In an effort to embrace digitization, China will be minting a digital version of its currency, the yuan, the Wall Street Journal reports.
The digital version of the yuan would reportedly be controlled and issued by China's central bank, and gives the government news tools to closely monitor the economy and people in real time.
"In order to protect our currency sovereignty and legal currency status, we have to plan ahead," said Mu Changchun, leading the new project at the People’s Bank of China.
In recent months, more than 100,000 people residing in China have downloaded an app as part of a test rollout. The app, from the central bank, gave those in the test a small amount of government handout money to use with merchants.
Unlike cryptocurrencies including bitcoin, which are notoriously volatile, the digital yuan would be strictly controlled by the People's Bank of China to ensure the same value between physical and digital money.
The central bank also would not be using the currency to put more money into circulation, but instead cancel out physical pieces in circulation.
The money would be trackable, although Mr. Mu said the central bank would limit its tracking in what he calls "controllable anonymity." The digital currency, when paired with China's vast amount of facial recognition cameras, could open the possibility of collecting fines as soon as an infraction was detected by those cameras.
US officials are looking into what effect the digitalization of the yuan could have on the US dollar.
Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell said that they are studying the issue and looking into the possibility of a future with a digital dollar.
"Anything that threatens the dollar is a national-security issue. This threatens the dollar over the long term," said John Lipsky, former International Monetary Fund staffer now at the Atlantic Council.
The Wall Street Journal wrote that while the digitalization of the yuan itself won't bring it to rival the dollar, the new digital form if used as an option in poor countries to transfer money internationally could take a bite out of the sanctions placed on China by the US. The digital yuan could potentially allow ways for people to exchange money without the US, who has demanded knowledge of cross-border transactions as the issuer of 21,000 bank's dollars, knowing. The exchange could happen without the use of SWIFT, a US government monitored messaging network used by banks for transfers.
In a 2019 Harvard University war game regarding the digital yuan funding nuclear missiles in North Korea, Nicholas Burns, an American diplomat told the group, "The Chinese have created a problem for us by taking away our sanctions leverage.”