Communist China has proposed the establishment of a series of global rules for the development of digital currencies by central banks, ranging from how they can be used around the world, to monitoring information on those who use them.
Central banks around the world are studying the possibility of establishing their own digital currencies. The Federal Reserve (FED) is looking at how to establish its own stablecoin (a low volatility cryptocurrency to help mitigate the variance of other cryptocurrencies such as bitcoin), based on the dollar, while the European Union is looking to regulate cryptocurrency trading platforms.
Like the FED, the European Central Bank is looking at ways to establish its own digital euro. China has also studied the possibilities of establishing a digital yuan and has launched a pilot in Beijing, Shanghai and Shenzhen.
One of the main objectives of the Chinese government is to be able to counter the competition that cryptocurrencies have made to fiat currency and to boost the yuan as a new global exchange currency.
China wants to boost its own digital currency
China has been the most advanced country in the implementation of digital currencies, with the establishment of the Digital Currency Electronic Payment (DCEP), a digital version of the Yuan that maintains the convertibility of the yuan.
Some have described DCEP as a cryptocurrency, however, it differs from bitcoin or ethereum in that it does not use blockchain technology.
Although DCEP does not use blockchain technology, it can be transferred directly between users without the need for any intermediary, just like traditional currencies. DCEP can also be transferred directly between users without the need for an internet connection.
Unfortunately, being a state currency, the DCEP has privacy issues, as at the moment the Central Bank of China receives information about the transactions that its users are incurring with the cryptocurrency.
Due to the Chinese state’s control over the DCEP, the digital currency allows the government to have more ability to deter tax evasion, money laundering and the financing of criminal activities. China is also looking for the digital yuan to be adopted globally, in order to increase its global influence and for the yuan to dethrone the dollar as the world’s main reserve currency.
The Asian giant has seen the development of other digital currencies such as libra, Facebook’s currency, as a threat to its national sovereignty, so the establishment of its own digital currency is crucial for the Chinese Communist Party to maintain its monetary sovereignty.
China has plans to ban bitcoin mining and has already shut down major bitcoin mining hubs. By April, the government is expected to be shutting down existing bitcoin mining projects and will not approve new projects in the future. The country currently accounts for 65% of bitcoin mining in the world.
Although China’s attack on bitcoin is partly due to an attempt to maintain its monetary sovereignty, the Asian giant has also pledged to reduce its carbon emissions, a task that is hampered by the high electricity consumption of bitcoin mining.
In the past, China advanced efforts to ban cryptocurrency exchanges and strategies to discourage their use. Although it has been one of the countries where the cryptocurrency market has evolved the most, the Chinese government strives to discourage their use and replace them with its own digital currency.