China's digital yuan: Currency, control, and a new world order?

Imagine opening your digital wallet not to see a bank card or a third-party app like Alipay, but official government-issued currency—straight from your country's central bank.

- (The writer, a senior Chartered Accountant and professional banker, is Professor at SLIIT, Malabe. The views and opinions expressed in this article are personal.)

That's not science fiction. That's what China is building with the e-CNY, its new digital version of the yuan. While it might look like a simple upgrade to how people pay for groceries or ride the subway, the e-CNY is much more than that. It's a carefully planned tool that combines finance, technology, and politics and it might just shake up the global economy.

What is e-CNY, really?

At its core, the e-CNY (also known as the digital yuan) is a digital currency created by the People's Bank of China (PBoC). Unlike cryptocurrencies, like Bitcoin, it's fully state-controlled, traceable, and centrally issued. Think of it as the digital twin of China's paper money-same value, same legal status, but far more programmable.

It works through a two-tiered system. The central bank distributes digital yuan to commercial banks, who then pass it on to the public. Since pilot testing began in 2020, the e-CNY has been quietly used across Chinese cities for daily transactions from coffee to cab rides, and even at the 2022 Winter Olympics. But its ambitions stretch far beyond convenience.

Domestic goals: More than just a wallet

The digital yuan gives China's Central Bank new tools to shape its economy. Imagine a currency that can be programmed to work in certain ways say, speeding up spending during a downturn or targeting stimulus to specific sectors or individuals. It could even help fine-tune interest rate policies or prevent misuse of government relief funds.

This new control could improve financial stability and give policymakers real-time insights into economic activity. For ordinary people and businesses, that might mean more effective policies-but it also raises questions about how much the government should see and control.

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