China is moving towards a cashless society, but not necessarily for the right reasons. Europe has little to offer so far, and considering what is at stake, that could become a major challenge. 

On 16th April, China became the first economy in the world to launch its own digital currency. This puts the People’s Bank of China well ahead of its counterparts in Europe and the USA. While European central banks are still exploring the opportunities, China has already gone over to the implementation phase. 

Initially, the People’s Bank of China will conduct a pilot in the city of Suzhou, where government officials’ salaries will be paid in the digital currency. From May onward, the government will gradually expand the use of the currency.

No competition for Bitcoin 

The digital Yuan will primarily act as a means of payment and is thus no direct competitor for Bitcoin, which serves as an investment vehicle and is hardly ever used as a means of payment. The argument, the Chinese government could increasingly take action against Bitcoin mining farms to ensure the digital Yuan’s monopoly in China’s digital currency market, has not proven to be true either. 

Instead, the digital Yuan could, in the future, compete with other digital means of payment, such as Ripple or Facebook’s planned Libra currency. More importantly, however, is the question of whether China’s push will put pressure on Western governments to issue digital currencies as well.

The competitiveness of Western businesses is at stake 

Neither in Europe nor the USA is a digital central bank currency realistic in the foreseeable future. Above all, there is a lack of political will, with blockchain budgets being too small and a lack of political strategies – at least at the supranational level. 

With the digital Yuan, the competitiveness of the West is now at stake. In the future, businesses will achieve productivity gains primarily through digital technologies and a higher degree of automation. Digital money will also play a key role in these developments. For example, a digital, programmable euro could automate payment processes between machines, increasing transaction speeds, and reducing transaction costs.

With the digital Yuan, China attempts to gain a competitive advantage over its international rivals. Better availability, faster payment processing at lower costs, and a higher degree of automation through programmable money will benefit the Chinese economy and industry in the long term. 

An instrument for total monetary surveillance 

Besides, the digital Yuan should never become a standard for digital central bank currencies, as the Chinese central bank has willfully ignored any civil rights in its programming. The digital Yuan allows the state to access users’ wallets and track all transactions. It thus becomes an instrument of the surveillance state. To avoid this from becoming the norm, the West needs to create an adversary that is consistent with democratic values.