This week, China's digital yuan will make its global debut, with foreign athletes and others at the Beijing Olympics being able to use it for the first time. People can use a smartphone app to access digital yuan, but it differs from other payment applications in that it is a digital form of the renminbi, which is issued by the People's Bank of China. 

The digital yuan has already been tested in several Chinese cities, with over $8 billion in transactions completed in the second half of 2021. China's efforts have prompted other governments to consider developing their own digital currency. According to the Atlantic Council, around 90 countries, accounting for more than 90% of global GDP, are actively studying a central bank digital currency (CBDC). 

CBDCs, some claim, will eliminate the need for cryptocurrencies like bitcoin. After all, do we really need so many different digital currencies? However, the contrary is true. The growth of CBDCs emphasises the necessity of decentralised cryptocurrencies that are largely private and unaffected by government intervention. 

While China's digital currency is an incredible endeavour that has the potential to provide numerous benefits, including payment convenience and efficiency, privacy is not one of them. In fact, the digital yuan will provide the government more visibility over its citizens' financial operations. 

In an interview, Yaya Fanusie, adjunct senior fellow at the Center for a New American Security, argued that modest payments may not require identification. "However, the government will be able to track all transactions, whether anonymised or not," he says. 

WeChat Pay and Alipay are two of China's most sophisticated mobile payment systems. Companies now collect a lot of personal financial data, but the digital yuan will make it considerably easier for the government to get it. The Chinese government can already obtain data from payment businesses, according to Fanusie, but with the digital yuan, they won't have to go through that extra step because they will have direct access to the data. He explained that the digital yuan is akin to the traditional yuan "They don't even have to move a finger. The information is delivered to them." 

CBDCs can not only be tracked, but they can also be programmed. Following a natural disaster, for example, a government may offer citizens digital money to spend on food and medicine but not on alcohol. As a result, governments will have more control over who has access to digital money. "It's going to be easy for the central bank to switch off any wallets they want to turn off, because of political reasons or crime fighting or anything," Fanusie said of China. 

It's too early to tell how central bank digital currencies would work in practise, but Congressman Tom Emmer noted privacy concerns in legislation he sponsored that would prevent the US Federal Reserve from issuing CBDCs to individuals directly. 

Cryptocurrencies take a different approach entirely. After the 2008 financial crisis, Bitcoin, the world's most popular cryptocurrency, was developed as a form of money that was designed to be free of government or bank control. Bitcoin transactions are recorded on a blockchain, which is a decentralised ledger. 

No government can prevent you from sending or receiving bitcoin, and no government can shut down the network. Bitcoin is also a somewhat private kind of money, in that all you need to transfer and receive bitcoin is a string of numbers and characters. Some people are attracted to cryptocurrencies because they believe that even completely lawful transactions should be protected from prying eyes. 

Because all bitcoin transactions are recorded on a publicly available blockchain, some crypto purists may argue that even bitcoin isn't secure enough. Even still, tying a bitcoin address to a real person's identify is time-consuming: The task of evaluating blockchain data would require a significant amount of time, skill, and effort on the part of governments or espionage agencies. CBDCs, on the other hand, are intended to be traceable by the government. 

Bitcoin's privacy protections are currently being improved by developers. Other digital currencies, such as zcash and monero, however, prioritise privacy protection as a primary feature. Zcash, for example, employs a cryptographic technique called as zero-knowledge proofs, which allows a collection of data to be verified without disclosing it. New cryptocurrencies are continuously emerging, and we should expect much more privacy innovation in the future. 

China's digital yuan might become the country's primary means of payment in the future. In an interview, Victor Gao, chair professor at China's Soochow University, remarked, "Whether I embrace the digital Renminbi or not is not up to me to decide." "If I stay in China, if I continue to be a global citizen, I believe this wave will eventually reach me. I can't fight it, can't stand up to it without getting buried by it." 

Other countries, especially the US, may be unable to resist the temptation to implement their own CBDC. Government-backed digital currencies, on the other hand, should not be king. Other cryptocurrencies are required to maintain an independent and relatively private form of digital money in a world where governments are increasingly able to track and control transactions.

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