China is exerting more and more pressure on cryptocurrencies with its ban on any Chinese company transacting with all crypto-related entities. Add to that, the massive crackdown on bitcoin mining operations in the country, and you have potentially stirred up enough negative sentiment to send cryptocurrency into a new bear market. Why is China so keen to squash such a small and nascent market?
The answer could well be that China fears the growth of an asset industry that is outside of the monetary system, and therefore beyond the control of the long arm of Chinese political and economic influence.
With China about to become the first country to launch its own central bank digital currency (CBDC) it does not want any competition in the digital currency space that might threaten the rise of its own fledgling digital currency.
What is at stake is simply enormous
The People’s Bank of China has been carrying out pilots on its digital renminbi since late last year. The progress made here has put it in the driving seat to be the first country to launch its own national digital currency.
Using monetary policy to control an economy with fiat currency is extremely difficult as most economies would vouch. The US Federal Reserve is in an especially precarious situation after printing almost a fifth of all dollars in existence just last year.
A central bank controlled digital currency would give a government far more control over monitoring its economy, as well as extremely powerful tools to manipulate it, by controlling how the digital currency in the wallets of its citizens is spent.
In addition, a digital renminbi would reduce Chinese reliance on the dollar-dominated global monetary system, and further distance itself from damaging international monetary sanctions.
Alternative digital currencies threaten financial stability
However, all China’s carefully laid plans to usurp the US dollar and make the digital yuan the world’s reserve currency could founder should its own people decide to hedge their liberties by buying into an alternative digital currency system, completely out of the control of the Chinese central bank.
According to an article on the matter by the Guardian UK online edition, an unregulated alternative money system running on blockchain technology is a clear threat to the Chinese communist party.
In the same article, Carsten Murawski, professor of finance at the University of Melbourne in Australia, says that from the perspective of central banks, cryptocurrencies are a threat to financial stability. He states:
“All central banks want to control them – the PBOC, the US Federal Reserve, the European Central Bank,” he says. “They have no interest in parallel currencies floating around. Some countries may not be too worried but in China it could be more of a concern.”
China and others crack down on Binance
Whilst the People’s Bank of China is hurriedly trying to implement the widespread roll-out of their CBDC, it is at the same time working on the eradication of cryptocurrencies from its own shores.
With the May announcement by the PBOC that banks were prohibited from providing services to those wishing to trade in crypto, and the subsequent ban on bitcoin mining in several provinces, it has followed this by recently making an example of a software company accused of involvement with cryptocurrency trading.
China has not been alone in its anti-crypto stance. The UK’s Financial Conduct Authority (FCA) warned Binance, the world’s biggest cryptocurrency exchange by trading volume, that it was not to carry out any regulated activity in the UK.
Other entities such as banks are also exerting pressure. The Swiss banking giant UBS recently warned customers to “stay clear” of cryptocurrencies. Barclays then followed this with a ban on payments to Binance.
At time of writing Santander UK has also taken action and has prohibited customers from sending payments to Binance.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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