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Tim Clancy (left) of Australia, a resident for six years in the Zhejiang provincial capital of Hangzhou, takes his American friend (centre) to a vegetable market where he pays for vegetables through mobile payment on April 14, 2017. Photo: Xinhua

Blockchain ambitions: geopolitical implications of China’s pioneering digital currency spread far and wide

  • To see how China’s blockchain ambitions are being put in place, look no further than Xiongan, 100km from the Chinese capital
  • Xiongan brings together many of China’s development initiatives: fiat digital currency, Belt and Road infrastructure, underpinned by blockchain

In the final instalment of a three-part series produced with support from the Judith Neilson Institute for Journalism and Ideas, Forkast.News looks at the geopolitical implications of China’s technological lead in blockchain and digital currency. Parts 1 and 2 were published on June 28 and June 29.

John Chen has viewed the rise of the cashless economy on a split screen. On one side, the China of his birth, a place where paper fiat has all but gone extinct, even in far-flung villages. On the other, the US state of California, where he attended high school and now majors in computer science at a state university, where paper currency remains common.

Raised in Fujian to tech-entrepreneurial parents, Chen is in many ways a quintessential modern Chinese. With a comparative eye, he has been following the development of his country’s unique consumer culture for half a decade.

“When I visited China in 2016, I was like, ‘Wow!’ Everyone is using WeChat Pay and Alipay. Nobody had a purse or a wallet,” he said.

Businesses requested that he paid digitally, which he much preferred to using credit cards. “Personally, I don’t like [carrying a wallet] because I’ve already lost my wallet three times in five years,” he said, most recently during the height of Covid-19 restrictions in the US Without cash, credit cards or his driving licence, he had to ask a friend to lend him money and drive him to Target so he could “grab some chicken for dinner,” he said.

A restaurant in Hong Kong’s Tsim Sha Tsui district displays three cashless payment options – Octopus, Alipay and WeChat Pay – alongside its menu, on June 7, 2021. Photo: Felix Wong.

Now back East taking remote classes, Chen will have a front-row seat for the next stage of China’s evolution. Beijing is widely expected to launch its central bank digital currency at the 2022 Winter Olympics in February.

Unlike Alipay and WeChat Pay, however, the digital yuan gives Chen pause. His reasons offer a preview of debates that will only grow with the rise of all CBDCs in the coming years.

“I’m concerned because I feel like [government officials] would be able to see all my transaction details,” said Chen. “I would lose part of my privacy and I don’t think I would be 100 per cent happy with that.”

Of course, Alipay and WeChat are already connected to the government (and have even assisted in the development of the digital yuan) such as with ID verification procedures tied to state cameras. The linkage grows the larger the transaction, as it does virtually anywhere financial institutions have reporting requirements. But having private companies as a buffer from direct state access to his user data makes a difference to Chen.

China’s controversial social credit system – which monitors and scores citizens on their trustworthiness – has raised concerns over how the state might use the e-CNY to further monitor its people, control dissent and incentivise or dissuade certain behaviours.

“It’s easy to see how the digital yuan could aid in the development of the social credit system, with stricter controls rather than looser controls,” said Ian Wittkopp, a Hong Kong analyst for Sino Global Capital.

In Washington DC, the debate about digital currencies reflects the multiple roles played by money – not just as a means of payment, but a symbol of political power and the values imposed by that power.

In July 2020, soon before China began e-CNY pilot tests, a former chair of the US Commodity Futures Trading Commission, J. Christopher Giancarlo, delivered a warning to the Senate Banking and Finance Subcommittee.

“The stakes of the contest for the future of digital money are as high as any of the transformational technological revolutions of the past one hundred years,” Giancarlo testified. “We are indeed entering a new world. The question is who will design and build those digital systems … and what social values will be brought to bear.” Privacy, free enterprise, free speech and democracy are all at risk, he later elaborated.

Through the banking communications system Swift, the US functionally has a hand on the spigot of global capital flows – a power that Washington has used in recent years to sanction Venezuela, Iran, Syria, North Korea and a number of individuals.

Giancarlo told the senators that the more widely the digital yuan is adopted, the greater its ability to bypass Swift and help other states do the same. This, he said, could increase the chance of war.

Among technocrats, however, there is less hyperbole. Tommaso Mancini-Griffoli, a division chief of the International Monetary Fund (IMF), said at the Coindesk Consensus conference in May that generally speaking, “a world with more than one reserve currency is a more stable world.”

Of course, whether CBDCs will prove successful remains to be seen. While China is steadily digging the trenches to global acceptance through its Digital Silk Road and Belt and Road Initiative (BRI), the ultimate proof will be mass adoption.
Digital payment being made through the quick response (QR) code at a street food stand in Chengdu via Alipay and WeChat Pay wallets on March 24, 2019. Photo: Shutterstock.

