Beijing is stepping up initiatives to prepare the population for the launch of its dematerialized currency. Very important in the eyes of the regime, this project could both strengthen its control over the national economy and disrupt the global economic order.

Generosity and more if affinities … The Chinese city of Shenzhen began offering 10 million yuan (or 1.25 million euros) to its inhabitants since Sunday, October 11. But not just any yuan: it is the dematerialized version of the Chinese currency, which Beijing has been trying to promote at all costs for several months.

The Shenzhen authorities will thus distribute 50,000 vouchers to the lucky ones drawn by lot, who will be able to fill a virtual wallet with 200 yuan (25 euros) dematerialized. This money will then have to be spent in one of the 3,389 stores participating in this operation by October 18, says the daily South China Morning Post.

Not a Chinese bitcoin

This gift may seem anecdotal but it is part of a larger campaign by the Chinese authorities to prepare the population to massively adopt the dematerialized yuan. Beijing intends to deploy this 2.0 currency by the end of the year and Shenzhen is one of the four laboratory cities – along with Suzhou, Xiong’an and Chengdu – which have stepped up initiatives to popularize this great digital monetary leap. .

Since January 2020, there have already been transactions worth 1.1 billion yuan (140 million euros) that have been carried out using this digital currency in these four cities, said Fan Yifei, the deputy. -director of the Chinese Central Bank, at an international financial conference in London on October 6. Almost 120,000 Chinese and companies already have a virtual wallet, he added. This new payment method has been used to pay for train and plane tickets as well as bills or groceries in partner stores.

This digital yuan is not Chinese-style bitcoin. It is therefore not a cryptocurrency without a central bank, the price of which fluctuates with transactions. This currency, called DCEP (Digital Currency Electronic Payment) pending its final denomination, is nothing other than the digital little brother of the yuan in materialized banknotes and its distribution will continue to be controlled by the Central Bank and traditional financial institutions. .

In this sense, it does not seem to add much to the Chinese monetary landscape. More than 85% of transactions are already dematerialized in China, recalls the Center for Strategic and International Studies, an American research institute which published a study on DCEP in April. “China is increasingly becoming a country without cash,” confirms Mary-Françoise Renard, director of the Institute for Research on the Chinese Economy (Idrec), contacted by France 24.

But these digital means of payment are controlled by private actors, whether Alibaba and its Alipay or Tencent, which manages WeChat Pay. In other words, it is not Beijing that directly controls these financial flows and the DCEP would be the means for the regime to “regain power over these transactions,” notes Mary-Françoise Renard.

The Covid-19 effect

In Beijing’s eyes, the advantage of this dematerialized currency over banknotes and coins is that every transaction leaves a digital trail allowing authorities, in theory, to know the purchasing history of every Chinese.

No wonder that a regime on the lookout for the smallest personal data to collect – through facial recognition or the establishment of the social credit system – has been thinking since 2014 of deploying such a currency.

The Covid-19 pandemic “accelerated efforts to finalize the project”, notes Nathalie Janson, economist and specialist in cryptocurrencies at the Neoma Business School management school, contacted by France 24. First for reasons of health policy , because handling banknotes may seem more risky than paying by smartphone in times of virus circulation.

But above all because Beijing, which is rolling out a massive stimulus plan, does not want to relive the unpleasant surprises of 2008. After the last financial crisis, part of the billions of dollars spent by China to get the economy back on track had been lost due to corruption. The introduction of dematerialized currency would allow central power to ensure that the money does not end up in the wrong pockets.

More generally, it could be an “effective tool of economic policy”, emphasizes Mary-Françoise Renard. If, for example, Beijing wants banks to lend more money to small businesses, a 2.0 yuan can help ensure that these financial institutions faithfully follow the guidelines of power.

Winning against the dollar

Critics of the Chinese regime obviously fear the potential authoritarian abuses of the deployment of this currency. It would be easy for the authorities to ensure that an individual who does not have “a good social credit score cannot afford certain expenses such as buying train tickets, for example”, emphasizes Robert Murray, digital currency specialist for the Foreign Policy Research Institute, a conservative think tank in the United States.

The risks associated with this data collection do not concern the Chinese only. Beijing intends to export its digital yuan and make it “a weapon in the battle for technological hegemony with the United States”, assures Mary-Françoise Renard. China has a significant lead over other countries in digital currency and “whoever is the first to offer such a currency internationally will have a definite advantage in controlling the market,” confirms Nathalie Janson.

Beijing hopes in part to undermine the domination of the dollar in international transactions. “Payments in DCEP will be faster and cheaper than with the current transaction validation system, which may be enough to convince companies that are used to doing business in China. Even if, in exchange, that means that they offer Beijing a right of scrutiny on how this money is spent, “said Robert Murray.

As the use of this digital yuan simply requires having the virtual wallet on your smartphone, this solution could also appeal to 1.7 billion people worldwide who cannot open a bank account. In this regard, it can be a formidable weapon to expand China’s sphere of influence in developing countries. It can become a tool of influence that would “complement the system new silk roads [le vaste programme d’investissement chinois dans les infrastructures hors de Chine, NDLR]”, says Nathalie Janson.

The purpose of the future digital yuan is therefore twofold: first, to better control and understand how the Chinese spend their money; second, to expand China’s economic sphere of influence to the detriment of the United States and its dollar. Extensive program, which provides a better understanding of the enthusiasm of Chinese economist Xu Yuan, who told the South China Morning Post that “in several years, and with hindsight, the two historic highlights of 2020 will be[aie]nt the Covid-19 pandemic and the launch of the Chinese dematerialized currency “.

It might be a bit quick to presume the success of the digital yuan, but it is sure that if the Chinese plan goes off without a hitch and everyone agrees to play the game of the new currency, it could help Beijing. to shake up the world order a little more in its favor.

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