no longer be an alternative to bank deposits because negative interest rates could apply to digital cash itself. These powers are still some way off. Given the risks inherent to such a transformation, China will phase in the CBDC very gradually. Citic Securities estimates that it will take several years for the digital yuan to replace just about 10% of all physical cash in China. For now, central banks must continue to worry about money-laundering—both illegal and antiviral.”

Today, in China, digital transfers are the norm, not the exception. Cash, once king, is no longer reigning sovereign. At least the literal kind, as China has been the world leader in digital payments.

A CBDC certainly can provide many positive benefits for the population but it also raises a good amount of questions regarding privacy and control. These same questions are being pondered at the many other central banks that are also in the process of considering a CBDC.

While China is poised to be the first government to issue its own digital currency, others are expected to follow. But the CBDC iterations from other governments will probably be quite different in structure.

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