As Chen showed, ordinary Chinese have mixed opinions. Tab Liu was born and raised in central Henan province.

Like Chen, he now studies at a university in California, where he double majors in earth sciences and international relations. The grandson of peasant farmers, Liu attended middle and high school 150 miles from home. Nearly a decade later, he is effusive about the BRI infrastructure project that made it possible for him to pursue a better education.

“We have the best high-speed railway system,” he said. A distance that still takes 21 hours to traverse in the US, such as Chicago to New York City, takes just five in China.

Liu takes a similar pride in the rise of a cashless economy. “In the last five years, I have not carried any cash in China,” he said. Whether the digital currency he uses is directly connected to the state does not concern him. “The Chinese government is very prudent about financial problems. As long as they officially launch the digital currency, it is highly likely to be mature and secure,” he said. “All people have lost privacy in this information era,” Liu added, and offered examples of US encroachments on privacy.
QR codes of Alipay and WeChat Pay on display at a vegetable stall in a wet market in the Jiangsu provincial city of Nantong in eastern China on 11 April 2018. Photo: Imaginechina via AFP.

Richard Byworth, CEO of Singapore-based Eqonex, a digital-asset financial services company, said that in his custodial business, “Chinese clients based in Hong Kong and European clients mainly in Switzerland prefer dealing with [non-U. S.] financial institutions. There’s a sensitivity around having assets in the US and what that may mean sometime in the future if geopolitics were to become an issue in some way.”

He cited the regulatory environment and governmental reach during recent administrations as the causes of this wariness.

Byworth also points to more purely economic factors undermining trust in fiat money in general. He sees government efforts to support citizens during the pandemic as driving people to cryptocurrencies, an entirely private form of money. “When you see that 40 per cent of all dollars outstanding were printed during the pandemic, you can understand why people are looking to assets like bitcoin to protect their wealth against this devaluation,” he said.
A citizen using Alipay’s digital payment system to pay for a bus fare on bus No. 506 in the Zhejiang provincial capital of Hangzhou on August 16, 2016. Photo: Xinhua.
Bitcoin reached an all-time high of US$64,000 in April, soon after passage of the US$1.9 trillion stimulus bill known as the American Rescue Plan Act of 2021.
This has implications for the digital dollar. US Federal Reserve chairman Jerome Powell in May said the US is considering the pros and cons of developing a digital dollar while “carefully monitoring and adapting” to the rise of digital payment systems and private currencies, like bitcoin. While Powell has said in the past that the US would not be drawn into a CBDC race with China, he notably did not mention China in his address to the American public, which was recorded and posted on YouTube.

The contrast between the two superpowers’ CBDC activity is stark. While the US is “still at the stage of planning to talk about talking about it,” as Stanley Chao, a Los Angeles-based consultant on economic trends in Asia, put it, China is marshalling all of its considerable resources to usher the world toward its sweeping, holistic vision of the future.

How life may change is already coming into focus about 100km southwest of Beijing, where the Chinese have begun building what President Xi Jinping in 2017 called the “ city of the future.” In Xiongan, many of China’s development initiatives have come together: fiat digital currency, Belt and Road infrastructure, and most of all, blockchain technology that underpins it all.
Aerial photo taken on March 17, 2021 shows the construction site of a relocation area in Xiongan New Area in north China's Hebei Province. Photo: Xinhua
Picture a newly opened 19-track high-speed rail terminal that sends commuters to Beijing, 250km away, in 50 minutes. It’s a green city, with land use and development capped at 30 per cent. And it’s the first “smart city” to have blockchain built into its core technological infrastructure.

Recently, Xiongan signed a contract with a Beijing start-up, S-Labs, to make blockchain applications for food safety, project supervision, and procurement and bidding.

From her close view of a smart city in development, S-Labs CEO Stacey Zhou said the significance of building a city with blockchain cannot be underestimated.

“Xiongan is special, it’s like a blank paper we can draw or write anything on,” she said. “We built it on a digital chain so the real city and digital city are being built at the same time, for the first time ever. Every single data is supported by blockchain. It is real, recorded and inalterable.”

Aerial photo taken on April 1, 2021 shows the Xiongan Railway Station of the Beijing-Xiongan intercity railway in Xiongan New Area in northern China's Hebei Province. Photo: Xinhua

Xiongan has used blockchain applications to pay billions of yuan for construction materials as well as to compensate migrant workers and residents who had to be resettled, all without the fraud or misappropriation that often plagues large public works.

A transformation is imminent, Zhou said. More cities will be built on blockchain, and existing cities will be retrofitted with it.

She believes the CBDC will be an integral part of life in Xiongan. “Maybe you don’t understand the technology but this is the future and the future is coming,” she said. “Open your mind. Work with us.”

The original story by Forkast.News is here.

Illustration: Henry Wong