Digital Yuan Loans Can Help China Monitor Businesses in Real Time

The Chinese government has been expanding its digital yuan loans, offering businesses and individuals in various cities the chance to get a loan in the country’s central bank digital currency (CBDC). Once adopted en masse, this could arguably allow China’s restrictive government to further expand its oversight and monitor businesses in real-time.

China Expands e-CNY Loans

Suzhou, a major prefecture city in the west of Shanghai, has become the latest to offer digital yuan loans to businesses. Rural Commercial Bank of Zhangjiagang, located in China’s Suzhou province, has issued a 500,000 yuan (worth around $74,000) digital yuan loan to an undisclosed manufacturer of environmental protection equipment for steel factories. 

According to a report by local news outlet Sohu, the loan was issued via unanimous approval by the city’s consumer markets regulator, financial markets regulator, and municipal officials. The report claimed that this was yet another experiment in China’s e-CNY trial program.

Local banks in Suzhou started offering digital yuan loans ranging from 70,000 yuan ($10,363) to 1.5 million yuan ($222,074) to businesses and individuals in June this year, reports from local media shows. At the time, the Bank of Suzhou offered a 2 million yuan ($296,116) non-collateral digital yuan loan to a local machinery manufacturing enterprise. 

In addition to Suzhou, Shaanxi, a northwestern Chinese province, and Guangzhou, a sprawling port city northwest of Hong Kong, have also started to issue digital yuan loans since June. 

While other central banks are still exploring the development of a CBDC, China has evolved to be a front-runner in issuing and using a CBDC. As reported, the country’s central bank expanded the Digital Yuan pilot program to 11 more cities in early April, bringing the total count of cities experimenting with e-CNY to 23.

The country is also using its CBDC to boost the economy by airdropping millions in digital yuan among residents of some more notable economic zones. In total, the country aims to distribute over $13.51 million (90 million digital yuan) among residents of Shenzhen, Guangzhou, and the Xiong’an New Area.

Notably, since the CBDC trials started in Shenzhen in October 2020, people used digital yuan to transact $11.24 billion worth of goods and services by the end of 2021.

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China Could Monitor Businesses in “Real Time” with Digital Yuan Loans

CBDCs allow governments to collect as much data about their citizens’ financial backgrounds as they want to. Theoretically, they will be able to monitor, track, and record every single transaction. Therefore, the increasing number of digital yuan loans is expected to allow China to further expand its oversight and monitor businesses in real-time.

Echoing this point of view, Liu Bin, director of Shanghai Pudong Reform and Development Research Institute, said in a report published by state-media China Securities Journal in July:

“Regulators can track and monitor illegal use of loan funds in digital yuan, and the digital currency will also facilitate monitoring fund flows of enterprises in real time, for regulators to assess the operating and repayment capabilities of the firms, when digital yuan been mass adopted in the future.”

In fact, China has already been able to use digital yuan transactions and track suspicious activities. Last November, the Chinese police managed to catch scammers who allegedly used an e-CNY wallet to launder their ill-gotten gains. 

Do you think CBDCs are a concern for user privacy? Let us know in the comments below.