Beijing is positioning digital Yuan for international use, designing it to be untethered to global financial system

The Wall Street Journal is reporting that the Chinese government is minting cash digitally in a re-imagination of money that could shake a pillar of American power.

By doing this, China is set to become the first major economy to create its own digital currency, which stands to give Beijing power to track spending in real time, as the super power nation is turning legal tender itself into computer code. China’s version of a digital currency will be controlled by its central bank, which will issue the new electronic money.

This move is expected to give China’s government vast new tools to monitor both its economy and its people. Beijing is also positioning the digital Yuan for international use and designing it to be untethered to the global financial system, where the US dollar has been king since World War II.

The Wall Street Journal says China is embracing digitisation in many forms, including money, in a bid to gain more centralised control while getting a head start on technologies of the future that it regards as up for grabs.

Functionality of the digital Yuan

The digital Yuan resides in cyberspace, available on the owner’s mobile phone or on a card for the less tech-savvy and spending it doesn’t strictly require an online connection. It appears on a screen with a silhouette of Mao Zedong, looking just like the paper money.

In tests in recent months, the Wall Street Journal reports that more than 100,000 people in China have downloaded a mobile-phone app from the central bank enabling them to spend small government handouts of digital cash with merchants, including Chinese outlets of Starbucks and McDonald’s.

“It’s pretty good,” said Tao Wei, a young woman in Beijing, after spending a test allotment. It took her just an instant to pay for her two-year-old daughter’s birthday portrait by pointing her iPhone toward a scanner.

The Chinese Communist Party has also let members settle monthly dues with digital Yuan. China has indicated the digital Yuan will circulate alongside bills and coins for some time.

Will Beijing digitise all of its money eventually?

 Bankers and other analysts say Beijing aims to digitise all of its money eventually. Beijing hasn’t addressed that.

“In order to protect our currency sovereignty and legal currency status, we have to plan ahead,” said Mu Changchun, who is shepherding the project at the People’s Bank of China. Asked in recent weeks how digitised national currencies such as China’s might affect the dollar, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have said the issue is being studied in earnest, including whether a digital dollar makes sense someday.

The dollar has faced challengers before—the euro, to name one—only to grow more important when rivals’ shortcomings became apparent. The American dollar far outstrips all other currencies for use in international foreign-exchange trades, at 88 per cent in the latest rankings from the Bank for International Settlements.

Digitised money looks like a potential macroeconomic dream tool for the issuing government, usable to track people’s spending in real time, speed relief to disaster victims or flag criminal activity. With it, Beijing stands to gain vast new powers to tighten President Xi Jinping’s authoritarian rule.

Anti-counterfeiting measures will be in place

Anti-counterfeiting measures will be designed to make it impossible for anyone besides the People’s Bank of China to create new digital Yuan. While China hasn’t published final legislation for the programme, the central bank according to the Wall Street Journal, may initially impose limits on how much digital Yuan individuals can keep on their person.

This is being done as a way to control how it circulates and provide users a dose of security and privacy. China’s central bank won’t use the new technology as a way to get more money into circulation, since every Yuan issued digitally will essentially cancel one Yuan circulating in physical form.