China’s Cryptocurrency Plan Has a Powerful Partner: Big Brother
Facebook’s Libra project led Beijing to accelerate its efforts. The government could soon know a lot more about how people are spending.
BEIJING — When Facebook announced plans this year for a cryptocurrency called Libra, it said its goal was to reinvent money for the internet age. What the company probably didn’t imagine was that its efforts might spur China to get there first. China wants to start replacing the cash that people carry with a digital currency soon, a long-discussed project that went into overdrive after Libra was unveiled in June. Facebook has been fighting to defend its initiative against skeptical regulators, and key corporate partners have pulled out of the project. But Beijing’s ambitions appear to be moving ahead at full speed.
The system emerging in China looks very different from Bitcoin and other cryptocurrencies that enthusiasts have championed as tools of emancipation from big banks and governments. A state-issued e-currency would help China’s government know more — much, much more — about how its citizens spend their money, giving it sweeping new powers to fight crime and manage the economy while also raising privacy concerns.
“It’s extraordinary power and visibility into the financial system, more than any central bank has today,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington. Not even half a year has passed since Facebook unveiled Libra, but the tech giant’s foray into finance has been met with a steady stream of doubts and questions.
The Federal Reserve says it has “serious concerns.” European officials have threatened to block the project from moving ahead on the Continent. Mark Zuckerberg, Facebook’s chief executive, is set to appear on Capitol Hill next week to discuss the plans. For Beijing, Libra has provided another urgent motive for digitizing the currency. China blocks Facebook’s platforms within its borders, but Chinese leaders see in Libra the potential start of a new world financial system, one that could bulldoze the traditional authority of governments and central banks — China’s included.
“If Libra is accepted by everyone and becomes a widely used payment tool, then after some time, it is entirely possible that it will develop into a global, super-sovereign currency,” Mu Changchun, a top official at China’s central bank, said in a recent online lecture. “We need to plan ahead to protect our monetary sovereignty.” The idea of a national virtual currency is hardly new. Central bankers in Britain, Singapore and Canada have conducted experiments on how digital tokens might be integrated into the financial system. A board member at the European Central Bank said last month that Libra was a “wake-up call” that had revived the bank’s electronic payment efforts.
Beijing’s interest in the subject is just as longstanding, even if China has for years restricted the use of Bitcoin and other cryptocurrencies within the country. The People’s Bank of China started a cryptocurrency research group in 2014, and as early as 2016, the central bank’s governor at the time, Zhou Xiaochuan, had mused about issuing a digital coin. But in 2017, as Bitcoin’s value soared and speculative frenzy raged, China shut down cryptocurrency exchanges and cracked down on fund-raising through virtual coins.
After that, officials continued to discuss a government-controlled digital currency in speeches and articles, and after Libra was announced, China declared that it was accelerating its efforts. Chinese officials have said little about when the project might start becoming a reality. At a news conference last month, Yi Gang, the central bank’s governor, said the new coin would replace only a portion of the cash in circulation. The central bank did not respond to requests for comment.
China’s proposed currency shares some elements with Facebook’s, though aspects of Beijing’s plans may not yet be firmed up. Facebook says Calibra, its digital wallet for holding and spending Libra, will require ID verification, and the company is vowing to use your financial data responsibly. It says it will not, for instance, take note of your pain reliever purchases to push Instagram ads for clinics.
China has suggested that it, too, will keep spending information away from marketers — but not from the authorities. The banks and electronic payment companies that will distribute the new digital currency already require users to authenticate their names and identities. And officials have made clear that the central bank will be able to view data on transactions. Chinese consumers have for years paid for everything with their phones, and the country’s two dominant mobile payment services, Alipay and WeChat Pay, have become pillars of the Chinese economy. Alipay says it has processed as many as 256,000 payments per second. By comparison, Visa says it can handle 65,000. Libra is promising to do 1,000, at least at the start.
But many transactions on the Chinese platforms move exclusively between digital wallets, never making contact with the state-dominated banking system. That means the Chinese government has to go through the platforms’ privately owned parent companies, Ant Financial and Tencent, if it wants to track and scrutinize those movements.
This article originally appeared on nytimes.com To read the full article and see the images, click here.
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