Sheila Warren, CEO of the Crypto Council for Innovation, a global alliance of crypto industry leaders, said in an episode of the podcast "Unchained" that the world should pay attention to China's progress on advancing its central bank digital currency (CBDC) and its efforts to get other countries to use its digital yuan by offering to invest in infrastructure in those countries. Some experts have predicted that China aims to lead the world in digital currency adoption and could leverage it to set global standards and avoid sanctions imposed by the U.S. and its allies.
"I think that it would be very foolish for anyone in any jurisdiction in the world to underestimate the influence of what is happening in China on policy literally everywhere else in the entire world. I mean, it is just a very, very important set of developments that have happened there. And I don't mean China on crypto, it's actually somewhat irrelevant. I mean China on CBDCs. So all the mining and this and that, I think (what) the industry kind of focuses on is actually, I think policy-wise, secondary in many ways to what is happening with digital yuan," Warren said on the Unchained podcast. "The reason I say that is I think you have to look ahead to a world in which China has moved digital yuan beyond its borders ... The bigger and more important thing is Chinese government investment into infrastructure all over the world, I mean, specifically into Latin America and into Africa ... The Chinese government is going to them and saying 'We will invest significant amounts, huge, huge amounts of investment into your infrastructure, into your roads, into your railroads, into your everything to help this crumbling infrastructure and in exchange, you use digital money, you would use the digital yuan, basically that would be the unit of currency that we'd engage in transactions with.'"
Warren said infrastructure is crumbling all over the world and a lot of people are migrating to South America and Africa.
"There is a need for this kind of investment," she said. "How long are some of these governments going to hold out and say, 'Forget it, we don't want a surveillance tool' or whatever they think it is. 'We don't want this kind of money and a requirement around using these payment rails to come into our country.' Is that going to last forever? I don't think so."
So far this year alone, the Chinese government has distributed millions of dollars worth of its CBDC, the digital yuan or e-CNY, to residents and industries in an effort to “promote consumption," Coin Telegraph reported. The government hopes that distributing the digital yuan, in the form of coupons and subsidies, during the Lunar New Year holiday season will encourage a wider adoption of the digital currency. An update to the e-CNY wallet app in January allows users to make contactless payments, even if their device is not connected to the internet.
Lou Steinberg, managing partner at the cybersecurity research firm CTM Insights, said the first country to succeed in establishing an internationally accepted network for digital currency transactions will be able to set global standards, "and then everyone else will have to follow them," Computer World reported.
"Those standards will be designed with what the developer of them wants to accomplish. Surveillance could be built in," Steinberg said.
The Atlantic Council’s GeoEconomics Center Assistant Director of Digital Currencies Ananya Kumar said Asian countries in general are far ahead on their CBDC projects, and the U.S. is "nowhere near" the Congressional action that the Federal Reserve would need to advance its own CBDC. Kumar noted that another advantage for China if it succeeds in international adoption of its e-CNY is that it would be able to circumvent economic sanctions imposed by the U.S.
“Since the invasion of Ukraine, and sanctions packages unveiled against Russia, countries are trying to figure out what to do if that happens to them and how do they build a system against it,” Kumar said.
Christian Catalini, the founder of the Cryptoeconomics Lab at the Massachusetts Institute of Technology (MIT), said that although China has been saying adoption of its digital yuan is primarily a domestic project, "if you take a long-term perspective, I think it’s clear [e-CNY] is a project to ensure that China will lead the way in digital financial infrastructure in the future, not only domestically but globally." Although the U.S. has taken some small steps toward a CBDC, it is lagging behind other countries.
“The United States is clearly behind. Part of that is because there’s not a consensus that a CBDC is needed or useful. There’s only one clear nation leading the effort when it comes to both the scale of its experiment and its progress to date, and it is China," Catalini said.
The New York Federal Reserve Bank launched a 12-week CBDC pilot program in November to evaluate how the digital tokens "settle" through the Fed system, PBS reported. The central banks of at least 15 countries have launched or are testing digital currencies, including Canada and Jamaica. One reason the U.S. is testing a digital currency is to potentially eliminate barriers that some low-income households face to accessing traditional banking. A 2021 survey by the FDIC found that in 4.5% of American households, no one had a bank account, frequently because of a lack of funds to meet the minimum deposit requirements.
In the "Unchained" podcast, Miller Whitehouse-Levine, policy director of the DeFi Education Fund, said governments should be aware that they do not necessarily need to adopt another country's digital currency for its businesses to start using it.
"For example, China could predicate market access on foreign businesses using the ERB to do business and to take their assets out of the country. And I think given the evidence of the U.S. businesses' approach to China, that wouldn't be a terribly high cost in the minds of many business leaders," Whitehouse-Levine said.