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Sigma: Journal of Political and International Studies

Mikayla Cheng

Keywords

Chinese monetary system, digital monetary transactions, yuan

Abstract

China’s rapid progress toward a completely cashless society through the release of its digital yuan marks a pivotal point in monetary history. In recent years, China has taken the next step in digital payment technology by proposing and implementing a fully digital, government fiat, legal tender currency known as the digital yuan. The focus of this paper is understanding the implications of the widespread adoption of digital yuan from the perspective of the Chinese people. I propose that there are three main advantages of the digital yuan for the Chinese people. First, the digital yuan reduces transaction costs through eliminating transaction fees for merchants and increasing transaction convenience through its unified structure with the government. Second, the digital yuan creates opportunities for internationalization due to its reduced international transaction costs and growing influence abroad. Third, the digital yuan increases financial inclusion of Chinese citizens, particularly the rural and elderly populations. I propose that the main disadvantage of the digital yuan is its infringement on the consumer privacy of Chinese citizens, especially those who belong to ethnic and religious minorities. However, I argue that the collection of digital yuan transaction data will not make a substantial difference in the CCP’s ability to monitor and punish citizens’ behavior in the long run because the CCP’s existing surveillance systems are already capable of extensive monitoring without the digital yuan’s transaction data. Overall, the benefits of reduced transaction costs, internationalization of the yuan, and increased financial inclusion outweigh the costs of centralizing digital yuan transaction data. Therefore, the digital yuan is a net benefit for the Chinese people.

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