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I came back from China with stacks of cash.
I didn’t say it was a lot of money.
In 2006, Microsoft Research Asia invited me to stay with them for a few months. I am still not sure how I got the offer (I did not apply). Probably because I worked on what was in high demand back then: web content extraction. You might have a “Reader View” in your web browser—I was building the first prototypes of such a feature. But that’s irrelevant.
Back then, China was practically a cash-only society. At least for someone like me. I opened a bank account and had a card, but I only used it to withdraw my salary. I needed cash for almost everything.
China was moving fast, and away from cash, already then. Fifteen years, ago it experimented with very unusual forms of payment. My apartment had a pre-paid electricity meter. I “recharged” it using a plastic card (to put money on the card, I had to hand cash to a security guard downstairs). It was just like a pre-paid mobile phone plan, but for your lights.
Even though I backpacked around the country, I didn’t spend all the money Microsoft paid me. Exchanging the Chinese Yuan was regulated and not easy, and I ended up with stacks of banknotes when departing. It took months until a friend, who was moving to China, bought the equivalent of a few hundred dollars from me.
Fast forward to today, and many places in China do not accept cash or even cards anymore. They take mobile payments, and a particular type of them, requiring scanning a QR code with your phone. Before you make a joke about QR codes, consider that you don’t need any terminals to accept payments. It’s so easy to get started that there are reports about beggars accepting mobile payments. One thing for sure: China is the leader. 85% of China’s Internet users scanned QR codes to pay in 2020, and the average customer in China scans a QR code, to pay, three times a day!
The Tang Dynasty introduced banknotes in the 7th century, while the rest of the world used only coins. China of the Xi era is lapping everyone once again by introducing the Digital Yuan (digital RMB, e-CNY). As of this month, more than 150 million e-CNY is in circulation and used for payments by test users around the country. The Digital Yuan, also known as Digital Currency Electronic Payment, is a legal tender with the same value as CNY bills and coins. It was launched by China’s central bank, and it is designed to be used in both domestic and international transactions, both as a retail and a wholesale currency.
Why does it matter? Digital Yuan is cryptocurrency-based. Individual “coins” are stored in a digital ledger. Every piece of currency can be traced back to see how, when and by whom it was used. Easy prevention of money laundering and scams. Or… mass-scale surveillance. It is possible to define rules for individual coins—expiry dates, geographical constraints, or even ownership restrictions or limitations on what could be bought with them. Is it great or terrible? Can it be used for good, evil, or both? Take the blue pill or the red pill.
The US now recognises that e-CNY might one day become more attractive than USD in international trade. The speed of transactions and potential ease of use is a big selling point. While China is already testing the currency in the wild and creating rules and systems for its use, very few other economies follow. There is a conversation about introducing Digital Euro, but no decision regarding implementation. In Australia, the concept of eAUD was suggested back in 2017. Three years later, in late 2020, the Reserve Bank of Australia concluded that there’s likely very limited demand for digital currency. RBA’s official position is to be a “fast follower”. Fast follower? In winner-take-all markets, “fast follower” is the “first loser”.
How ambitious.