Why China official’s embrace of ‘programmable features’ in digital yuan is red flag for privacy advocates

In a move that could reshape how China executes monetary policy, a senior finance official voiced support Thursday for integrating “programmable features” into China’s central bank digital currency.

Speaking at a digital finance forum in Beijing, Lu Lei, deputy administrator of the State Administration of Foreign Exchange, appeared to endorse the ability of digital currency, or CBDCs, to track and analyse its use by consumers.

Programmable features could allow for a certain level of control over the digital currency, such as setting money to have an expiration date or limiting its use for specific transactions.

Alarm bells

What Lu didn’t mention was that it could also give issuing bodies greater control over how money is spent. The notion of money with built-in restrictions or expirations raises alarm bells for many who value financial autonomy.

Traditionally, CBDCs have been seen as the digital equivalent of physical cash in circulation, known as M0 currency. With these capabilities, Lu said that China’s CBDC could even transition into M2 currency status, which encompasses not just cash, but also deposits and savings.

But it could also give issuing bodies greater control over how money is spent. The notion of money with built-in restrictions or expirations raises alarm bells for many who value financial autonomy.

For example, digital cash could only be spent in certain places or come with an expiry date.

Some nations are already experimenting with CBDCs that can potentially control user spending. Although not launched, Thailand is mulling a CBDC pilot that would see citizens being given essentially free money to try it out.

But there’s a catch: they would only be able to use it at shops within a certain distance from their homes. Proponents of the pilot have not said how they plan to enforce this.

Yuan ecosystem

Nevertheless, work on China’s digital yuan continues. On the infrastructure front, China is aggressively bolstering its CBDC project.

This week Chinese officials cut the ribbon on an industrial park in Shenzhen’s Luohu district dedicated solely to fostering the digital yuan ecosystem. This park, adjacent to Hong Kong, is enticing new residents with benefits ranging from rent waivers to substantial financial incentives, targeting entities that can contribute to the digital yuan’s ecosystem, like payment solutions and smart contracts.

The Chinese government also rolled out new Visa and Mastercard integrations for the digital yuan that will make it easier for visitors to the Asian nation.

Despite these significant investments, the digital yuan’s uptake remains uncertain given the ubiquity of fintech apps such as AliPay. It may be difficult to persuade consumers to use a CBDC.

Got a story about crypto and blockchain in China? Contact me at callan@dlnews.com