China Is Making Smart Money

While U.S. financial policymakers are only beginning to study and debate the possibility of creating a digital dollar, China is amidst a national blitz to digitize its entire economy. For several years, the digitization of the economy has been mostly a Chinese Communist Party (CCP) talking point reserved for state planning documents. Now it is becoming a reality. In July, China’s central bank, the People’s Bank of China (PBOC), published a 15-page white paper outlining its progress in developing the nation’s central bank digital currency, known as the “eCNY” or digital renminbi. The white paper offers the first official details of China’s groundbreaking effort to digitize its currency, confirming much of what we assessed in a Center for a New American Security research paper in January 2021. But what is most revealing on the ground in China is how the CCP is piloting new financial technology (fintech) throughout the massive Chinese economy. Chinese financial and tech firms are innovating—building new applications on top of the government’s eCNY architecture to make faster and more dynamic financial transactions. Taking its cue from the CCP’s national fintech strategy, the private sector is working to make Chinese money smarter. This may mostly be a domestic affair, but it is likely to carry into foreign policy as China pushes the rest of the world to follow its technological path. China’s fintech focus is a geopolitical move, in a race where the nation with the best data wins. And if the global digital economy evolves to rely more on China’s technological innovation, it will give the CCP much more bargaining power in international affairs.

As a U.S. national security matter, China’s progress in the digital renminbi is more about China’s ambition to harness data than it is about advancing its currency. While U.S. policy discussions around technology and data tend to focus pointedly on the issue of privacy protection, the CCP sees data as critical national infrastructure. Chinese President Xi Jinping has called data “a new factor of production, a basic and strategic resource … necessary to build a digital economy.” Xi spoke these words at a Politburo meeting on “Implementing a National Data Strategy” back in 2017. For China, data is not the new oil—it’s the new electricity. The CCP is channeling domestic policy through controlling data. The Chinese government aims for data to power the infrastructure and applications that govern daily life—and for the state to control that data for political and economic ends. Although some U.S. policymakers do realize that China’s data innovation could threaten U.S. competitiveness, the U.S. has not articulated any vision for what U.S. competitiveness in a data-based economy should look like. Meanwhile, the digital renminbi project is China’s national data strategy in action.

Read the full article from Lawfare.