Central banks across the world have been mulling the creation of a government digital currency to one day replace cold hard cash. Beyond bidding adieu to the logistical headaches of handling germy physical bills, governments like the idea of having a better eye on transaction data to cut down on tax evasion and disfavored dealings. Fully severing the link with meatspace money could also, how do they put it?—"enhance central banks' monetary toolkits."
But one man's enlightened modern governance is another's technodystopia.
Giving the government a "God view" into all commercial data threatens the well-being of maligned or persecuted groups. Could you one day find yourself among these ranks? The Sauron's eye of a GovCoin could give convenient cause for a legal vendetta against you should you happen to find yourself beyond the acceptable bounds of establishment preference.
And although it may seem there is little constraining the Federal Reserve's actions these days, the physicality of money at least provides some check against operations like imposing negative interest rates.
It is against this backdrop in our ongoing war against cash that China is releasing its proposed digital currency into the world. This month, the People's Bank of China (PBOC) launched a pilot program for its state electronic payment system in four cities: Shenzen, Suzhou, Chengdu, and Xiong'an (in the outskirts of Beijing).
Officials say the currency, internally called "digital currency/electronic payment" (DC/EP), is not intended to replace all money or even to be offered nationwide, and is in part an experiment to prepare for the 2022 Beijing Winter Olympics. At the same time, the PBOC boasts that DC/EP will "combat money laundering, gambling and terror financing" while "[improving] the efficiency of transactions in its financial system." It is a good bet that if the Chinese government is pleased with the results of this experiment, it will extend DC/EP to corral more financial transactions.
Many in China are already quite familiar with digital payment systems. Some 92 percent of people living in China's largest cities report that they use one of the two most popular digital payment platforms, WeChat Pay and Alipay, for most of their transactions. Visitors to China are frequently mystified at the sight of shoppers simply scanning their phones to pay for all goods and services, with nary a crumpled Renminbi or even a plastic card to be found.
There is no question that digital payment systems are super convenient. Many of us already use them every day. Not only can you dispense with the need to deal with a shopkeeper, you can quickly reimburse friends and family for a night on the town with the tap of a screen. It's just easier to deal with glowing numbers than cash and coins. And since everyone is already on the same platforms in China, there's no coordination problems, either. You don't need to juggle between Venmo and Square and Zelle and Apple Pay and Stripe and Paypal and … you get the picture.
Of course, convenience can be costly. There is cause for concern whenever data or property can be centralized if for no other reason than it is easier to target. In China, this problem is more than theoretical: Internet companies must share data with the Chinese government by law. And the Chinese state has recently moved to exert more influence over WeChat parent company Tencent and Alipay operator Ant Financial so they act more like "state overseen enterprises."
And why wouldn't it? Gathering transaction data may be the most perfect surveillance system possible. By merely observing what a person buys, a government can get an intimate look at their whereabouts, habits, personality, health and relationship statuses, aspirations, finances, and even their fertility. The best part about financial surveillance is that it's practically invisible. No street cameras or microphones needed. The data are gathered as a necessary component of the service. Every day, we give companies a raw look into our lives and loves without a moment's thought.
Formally creating a state-run digital currency is just the next logical step in China's progression towards financial digitization. Of course, the PBOC promises that DC/EP will "protect users' privacy." Do you believe that? Without more details on how the system will work, few people will.
As Coin Center's Neeraj Agrawal points out, there is a big and important difference between "private" as in "we promise not to look at the data" and "private" as in "we don't have the data." Which setup do you think a government would prefer?
Westerners may be tempted to assume that the surveillance risk of the PBOC's proposed DC/EP follows from the unique authoritarianism of the Chinese state. After all, we hear story after story of the Chinese government targeting religious minorities, censoring pictures of Winnie the Pooh (among other things), and cracking down on Hong Kongers. The problem isn't with a government digital currency per se, you might conclude. The problem is that the Chinese government is uniquely oppressive.
But we don't need to look all the way to the Orient for examples of expansive state snooping on finances. The good ol' US of A literally wrote the book on transaction surveillance and control in the form of anti-money laundering and know your customer (AML/KYC) regulations. These regulations not only can infringe on the privacy of U.S. citizens, they are applied internationally through bodies like the Financial Action Task Force (FATF). Empowered governments use these controls to apply pressure on errant states and organizations.
Many of the same Western governments engaged in such financial surveillance are considering their own national digital currencies. Citing a decline in the use of physical banknotes and coins, Sweden's Riksbank launched a pilot of its long-planned e-krona last year. The Bank of England is exploring the possibility of launching its own central bank digital currency. And the idea of a "digital dollar" got a big boost in the U.S. during the COVID-19 pandemic when policymakers considered creating one to make stimulus payments to Americans.
Would governments that engage in financial surveillance of traditional transactions suddenly find a newfound respect for privacy when launching their own digital currencies? The question answers itself.
If China's experiment with digital currency is fruitful, expect envy from other states. Don't fool yourself that our digitized government monies would obviously be better than theirs. Having the Federal Reserve serve as both a money creator and a retail bank account operator would effectively anoint the Fed as a national surveillance body, as the economist Lawrence H. White has noted.
We don't need some government scheme to enjoy the benefits of convenient digital payments. Plenty of private online payment systems already exist. We are even spoiled enough to have private and secure digital currencies like bitcoin, too. Governments are pointing to problems that don't exist to justify new powers that are truly problematic.
We have enough to worry about with central banks as it is. Let's not supercharge them as super-snoops, too.
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April 28, 2020 at 07:43PM
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China Is Rolling Out a Government Digital Currency. We Shouldn't Try to Copy Them. - Reason
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