In a push to dominate global financial technology, the Chinese government aims to roll out the world’s first state-backed digital currency.
For the past decade, companies, collectives, and in the case of Bitcoin, anonymous creators have released digital currencies on the internet. Many of these have seen exceptional success. Bitcoin’s market capitalisation, for example, is higher than that of giants like Facebook, Tesla and Walmart.
While these currencies have helped bring about an age of digital money, nation-states worry that an unregulated and uncontrollable currency could inhibit a central bank’s ability to keep a country’s unit of exchange stable.
Several countries are actively exploring a state-controlled digital currency; however, China is years ahead of its rivals. The Chinese state has been working on its own digital currency since 2014.
The People’s Bank of China (PBOC) has been spearheading developments on the digital yuan, officially known as Digital Currency Electronic Payment (DCEP) that aims to replace some of the cash in circulation. The country has already started trials for digital currency in many cities, including Shenzhen, Chengdu and Suzhou.
In recent months, more than 100,000 people in China have already downloaded a mobile phone app from the central bank, enabling them to spend small government handouts of this digital currency with merchants, including Chinese outlets of Starbucks and McDonald’s.
What is Digital Currency Electronic Payment (DCEP)?
The DCEP is effectively a way for the central bank to digitalise banknotes and coins in circulation. Each token issued by the government has a unique identifier, much like existing banknotes – and without the same friction that comes with printing, storing, and moving physical money around a country.
The DCEP acts as an electronic record or a digital token representing a virtual version of a region’s currency and will soon be legal tender across China. No interest will be paid on it.
Why Has China Been So Quick to Roll Out the DCEP?
China’s DCEP will allow the PBOC to keep near real-time transaction data of all individuals and entities using the digital currency. This gives China’s central monetary authority considerable access to its public.
The digital yuan could also increase competition in China’s mobile payments market, which Alipay and WeChat Pay dominate.
The Rise of Second Citizenship in China’s Wealthy
The trend of wealthy Chinese investors attaining second citizenship through economic means is not new. Decades of political conflict, external threats and trade and industry uncertainty have led to an evacuation of rich Chinese businesspeople and entrepreneurs. According to a 2014 survey by Barclays, 47 per cent of Chinese millionaires sought to move abroad within five years. Additionally, the New World Wealth report shows that around 10,000 Chinese millionaires left the country in 2017 alone.
Although it is difficult to say how much the interest in second citizenship will go up when the digital currency is rolled out nationwide, “the demand will increase,” says Micha Emmett, the CEO of CS Global Partners.
Wealthy Chinese individuals understand the importance of an advanced insurance policy because second citizenship acts as a safeguard to their financial privacy and assets, she said. Other top reasons for pursuing alternative citizenship include educational and employment opportunities for children, safety, and more favourable economic conditions.
The concept of Citizenship by Investment originated in the Eastern Caribbean, a region renowned for its natural beauty, stunning beaches, political stability and a currency pegged to the US dollar. For example, the Commonwealth of Dominica is “very popular” with Chinese foreigners because it offers visa-free and visa-on-arrival travel to nearly 75 per cent of the world. There’s also no obligation to reside on the island, and the Programme gives lifetime citizenship to the applicant and their family of up to four for $150,000.
“Yet a second citizenship remains a highly sought-after commodity not only because it provides safety and a valid exit strategy but also because it allows wealth preservation and financial privacy,” Emmett said.
“And in a country like China, that’s embroiled in a long trade war with the US — where economic stability is being threatened, and the government is pushing for even more monetary access — a second citizenship feels like a necessity.”