China pilots paying civil servant salaries in digital yuan cryptocurrency

Chinese local governments have started paying public employees in "digital yuan," a move experts say leaves users open to surveillance and instant revocation of their funds if officials see fit.

Digital yuan is a virtual currency that people can load on their phones and use to buy groceries, ride public transportation and pay medical bills, but is only usable while connected to the internet – a major drawback in the eyes of many.

Civil servants and employees at state-owned enterprises in eastern China's Jiangsu province will receive all of their May paycheck in the form of digital currency, authorities in Changshu city announced in a recent statement that was cited by several state-backed media organizations.

Authorities in the central city of Changsha have also started paying some police officers in digital yuan, to the tune of 47 million yuan, the Securities Times reported.

"The full payment of wages in Changsha using digital yuan this time is on a larger scale, which is an important step in promoting the implementation of digital renminbi," the paper said.

The central bank, the People's Bank of China, announced in 2020 that digital yuan payment pilot schemes would be rolled out in Suzhou, which administers Changshu, Chengdu, Shenzhen and Xiongan, later adding several other major cities to the pilot plan including Shanghai, Xi'an, Qingdao and Dalian.

It followed up with a 2021 ban on cryptocurrency transactions and mining, accusing Bitcoin and other cryptocurrencies of breeding money-laundering, illegal fund-raising, fraud and pyramid schemes.

Since then, Suzhou has clocked more than 8 million transactions in China's homegrown cryptocurrency worth more than 170 billion yuan, according to official media reports.

How viable?

But concerns remain about the technical viability of the scheme, as well as its implications for personal privacy and asset security, analysts told Radio Free Asia.

Financial sector expert Ma Ting said the fact that the currency can only be used and stored online is crucial.

"There is no offline mode, no hardware you can use without an internet connection," Ma said. "Without that, it's not a real currency."

She said offline mode also carries with it security concerns, much in the way that credit cards and cash do.

According to the social media account Sisyphus, part of the problem is that the digital yuan was originally designed to be stored on dedicated smart hardware rather than as an app on people's smartphones.

But security concerns over the hacking of such devices and the theft of the currency they hold had led the authorities to offer it as an app instead, the commentator said.

A number of social media comments said they now transfer their salaries from cryptocurrency to their bank accounts as soon as they receive them.

Benefits questioned

One commentator who gave only the surname Qin for fear of reprisals said he doesn't think the digital yuan will benefit most people.

"The digital yuan means that [the government] can control the way you spend your money, and can just freeze it, or revoke it," Qin said, likening the currency to the Health Code COVID-19 app which tracked the entire population everywhere they went during the three years of Xi Jinping’s zero-COVID policy.

"Like the Health Code app, they can issue a red code [to freeze your cash] whenever they want," he said. "They can also freeze your wallet."

According to Ma, there have been no visible comments on social media platforms from civil servants paid in cryptocurrency.

"I haven't seen anything about their experiences of using the digital yuan, because they're not allowed to post comments online," she said. "They daren't go shooting off at the mouth."

An April 25 commentary in the state-run Yangcheng Evening News commentary also raises privacy and convenience concerns.

"The convenience of the digital yuan app needs to be improved,” the article said. “If you've used the digital yuan wallet, you'll know that the process of making payments is cumbersome.”

"Balances are stored and divided in separate sub-folders, and you have to sign a contract for every payment, for example with Alipay, and then again when you use apps like [food delivery services] Meituan and Ele.me or JD.com," it said.

It said the sub-wallets add identifiers to the flow of money as it is spent, unlike cash, which has the additional advantage of anonymity.

"While transaction records ... mean they can prevent illegal transactions or telephone scams, digital yuan should also protect transaction privacy," the article said. "But where is the boundary between tracking and personal privacy?"

"A balance should be found ... and the rules made public," it said.

Veteran financial commentator Cai Shenkun said the digital yuan is being given to government employees for a reason -- so the government can track their finances and prevent corruption and capital flight.

"It's more to do with keeping an eye on groups with assets and property," Cai said. "They classify them after a full investigation of their assets and combine that with their political orientation."

Digital future

Meanwhile, state media including the People's Daily finance channel have been talking up the digital yuan as the next step to a totally digital future, with photos of well-heeled urban residents using it to pay for fancy coffees.

Financial commentator Si Ling said lower-ranking government employees are being used as "guinea pigs" before the digital yuan is rolled out more widely.

"The next step will be to pilot the use of digital yuan for real estate transactions," he said, in a reference to the fact that corrupt officials typically buy property with their illegally obtained money.

"When it finally gets rolled out to ordinary people, they will suddenly find themselves locked in by the digital yuan, and their assets can be voided by the Chinese government's bouncing check," Si said.

Translated by Luisetta Mudie. Edited by Malcolm Foster.