China is hoping to increase the adoption of its Central Bank Digital Currency (CBDC), the Digital Yuan, by integrating it with the infamous social credit system that is already present in the country.
According to Chinese news sources, China’s Ministry of Human Resources and Social Security wants to ‘explore and promote’ ways to ‘add digital yuan payment functions’ to social security cards.
This project is intended not only to help with the integration of the digital yuan into the economy, but also to help with serving underbanked and unbanked groups in China.
Both projects have been underway for some time, with the first iterations of the social credit system emerging in the early 2000s, and the idea of a digital yuan having been researched since 2014 and implemented in 2019.
But what are they, and what are they supposed to do?
Social credit: the next incarnation of Big Brother?
When the social credit system was first announced, it attracted massive controversy- not among Chinese citizens, but amongst the Western press.
It was criticised as an ‘Orwellian system premised on controlling virtually every facet of human life’ by former US Vice President Mike Pence, and that ‘the totalitarian 1984 of the future is now 2018 China’.
Yet, for a system that is so widely criticised, it is also one that is widely misunderstood.
Admittedly, social credit may sound like a totalitarian nightmare, especially to longtime fans of Black Mirror. But the term may not mean what you think it means.
In contrast to ideas of how the Chinese Communist Party is trying to use this system to control what people say and think, the purpose of the system is actually far more benign.
But first, we should examine the origins of such a system.
The system has its inspiration and roots, quite surprisingly, from western systems of commercial credit systems.
In developed and financially connected countries like the US, most people have bank accounts. While we may think of bank accounts as simply a place for us to store money, our bank accounts serve a different purpose for financial institutions- they are a source of data for our financial health and to determine our credit scores, and an easy tool for the implementation of government policies like financial aid disbursements.
Yet, this system that we take for granted did not always exist- data collection takes time, and it requires that we are able to find the data in the first place.
In rural areas where many transactions are settled in cash or other forms of trade, banks and banking services may not be an everyday necessity- and therefore these areas become underserved or unserved entirely.
As such, when residents of rural areas do approach banks for financial services such as loans, they may find that because they have hitherto been unknown to the financial system, they do not have a good credit score and are therefore unable to obtain loans.
Yet, many of these same people were using payment applications like Alipay on a daily basis- meaning that there was a rich source of data that could be used to examine the financial health of individuals.
Thus, the social credit system was born- not with the idea of gamifying and therefore regulating social behaviour, but to allow for data such as those available to payment app providers to be used in lieu of a bank account that is used to generate a credit score.
This is the social credit system that exists today- and it has been continually expanded to include businesses and public servants.
Of course, this expansion has also now included punitive measures such as blacklisting of individuals- but such measures are often limited only to criminals and not to regular citizens.
The more extreme measures often heard about, such as those that would penalise citizens for trivial issues like cheating in video games, is not found in the national system, but only in city trials.
The social credit system, therefore, is not something straight out of 1984 or Brave New World or any other dystopian novel- at least not yet anyway. It remains primarily a way of harnessing and using big data in the same way that financial institutions like banks have always done, albeit one that is extremely poorly named.
Blockchain social credit?
The other major project that China has been working on is the creation of the digital Yuan- their own form of a CBDC.
According to the Wall Street Journal, the digital Yuan is an attempt to partially replace cash, and China’s Central Bank has expressed hopes that a CBDC would help to reduce money laundering, gambling, corruption, and terror financing.
But that has not stopped many from also criticising it as being a form of government surveillance and social control. After all, a CBDC might potentially be used to track financial transactions and therefore more effectively control the populace.
But there is also a question of how much this actually matters- if there are any concerns with regards to anonymity, the Chinese government is not exactly the biggest fan of it, and already keeps a tight leash on social media platforms by requiring people to sign in with their real name.
China is also considered the most surveilled country in the world, so will additional surveillance by CBDCs really make a difference?
Instead of considering how CBDCs will enable the autocratic rule that already exists and erode the anonymity that never existed, we should perhaps consider how their social credit system is actually useful- it provides us with proof that blockchain technology has the capability to really help the unbanked population, if given the right support.
It is projects such as these that will bring about the future of blockchain technology, as it explores both what the technology enables, as well as the limitations that the technology has.
Miyuki
Brian
Weiliang
Alex
Joy