Is the Chinese digital yuan the death knell for crypto?

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The People’s Bank of China, the country’s central bank, has announced that all cryptocurrency transactions are illegal, effectively banning digital coins.

“Business activities related to virtual currencies are illegal financial activities,” the bank said. He added that cryptocurrencies, including Bitcoin and Tether, are not fiat currencies and cannot be put into circulation.

Just a few months ago, China imposed rules prohibiting banks from offering crypto-related services, pushing traders into OTC platforms and offshore exchanges. However, the new ban goes much further, targeting the services provided by offshore exchanges.

In May, the People’s Bank of China announced that financial services companies and payment services would be banned from setting prices or doing business in virtual currency.

In order to combat money laundering, cryptocurrency trading has been illegal in China since 2019 with similar bans issued in 2013 and 2017.

That doesn’t mean China is completely abandoning crypto, however. It’s just a matter of control.

The crypto ban comes alongside the Chinese government’s rollout of Digital Yuan, its sovereign digital currency now in development for years. In recent months, the People’s Bank of China has launched pilot projects in major cities to develop a digital yuan payment system.

The digital yuan was first considered in 2014 and has already distributed some $ 30 million in digital currency.

It is an obvious rival to unregulated cryptocurrencies. It is also the government’s way of challenging WeChat and Alipay, the two private giants dominating the mobile payments market.

China isn’t the only major economy considering a central bank digital currency, even though China’s plans are way ahead of the rest.

Some 80 countries are exploring the idea and five countries have so far implemented a digital currency, all in the Caribbean.

The story continues

A dozen European countries are currently participating in the development of a central bank digital currency (CBDC), the D-Euro. The European Central Bank aims for D-Euro to complement the existing monetary system rather than replacing physical cash.

In the United States, the digital dollar is still under study. In June, the US House Committee on Financial Services held a hearing on the pros and cons of digital currencies.

Opponents of the digital dollar point to a few drawbacks, including the lack of privacy and access. On the other side of the digital divide, proponents argue that the United States must implement it and take a leadership role in this or be left behind.

Democratic Senator Elizabeth Warren spoke in favor of the digital dollar by comparing a digital currency issued by the central bank with cryptocurrencies.

“Legitimate digital public money could help drive out fake digital private money. This could help improve the financial inclusion, efficiency and security of our financial system, ”said Senator Warren.

Meanwhile, the Federal Reserve is still skeptical about the effectiveness of central bank digital currencies.

Chris Waller, a member of the US Federal Reserve Board of Governors, recently wrote that the US government should only step in with a potential digital solution in the event of significant market failures.

“I am not yet convinced that a CBDC would solve an existing problem that is not being addressed faster and more effectively by other initiatives,” Waller said.

However, Dallas Federal Reserve Chairman Robert Kaplan said a few months ago that it was “essential for the Fed to focus on developing a digital currency.”

According to the Bank for International Settlements, 80% of central banks participate in one way or another in the work of the CBDC, of ​​which 50% are already in the experimental or pilot phase.

Advisory group Accenture estimates that a quarter of G-20 countries will have some sort of digital currency in circulation by 2024.

By Michael Kern for Safehaven.com

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