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First Digital Yuan B2B Payment Amidst Privacy Concerns for Businesses

Two fuel trading companies in the Northeast China’s Liaoning province city of Dalian have completed the country’s first B2B digital yuan transaction.

According to local reports, the B2B payment settlement was completed on a shipping platform in which the buyer and seller were able to both confirm payment and the status of shipment in real-time.

However, while the trial which was jointly carried out by the Postal Savings Bank of China, Dalian Deta Holding Co Ltd and CYNTEK was adjudged the latest successful effort in China’s CBDC operation especially for businesses, it is at odds with privacy concerns raised in some quarters.  

The digital yuan could be used without merchants incurring fees and could be used offline at some point but its transactions are 100% trackable by the People’s Bank of China, the World Street Journal reports, which could impact citizens as well as foreign companies once the digital currency is launched publicly. 

“The central bank would know who is paying, how much they are paying, when they are paying, where they are paying and then to analyse the pattern of payment,” Yaya Fanusie, Adjunct Senior Fellow at the Center for a New American Security, told the Journal. 

The digital currency is developed by the central bank hence no third parties and the data remains with the government. 

“This digital yuan is less about money and more about data,” Fanusie, who has been studying digital currencies for six years claims and believes they can create more efficient monetary policy and counter criminal activities, adding that China’s CBDC is not as anonymous as claimed. “(The) central bank has talked about there being controllable anonymity which really means it’s anonymous horizontally. The users that are using it don’t necessarily know the identity of everyone that they are interacting with. But vertically, it’s not anonymous. The central bank is at the top with the information of all the users.” 

“The Chinese government could force chinese companies to only accept payments in digital yuan which would then force the foreign companies, their foreign counterparts for trade. It could ensure that they have to use that.”

Hinting on the expiration date placed on the digital yuan issued out in lottery form to some locals as part of the CBDC’s trial phase, Fanusie opines that such a move could enable the Chinese government “set up a whole lot of things to have your currency, maybe valid or invalid, based on its own priorities.” 

“This is almost like handing over the keys to your business or to your finance department in somes ways because you really can’t control what at the end of the day may happen to the funds that you are holding,” he said. 

While the Chinese government continues to look into ways to make international trade possible with the digital yuan, Fanusie said the data and privacy issues would determine the extent to which its use will go on a cross border basis. 

While addressing a conference hosted by the Committee on Payments and Market Infrastructures where improvements in cross-border payments are being discussed on Thursday March 18, Federal Reserve Chairman Jerome Powell said prospective CBDCs would have to accompany cash and other types of money within a flexible payment system. He also notes in his remarks that as using CBDCs for cross border payments will involve multiple jurisdictions, “it will only be through countries working together, via all of the international forums—the Group of Seven, the G-20, the CPMI, the FSB, and others—that solutions will be possible.”

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