Digital Renminbi in the Eyes of Foreign Media: Challenging the Dollar's Status, Strengthening Capital Control, Regaining Dominance in the Electronic Payment Market

Author: Bran

China is one of the earliest countries in the world to conduct research on digital currencies. Since the project was initiated in 2014, it has been seven years, during which pilot activities have been carried out in multiple cities. As of the end of June this year, the digital yuan pilot scenarios have exceeded 1.32 million, with a cumulative transaction volume of over 70.75 million transactions and an amount of approximately 34.5 billion yuan.

As one of the leading countries in the global exploration of digital currencies, the rapid development of China's digital yuan has also attracted coverage from many foreign media outlets, and numerous scholars and entrepreneurs have expressed their views on this.

According to a summary by Chain Catcher of mainstream overseas media, there are roughly three views on the digital yuan in foreign markets: one believes that the digital yuan will help promote the internationalization of the yuan, and that the U.S. should quickly launch a digital dollar to catch up with China; another believes that the digital yuan will infringe on user privacy and strengthen domestic capital controls; and the last view is that the digital yuan is beneficial for the central bank to regain dominance in the electronic payment market from Alipay and WeChat.

1. Promoting the Internationalization of the Yuan, Challenging the Dollar's Status

The central bank has clearly stated that the research and development of the digital yuan is necessary for actively participating in international financial reform and coordinating dialogue, and is exploring ways to improve cross-border payments through the digital yuan. In February of this year, the Digital Currency Research Institute of the People's Bank of China announced a joint initiative with the Hong Kong Monetary Authority, the Bank of Thailand, and the Central Bank of the United Arab Emirates to launch a multilateral central bank digital currency bridge research project (m-CBDC Bridge), exploring the application of central bank digital currencies in cross-border payments.

From the perspective of some foreign media and scholars, the digital yuan will further promote the internationalization of the yuan and challenge the dominance of the dollar. At the same time, some industry insiders are calling for the U.S. government to accelerate the launch of the digital dollar.

In May of this year, historian Niall Ferguson stated in an interview with Bloomberg that the digital yuan poses a "potentially lethal challenge" to decades of U.S. financial hegemony. Michael Hasenstab, a senior portfolio manager at Franklin Templeton, also mentioned in an interview that this could weaken the dollar's role as the world's reserve currency.

Chris Larsen, co-founder and chairman of Ripple, wrote last year that China's leadership in digital currency presents a "once-in-a-century opportunity" for the digital yuan to replace the dollar as the world's reserve currency. He also stated that the U.S. must immediately launch a digital dollar initiative to keep pace with the digital yuan, further establishing Silicon Valley as a global financial technology center.

Facebook CEO Mark Zuckerberg, when the U.S. halted its stablecoin project Libra (now Diem), stated, "We really need to address some significant risks before we move forward." Zuckerberg said, "But I also hope we can discuss the risks of not innovating, especially considering the digital currency from the People's Bank of China. China has some infrastructure that is much more advanced than that of the U.S., and the U.S. needs to build a more modern payment infrastructure on top of what already exists."

The former chief technology officer of Coinbase stated that with the digital yuan now in place, other regions of the world (along with many Americans and Chinese) have cryptocurrencies. By 2030, the traditional financial system in the U.S. may only rank third.

However, some opinions suggest that the attempts at internationalizing the digital yuan may not be successful. The Financial Times published an article in February of this year stating that as long as the opportunities to enter the Chinese financial market are complex and opaque for all but professional investors, foreigners have little incentive to hold digital yuan.

2. Regaining Dominance in the Electronic Payment Market

The digital yuan adopts a centralized management and dual-layer operational mechanism, with the People's Bank of China directly responsible for managing the issuance and cancellation of digital yuan quotas, inter-institutional connectivity, and wallet ecosystem management, supervising the exchange and circulation services of the digital yuan, while also having a separate "Digital Yuan" app.

From the perspective of some foreign media, this setup aims to regain dominance in the domestic electronic payment market.

Bloomberg recently pointed out that the launch of China's digital currency echoes broader efforts to exert control over technology companies, such as forcing payment businesses to comply with traditional banking regulations. "If the electronic yuan really becomes popular, the central bank may siphon off deposits from Ant Group and Tencent, weakening their profitable lending and wealth management businesses. But the two companies may have no choice but to cooperate."

An analyst interviewed by the Financial Times stated that Beijing hopes to use the digital yuan to re-establish state control over its fintech industry and the vast electronic payment market, which is dominated by two large private companies, Ant Group and Tencent. This technology could actually become a competitor to their cashless payment platforms.

3. Infringing on User Privacy, Strengthening Capital Controls

According to public information, one of the main goals of the digital yuan is to replace the use of cash while adhering to the principle of "small anonymous transactions, large transactions traceable by law," assigning different transaction and balance limits to various wallets based on the strength of real-name verification.

From the perspective of some overseas media, scholars, and entrepreneurs, the issuance of the digital yuan by China will further infringe on user privacy.

The New York Times stated, "The digital yuan could immediately give the Chinese government more power to monitor the flow of funds, as the digital currency system can record every transaction. This raises concerns about privacy."

Coindesk also raised concerns in its report, stating, "By eliminating some of the previous restrictions on government collection of private transaction data, DCEP poses a significant risk to the financial privacy standards long upheld by free societies."

CNN reported in December last year that "Chinese authorities are aware of the challenges posed by sudden capital outflows," said Gillingham, co-founder of Singapore-based crypto brokerage Finxflo. "The introduction of the digital yuan will enable them to implement a higher level of capital controls."