China’s introduction of a new central bank-issued digital currency named the DCEP (Digital Currency/Electronic Payments) advances the government of China’s (GOC) goals to internationalize its currency, the renminbi, and to expand government oversight over China’s economy. However, the unique features of digital currency that help advance the GOC’s goals may also tempt the GOC to violate World Trade Organization (WTO) agreements such as the General Agreement on Tariffs and Trade of 1994 (GATT) and General Agreement on Trade in Services (GATS). As the concomitant issuer of the renminbi and the renminbi-collateralized DCEP, China’s central bank, the People’s Bank of China (PBOC), will exercise inimitable monetary and economic control. A government-backed digital currency will grant China unprecedented trade leverage and, if China chooses, help the GOC conceal actionable subsidies and manipulate its currency exchange.

In addition to allowing the GOC to exercise more control over its economy with the DCEP, the characteristics of digital currency will permit China to prolong the appearance of increasing marketization and liberalization of its economy. The DCEP will allow China to loosen regulations and argue that it is creating a fairer playing field for trade when, in fact, the DCEP grants China incredible authority to manipulate international trade. The WTO is unprepared to deal with the unique challenges posed by a central bank-issued digital currency, especially in China where domestic banks are mainly state-owned.

This Note analyzes how China’s digital currency will affect its status in international trade. Part I briefly summarizes cryptocurrency and stablecoin, defines China’s DCEP as stablecoin, and offers a comparison to Venezuela’s stablecoin with a brief aside on the GATS implications of stablecoin. Part II briefly discusses why China wants to use stablecoin and establishes how the use of stablecoin to advance the GOC’s goals of increased oversight over the Chinese economy and of internationalization of the renminbi begets international trade issues.

Parts III through V address international trade concerns around the digital currency. Part III discusses how the DCEP may affect China’s status as a nonmarket economy (NME) in relation to anti-dumping laws. Part IV discusses how the DCEP may help China conceal actionable subsidies while creating an appearance of less state control over Chinese industries. Part V examines China’s current lending crisis and how the DCEP impacts lending controls and could facilitate actionable subsidies through China’s lending industry. Part VI discusses the practical and immediate effects of the DCEP and provides a brief conclusion on how the potential adverse effects of DCEP on fair trade can be addressed and mitigated by the WTO and WTO members.

Continue reading International Trade Law Concerns with China’s Digital Currency: How Sovereign-Issued Stablecoin Can Destabilize International Trade