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Illustration: Rae Cook/Axios

In a push to dominate global financial technology, the Chinese government is aiming to roll out the world's first state-backed digital currency.

Why it matters: China's new currency could set global standards for the use of national digital currencies — and give Beijing unprecedented visibility and control over domestic financial transactions.

  • At least 60 countries are exploring the use of an official digital currency, but China is furthest along in making those plans a reality, while the U.S. has largely sat on the sidelines.

What's happening: The Chinese government has started pilot programs in Beijing, Shanghai, and other cities that give small amounts of the currency, known as the Digital Currency Electronic Payment (DCEP), to residents on a lottery system, with a limited number of retailers participating.

  • Chinese officials have stated they hope DCEP is ready for wider use in time for the Beijing Olympics in February 2022.
  • Some officials also hope DCEP could help internationalize China's currency, though China's tight capital controls have made the renminbi less attractive for international transactions.

The big picture: Rolling out a national digital currency offers several advantages.

  • Improving efficiency in the financial system. Cash and coins are inefficient and expensive to store.
  • Reducing systemic risk. “The existing system is owned by private companies. Should Alipay or WeChat pay [go] bankrupt, which is extremely unlikely, it creates systematic risk,” Trivium China analyst Linghao Bao told CNBC. A government alternative would provide a layer of security.
  • Spurring innovation. A state-backed digital currency could potentially provide a host of new opportunities for businesses, tech companies, and trade.

But it isn't just about efficiency and innovation. Chinese officials have made it clear that they view the digital currency as a key staging ground for global geopolitical competition, according to a January report by Yaya Fanusie and Emily Jin of the Center for a New American Security.

  • “Fintech is the commanding heights of future global financial competition," Chinese central bank vice-governor Fan Yifei said in November 2019. “Whoever grasps this advanced productive capability will possess the strongest core competitiveness in finance."

Background: Cryptocurrencies like Bitcoin and Ethereum exist on a decentralized ledger and are intended to skirt controls by governments or companies. But DCEP would be managed directly by China's central bank, the People's Bank of China (PBOC).

  • Chinese officials have said DCEP offers "controllable anonymity" — meaning payments could be anonymous to companies and other users but not to the government.

In the hands of an authoritarian government, a digital currency also offers unprecedented surveillance and control. “Never before has a government ever had access to individual user transactions directly. Technology hasn’t allowed that,” Fanusie told Axios.

  • "DCEP offers a direct route for the government to cut a person off from payments, from their funds, from their accounts. Right now, the government has to go through a private company or a bank to do that."
  • This capability could be used to reduce criminal abuse of the financial system, but also in theory to monitor and shut down the accounts of dissidents, human rights activists, persecuted groups such as Uyghurs, and others engaging in non-criminal behavior that the Chinese Communist Party may want to suppress.

What to watch: Though DCEP could help internationalize the renminbi to a moderate degree, it's unlikely to challenge the U.S. dollar any time soon.

  • But international DCEP transactions could bypass SWIFT, the most widely used international payments system, making it easier for people and governments to evade U.S. financial sanctions.

Go deeper: What central bank digital currencies mean for crypto

Go deeper

Scoop: 50,000 migrants released; few report to ICE

A law enforcement officer walks to meet migrants crossed the Rio Grande River illegally last month. Photo: Brandon Bell/Getty Images

About 50,000 migrants who crossed the southern border illegally have now been released in the United States without a court date. Although they are told to report to an Immigration and Customs Enforcement office instead, just 13% have showed up so far, Axios has learned.

Why it matters: The sizable numbers are a sign of just how overwhelmed some sectors of the U.S.-Mexico border continue to be: A single stretch covering the Rio Grande Valley had 20,000 apprehensions in a week. The figures also show the shortcomings of recent emergency decisions to release migrants.

53 mins ago - World

Scoop: Israel launches maximum pressure campaign against Ben & Jerry's

A Ben & Jerry's store in the Israeli city of Yavne. Photo: Ahmad Gharabli/AFP via Getty

The Israeli government has formed a special task force to pressure Ben & Jerry's ice cream and its parent company Unilever to reverse their decision to boycott Israeli settlements in the West Bank, Israeli officials tell me.

Why it matters: The Israeli government is concerned the move by Ben & Jerry's will encourage other international companies to take similar steps to differentiate between Israel and the West Bank settlements. A classified Foreign Ministry cable, seen by Axios, makes clear the government wants to send a message.

Video game developers at Activision Blizzard say they'll walk out Wednesday

Illustration: Shoshana Gordon/Axios

Employees at Activision Blizzard will hold a walkout Wednesday in protest of widespread harassment allegations across the company, a spokesperson on behalf of the group told Axios.

Why it matters: Walkouts are a drastic measure for developers in a largely non-unionized field, a testament to just how angry employees currently are.