• B Vrettos and M Bacina

China makes it rain centralised digital currency


Winners of a government lottery to test the eCNY are singing their praises (paywalled) for the new national digital currency. As an already significant player in the e-money space with AliPay and WeChat Pay dominating conventional payment channels, the eCNY is the next step for China in embracing a central bank digital currency.


A total of 60 countries are now experimenting with digital currencies, a significant increase since China's first explorations which started in 2014. However, the eCNY has an interesting focus.


Yaya Fanusie, a fellow at the Center on Economic and Financial Power, recently said:

This is about more than just money... It’s about developing new tools to collect data and leverage that data so that the Chinese economy is more intelligent and based on real-time information.

Jason Brett of Forbes opines that harnessing data in this way “will arm China’s economic planners with a range of data that no other government has ever been able to efficiently assemble.”


This is because both commercial banks distributing the digital currency and the central bank will maintain distributed databases tracking the movements of the eCNY between users, in a way not possible with cash or traditional fragmented payment systems.


While eCNY used distributed ledger technology in its prototype, it doesn't appear that the technology is being used in the current deployment, which is not surprising given part of the goals of China's CBDC is greater tracking and central control is a political theme of China.


The eCNY remains open for trials and is a natural experiment in moving digital commercial bank money into a purer form of digital cash with central bank backing. The aggregate data availability to government for economic purposes under even a centralised system like this is dramatic and both incredibly valuable while also being potentially highly invasive. Other countries have been exploring more decentralised models of CBDC issuance which align more closely with the Western liberal tradition.


It seems to us that a highly centralised central bank digital currency invites central points of attack and so this model of a CBDC may not lead to China's stated "aims of internationalising ... currency".