Natural disasters show risks of digital currencies

Flooding in the central Chinese metropolis of Zhengzhou exposed the reliability risk inherent in the country’s plan to launch a digital currency to replace its banknotes.

This July, heavy rains pushed local rivers over their banks, causing “widespread electrical outages that immobilized cellular service,” according to an Oct. 19 Wall Street Journal report. Most people living in urban China use smartphone payment apps instead of cash, adds the Journal, so the “suddenly inoperable networks” left most of the city’s 12 million residents without money – or a way to contact emergency responders or friends and family.

Just four days after China’s central bank released its official rollout strategy, the floods hit Zhengzhou, stopping the digital yuan – known officially as “e-CNY” – in its tracks. Without access to cash, some Zhengzhou residents returned to the millennia-old method of bartering; one man, according to the Journal, paid for vegetables with cigarettes.

“The financial interruption was a relatively brief, but stark, illustration of a risk nations may face by adopting digital currencies.”

Other digital tools, including online maps and electric cars, also stopped working during the floods.

China’s central bank claims the digital yuan has been successfully used in more than 70 million real-world transactions since early 2020.

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