China Is Rolling Out a Government Digital Currency. We Shouldn't Try to Copy Them.

Western countries aren’t immune to the siren call of surveillance via commerce-tracking.


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.

NEXT: Hawaiian Brewery Under Investigation for Hand Sanitizer Giveaway

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Rick and Morty had a bit about this:
    “Sir our single unified currency just went from being worth 1 of itself to 0 of itself.”

  2. Fuck that

  3. “the idea of a “digital dollar” got a big boost in the U.S. during the COVID-19 pandemic”

    Well that would save the Treasury the trouble of minting those trillion dollar coins.

  4. Don’t worry, we won’t be rolling out a national digital currency. The government, on the other hand, is not “we” and they’re all in favor of the total surveillance state. For the children, of course. Imagine being able to click a single button and being able to cancel somebody’s passport, driver’s license, bank accounts and credit cards, alert the network of public cameras with facial recognition capabilities and the network of cellphone tracking towers to be on the lookout for whatever terrorist de jour or de jure needs looking out for.

    1. Yes they are. And one of the things they hate most is paper currency. Shame on any idiot who wants to ban paper currency because they love all things shinny and techie.

      1. Damn, Greenbacker. Give me Gold/Silver coinage or Death!

        /said impishly

        1. Analog is freedom. It can’t be centralized and it can’t be tracked and controlled the way all things digital can be.

          1. Exactly correct. Digital currency can be wiped away with a click of the mouse.

          2. Oh i agree, just was pointing out that paper currency isn’t the only way. Cash is King, is a favorite saying I learned from my Grandfather.

            1. Kings don’t like it when something else, like cash, is king. Eventually they will try to eliminate the competition.

    2. It called China.

    3. Imagine being able to click a single button and being able to cancel somebody’s passport, driver’s license, bank accounts and credit cards, alert the network of public cameras with facial recognition capabilities and the network of cellphone tracking towers to be on the lookout for whatever terrorist de jour or de jure needs looking out for.

      That “sploosh” noise you may have just heard was every government spook jizzing in their pants.

      A digital currency will also make it much easier to implement some kind of “social credit score” (another wonderful idea to be copied from the Chinese Communist Party) and shut down anyone the government doesn’t like from engaging in commerce they disapprove of.

      1. You haven’t had your vaccine, well then your bank account is empty until you comply minus a service charge

      2. We already have social credit scores – we just call them credit scores.
        It’s bad when the Chinese do it too, but we started it.
        Centrally planned social engineering ftw

        1. Uh no.

          Your credit score is about how you use your credit. The social credit score is about your behavior. Monetary or not.

    4. Governments love the label “terrorist” as it instantly demonizes whoever they want to.

  5. You know who else has “digital currency”?

    1. I am amazed that people are so stupid and naive to think governments are not going to infiltrate, track and control bitcoin and other homemade digital currency just like they do everything else on the web, assuming they haven’t already done so.

    2. Not Tara Reade.

    3. A prince in Nigeria?

  6. Fundamentalist beliefs about a digital currency being “the Mark of the Beast” are wacky, but the beliefs are also one of the barriers to our government establishing a digital currency.

  7. Having lived for a time in a country where the currency pretty much evaporated into the air as a result of the government thinking banknote printers created actual wealth, I believe that there would be a network of parallel currency grow up out of nowhere. In Venezuela people hold onto dollars to spend them on things that can not be bought with bolivars.
    If all the major nations all go digital, there are millions of dollars in junk silver floating about now. The alternate currency can be just old cash.

    1. Yep. There will always be an informal economy with some sort of physical currency, no matter what governments do.

      1. some of the physical currency will be really physical like sex in exchange for whatever you deem.

        1. It’s called marriage.

    2. They will make anything like junk silver illegal to trade in and offer rewards to turning people in. If this COVID-19 hasn’t opened your eyes to those possibilities, you haven’t been paying attention. America is full of snitches. We will make the KGB look like amateur hour.

  8. On the other hand, the Federal (or even state level) governments could use the establishment of government-issued ID certificate (like the European Union’s eIDs) as a beachhead for digital currency.

  9. Isn’t the use of cash already stigmatized? Using cash to pay for large, expensive items or even travel or accommodation can raise suspicion.

    1. If you have lots cash then the burden of proof is on you to prove you obtained it legally. Otherwise Johnny Law is gonna use it to buy a new car.

