The Chinese government hasn’t been too kind to cryptocurrencies in the past years. First, initial coin offerings (ICO) were banned in China in September 2017. Then, following the crackdown on ICOs, exchange platforms that traded cryptocurrencies or provided facilitation services were also ordered to be closed. This made the task of purchasing bitcoin almost impossible for investors in China.
However, this was not merely a blanket ban. It was a preparation for things to come.
To understand the harsh attitude of the Chinese government toward cryptocurrencies, we have to look at the big picture of China’s economy and financial market.
While central banks worldwide grapple with the rise of bitcoin and their inability to control it the way they do fiat currencies, China is working toward becoming the first country to implement its own digital currency, also known as the Digital Currency Electronic Payment (DCEP) project.
By forbidding other entities in issuing their own cryptocurrencies through the ICO ban and limiting the exchange of bitcoin, the People’s Bank of China (PBOC) is securing the success of its own forthcoming digital yan. Furthermore, unlike cryptocurrencies such as bitcoin, dealing in the digital yuan won’t protect any presumption of pseudonymity, and its value will be as stable as the physical currency issued by the government.
China Racing Toward A Cashless Society
China wants to become the first nation to issue a digital currency in its push to internationalize the yuan and reduce its dependence on the global dollar payment system.
According to Reuters, an article published in China Finance, a magazine run by the PBOC, stated that the rights to issue and control a digital currency would become a “new battlefield” of competition between governments.
As part of the project, the PBOC defines the yuan as both physical banknotes and digital currency. The idea is to establish a new…