Meet the anti-bitcoin: China is set to launch the world's first official digital currency, and it is everything that crypto wasn't meant to be. In time it could let government not only track how all money is spent but also control, in part, how it's spent. https://www.economist.com/finance-and-economics/2020/04/25/china-aims-to-launch-the-worlds-first-official-digital-currency

To be clear, it's still a long time away from that: the digital yuan will only gradually enter circulation. It could take several years for it to reach even 10% of the monetary base. And it's motivated by a basic risk: how to satisfy demand for cash in a cashless society.

But what makes it really fascinating are the potential long-term implications. First, if paper cash is eliminated, the government will have far more effective oversight over transactions. Money laundering and funding for any enterprises deemed criminal will become much harder.

Second, the nature of the digital currency is that the government will be able to attach coding ("smart contracts") that will dictate how it's used. For example, in issuing it, the central bank could order that it only be activated once lent to small businesses.

There are limits to how much control can be exercised this way. Too many smart contracts and the money would lose its fungibility. But the basic point is that the central bank is acquiring a much more powerful tool to influence how money enters circulation.

Third, a digital currency could help address a problem many central banks face: how to make interest rates negative. If rates are too negative, people now can simply demand cash. But when base money is digital, the central bank could enforce negative rates on cash itself.

One thing that the digital yuan is not: a way for China to supplant the dollar. To make the yuan a true reserve currency, the basics still apply. There's no way around having a more open capital account and a more trusted legal system. Advanced technology is no shortcut.

But as far as monetary innovations go, the launch of the digital yuan has the potential to be profoundly important -- and, depending on how it's managed, profoundly disturbing. ///