China’s virtual yuan has been in development for the past 7 years (since 2014). Recently, Chinese officials had noted that Bitcoin (BTC) was not really a currency but they do think it’s a form of investment.
Regulators in China are also eager to explore the use of crypto-assets and their underlying blockchain or distributed ledger technology (DLT). During the past few years, the nation’s research communities have been developing rating systems for digital asset projects and have also been carrying out pilots of the digital yuan in major cities like Shanghai and Shenzhen.
Notably, Chinese lawmakers have now begun arguing that Bitcoin, Ethereum (ETH), and other virtual currencies are not an effective medium-of-exchange. However, they do believe they can serve as a type of investment, as long as they are able to provide real value to the economy and are not being used to engage in speculative trading.
The dramatic increase in the mainstream acceptance of digital currencies for investment purposes across the globe could also lead to positive developments for China’s Fintech sector, including its State-backed virtual currency, which is often referred to as the Digital Currency Electronic Payment or DCEP. This, according to analysts who shared their views with the SCMP.
Notably, China has been prohibiting the use of cryptocurrency for fundraising purposes. The nation’s regulators had launched a crackdown back in 2017 due to the large number of scams carried out under the guise of initial coin offerings (ICOs). Since that time, Chinese traders have been using peer-to-peer trading platforms or have been using VPNs to perform trades via platforms based outside of mainland China.
Interestingly, Chinese residents are not prohibited from engaging in Bitcoin or crypto mining, presumably because it is perceived as a legitimate operation that can make positive contributions to the economy. Chinese officials and organizations are also keen to perform crypto or DLT-focused research and have been implementing various blockchain-enabled solutions.
While the decentralization of financial services and other business processes may pose a threat to the centralized systems of today, China’s reserve bank and others across the globe have expressed positive views regarding the potential benefits of blockchain or DLT. The distributed ledger could provide a way to enhance the digital yuan’s (or other State-backed virtual currency) competitiveness as a global medium-of-exchange.
John Keh, CMO at Genesis Block, a crypto-asset trading centre based in Hong Kong, stated:
“The more sophisticated cryptos become, the more source material DCEP will have to draw upon and improve their network. The concept of the DCEP becomes more easily understood if Chinese people have basic knowledge of cryptos.”
“China’s population is more accustomed to digital wallets, QR codes, and mobile banking … so the pace of digital asset adoption will occur much faster than in the US.”
As covered, Li Bo, deputy governor of the People’s Bank of China (PBoC), had noted during the Boao Forum for Asia last month that cryptocurrencies are “a type of investment option, they are not currencies themselves but alternative investments.”
It’s worth noting that China is now part of a research project along with Hong Kong, Thailand and the United Arab Emirates (UAE) in order to look into the feasibility of developing and issuing a central bank digital currency (CBDC). The research group aims to determine whether CBDCs would be useful for carrying out cross border transactions.
Raymond Yeung, Greater China Chief Economist at ANZ Bank, stated:
“It is clear that the regulations do not want to jeopardise the whole development of financial innovation. The question is how do you apply blockchain technology to the existing financial structure but at the same time not lead to cryptocurrency problems?”