Why US May Raise Digital Yuan Concerns as Senior Diplomat Visits China

Brewing concerns over digital yuan use by individuals or entities in or outside China could make the list of key issues the US Deputy Secretary of State, Wendy R. Sherman, will discuss while in China later this week. A media note from the Department states that the Deputy Secretary will meet Chinese officials, including State Councillor and Foreign Minister Wang Yi, as part of ongoing efforts to advance U.S. interests and values and to responsibly manage the US-China relationship. 

They will “discuss areas where we have serious concerns about PRC actions, as well as areas where our interests align” during the July 25 to 26 trip, the note states without further details. 

There have been data privacy concerns from the U.S. about the digital yuan (or the Digital Electronic Currency Payment project) but nothing strong has been issued officially in the past. A letter sent by three U.S. senators this week to the United States Olympic & Paralympic Committee to encourage them to forbid American athletes from acquiring or using the digital yuan during the Beijing Winter Olympics in 2022 may change that. 

Senators Marsha Blackburn, Roger Wicker and Cynthia Lummis are concerned that the digital yuan is “entirely controlled” by the People’s Bank of China (PBoC) and “can be tracked and traced by the central bank”. 

They also have issues with the fact that the Chinese government only recently “released key features regarding the digital currency, including the ability of the government to know the exact details of what someone purchased and where” despite the fact that the digital yuan has been in the works since 2014. 

“While the Chinese Communist Party insists their efforts are aimed at digitizing bank notes and coins, Olympic athletes should be aware that the digital yuan may be used to surveil Chinese citizens and those visiting China on an unprecedented scale, with the hopes that they will maintain digital yuan wallets on their smartphones and continue to use it upon return,” the Senators note in a joint statement. “The integration of China’s digital currency into global commerce has many problematic privacy implications.”

The Chinese central bank digital currency AKA the digital yuan MUST BE BANNED by the West. It’s analogous to digital cancer…we can’t contract cancer even in limited amounts. It’s the single largest threat to the global rules-based order. #China #CPC #CCP #DigitalTrojanHorse https://t.co/b6skhMD46a

— Kyle Bass (@Jkylebass) July 13, 2021

With the trip coming days after the U.S. senators’ letters, the Deputy Secretary’s visit presents an avenue for the U.S. to address concerns about the digital currency which has already been distributed freely in some parts of China.

China’s response to the claim has been to sound a warning not to politicise the global sporting event. This may not be enough for the Deputy Secretary to ignore the subject especially when there have been various calls from the private sector for the U.S. to make some moves in this direction.

Last week, Hayman Capital Management chief investment officer, Kyle Bass, called for a ban on China’s new digital yuan saying it is a “Trojan horse” and a “cancer plaguing the U.S.” if not banned by the U.S, and its allies.

Michael B. Greenwald, the first U.S. Treasury attaché to Qatar and Kuwait who is now a fellow at Harvard Kennedy School’s Belfer Center for Science and International Affairs and a Senior Fellow at the Atlantic Council Geoeconomics Center, shared a somewhat similar view. Greenwald notes in an opinion piece this week that allowing China to launch a programme with their own set of standards will offer hope for an alternative financial narrative to countries like Russia and Iran and could usher in a new era in digital asset foreign policy.