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China’s Digital Yuan Gunning for Bitcoin?

China CBDC Digital Yuan

  • China’s digital yuan is nearing launch and some are concerned this will undermine the Chinese love for Bitcoin and cryptocurrencies
  • Fears that Beijing will crack down hard on cryptocurrencies may be overstated, as Chinese are likely to continue to avail themselves of the capital flight facilitating properties of cryptocurrencies

When Beijing decided it wanted high speed railways – it pushed ahead with the initiative – the embodiment of Chinese will and determination – blasting through impassable mountains and fording seemingly insurmountable expanses of terrain.

So when Chinese President Xi Jinping declared that blockchain was a key technology, it was really no surprise when shortly thereafter, the Chinese started experimenting with their own digital currency issued by the People’s Bank of china.

But Beijing’s push for the digital yuan has some concerned over its impact on China’s raucous Bitcoin markets.

Once a digital yuan is introduced, Chinese lawmakers could make it difficult for its citizens to obtain Bitcoin or trade in the cryptocurrency.

To be sure, Chinese citizens are already prohibited from converting yuan (digital or otherwise) to cryptocurrencies, but the practice remains widespread, with the use of Tether, a stablecoin pegged to the dollar, the standard method to gain access to the global cryptocurrency markets.

And Chinese cryptocurrency miners are overrepresented on the global stage, as are the cryptocurrency exchanges owned by Chinese nationals – reflecting how important China is to the overall cryptocurrency ecosystem. A draft Chinese central bank law setting the stage for the launch of a digital yuan includes a prohibition that bans individuals and entities from making and selling tokens and in recent days, China’s Inner Mongolia region, a hotbed for cryptocurrency mining, banned the practice to cut energy consumption.

But Beijing bringing down the hammer on its cryptocurrency industry is not new – it’s banned initial coin offerings and cryptocurrency exchanges, only to drive those activities underground or offshore, to more hospitable jurisdictions.

And while China could potentially disrupt cryptocurrency mining activities, the fall in Chinese mining activity could be covered by other miners – which is the beauty of the blockchain at work – a decentralized system means that no one node is indispensable.

Fears over a ban on Tether could also be overstated – Chinese continue to see and use cryptocurrencies as a method to facilitate capital flight – in fact, a Chinese ban on Tether could see its demand surge, as Chinese look to spirit away more capital from the Middle Kingdom.

A digital yuan may be convenient, but it would be naïve to assume that the Chinese are any more likely to embrace the potential for their government to monitor how they spend their money than the citizens of any other country.

If nothing else, the issuance of a digital yuan might just provide that push for Chinese to hold cryptocurrency “just in case” they should raise the ire of Chinese authorities.

In a report last August, some US$18 billion worth of Tether was moved overseas from East Asian addresses over a one-year period, according to a report from Chainalysis, with spikes suggesting they were of Chinese origin – which coincided with the period when China was rolling out digital yuan tests in selected cities.

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SuperCryptoNews is a global leading blockchain and crypto news provider, covering daily news on the latest tech and trading developments in crypto. We bring you expansive crypto news coverage especially in Asia, with a focus on Singapore, Thailand and Southeast Asia.

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© Copyright of Novum Global Consultancy Pte Ltd {2020, 2021}. All rights reserved.

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