      1. Seems, then, we’re the ones leading the way in the Digital Currency business, and it’s the Chinese who are following us.

  10. 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?

    Government would prefer option #3: “We pinky swear not to look at the data but our fingers are crossed behind our backs. Suck it, proles!”

  11. >>>We Shouldn’t Try to Copy Them.

    no but we _should_ try to steal it.

  12. Digital (Virtual Currency?

    Excerpts from the novel, Retribution Fever:

    Waiting in the proverbial wings was the concept of digital cash similar to that which already had been issued by private enterprise; only this digital cash would be issued by the federal government, initially as a parallel currency. Ultimately, the diabolical concept would replace all actual, physical currency except, perhaps, the smallest denominations. As usual, the government would claim falsely that doing so would be in the interest of the nation and for the protection of each honest citizen. Gone would be any semblance of privacy and with it any remnant of real liberty.

    Currently, the IMF is floating an expansion of its program of “special drawing rights” via offering to issue a digital international currency so based, akin to Keynes’s later proposal called “bancor” in the 1940s; thereby, functionally ending the U.S. dollar as the reserve-currency”, if not ending the dollar itself. Not surprisingly, the Chinese support such a currency.

    We have targeted an appropriate, achievable goal as follows: To have a sound economy with a sound, stable currency.
    We have designed a plan as follows:
    1) To abolish the Sixteenth Amendment; thereby, terminating the federal income-tax and replacing it with a basic, flat, national sales-tax of 10% — 15% including universal medical coverage through the private sector.
    2) To stabilize the currency based upon production not consumption.
    3) To issue a new dollar with value equal to that of 1913 when the Federal Reserve Board came into existence.
    4) To withdraw the power to steal by way of the balloting box; whereby, recipients of governmental welfare had determined the largesse that they themselves received.
    5) To limit coinage and printing of new monies. Of note, recently, the introduction of a voluntary, private, alternate system of virtual monetary exchange paradoxically created a new path for complete economic tyranny via an involuntary system of governmental, virtual, monetary exchange identifying the holder of each unit via his Social Security Number or other number and every exchange transacted.
    6) To set interest-rates by investors in a free and open market rather than by governmental bureaucrats closeted in a closed room.
    7) To prohibit federal debt except during declared wartime.

  13. The entire premise here is horseshit.

    Like it or not, all property rights to ‘US dollar’ (and presumably US Eagle) belong to the US government – as ‘all of us’ not as some alien from Mars. The Constitution defined that as an explicit authority of the federal government. The 1792 legislation created the particulars. All the changes since then re its form, distribution, etc are part of the ‘necessary and proper’ powers that have been accepted since Marbury v Madison

    The problem with our money system is the grant of private monopoly over that. From the exclusive right of primary-dealers to distribute govt debt however they choose to the right of private banks to create even more money on top of that govt debt by making loans.

    Forcing the government to limit itself re its own property is nothing more than defending the existing system of private monopoly. That is not the solution at fucking all. That is perpetuating the problem.

    The solution is to allow COMPETITION. Not to eliminate govt-issued currency. Or to freeze it in a status quo that benefits the 1%. But to let govt manage its own currency issuance and debt – and to let private issuers manage a currency that they own – and to let people choose which currency will be the one they prefer. The only restriction of said private issuers would be prevention of fraud/counterfeit (no use of terms like ‘US dollar’ or somesuch) and rules/regs if they want disputes re said currency/contracts to be resolved in a govt court.

    Course – modern libertarian ideas really don’t have shit to do with actual free markets but with defending the private status quo and eliminating govt and self-governance altogether.

    1. Problem: Guess which currency 99.9% will be paid in? How would the other currency compete? You can bet Amazon and other Big Box stores will side with the government.

  14. Yeah, I think I remember reading about this in some dusty old book called the Thimble or Bimble or something like that. Something to do with a repeating series of numbers like 99999 or something. I’m sure it’ll come to me.

  15. The notion that the West/USA “shouldn’t copy China’s surveillance state” is laughable – our people are taking copious notes, and it is only a matter of time before all this is in place here. And you can scream constitution and have all the liberty rallies you want, and nothing will change, because this helps those in power stay in power, and BOTH parties will be 100% on board with it.

    So let’s stop being delusional. There is NOTHING we can do at the ballot box to stop this. Orwell was a genius.

Please to post comments

Comments are closed.