Crypto vs. digital yuan

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Originally at the forefront of cryptocurrency development, China has cracked down on crypto in the country in recent months, driving out miners and crypto exchanges and banning crypto transactions through the People’s Bank of China.

Part of China’s motivation to crack down on crypto may be that crypto, particularly Bitcoin, is in direct opposition to the country’s goal of rolling out the digital yuan, a digital currency issued by the People’s Bank of China.

The digital yuan entered development about eight years ago, a few years after China began to emerge as a major player in the crypto space, with more than half of the global hashrate (essentially, the power of bitcoin mining) from miners in China.

According to Quartz, the first digital yuan trials started last year, and as of June, there were around 20 million users. Although the transaction volume is still relatively small (around $ 5.3 billion) compared to the overall yuan transaction volume (around $ 2 trillion in retail e-commerce alone), the use of the digital yuan is not insignificant and shows no signs of slowing down.

The biggest test of the digital yuan will be its debut at the Beijing Winter Olympics next year, where the digital yuan will be the currency of choice. However, some American politicians are concerned about the potential for digital currency surveillance, especially when it comes to American athletes competing in the Olympics.

These concerns are driven by the Chinese government’s goals for its digital currency. First, China wants more monitoring of monetary flows, allegedly to improve monetary policy and prevent illicit monetary activity.

Second, it wants more control and access to data on the Chinese people’s spending, which is increasingly captured and owned by private companies, many of which have been forced to share this data with the Chinese government. Finally, he wants to strengthen the international reputation of the yuan.

Although the PBoC has said that the digital yuan will come with a certain degree of anonymity, the fact that the PBoC technically has the power to shut down account access or payments if it feels there is a problem causes concern.

Cryptocurrencies, like Bitcoin, are therefore in direct opposition to the digital yuan, as Bitcoin allows fairly anonymous peer-to-peer transactions without supervision.

Thanks to this crackdown on crypto, the digital yuan will become one of the few digital currency options available to residents of mainland China, paving the way for its widespread adoption and success.

Despite all this, some Chinese crypto investors seem unfazed, even as the crackdown escalates. Chinese investors continue to buy bitcoin, according to a Bloomberg report, and some are even using the drop in prices caused by the PBoC’s announcement that it was banning crypto transactions as an opportunity to buy at a lower price.

One source, a Shanghai-based investor called Stephen, even told Bloomberg that these policies are nothing new to us, so we take them as a signal to buy, before adding that an outright ban on holding. of digital assets was unlikely, as it could not be effectively enforced.

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