As the world’s currencies evolve steadily and become more electronic in nature, China is studying the idea of launching a digital Renminbi.
The digital currency would be secured by China’s controlled blockchain.
China’s first cryptocurrency is nothing less than a revolution in the way currencies are used and is the first time such a large country plans to launch a reserve digital currency.
China digital currency name
The Chinese cryptocurrency is called the Digital Currency Electronic Payment (DCEP) and has been nicknamed the Chinese Bitcoin.
It is the Asian giant’s answer to Facebook’s Libra crypto-currency. Indeed, China’s finance officials are in a race with Facebook to be the first to launch a mass-market digital currency.
The DCEP would be out of the control of US authorities and protect those who use it from US sanctions.
These developments raise the possibility that other central banks will follow suit and create their own reserve crypto currencies in order to control, profit from and regulate this growing sector of the currency industry.
Already, the Federal Reserve is opening up to the idea of developing ‘FedNow’, a digital real-time payment system based on the US Dollar. Philadelphia Federal Reserve bank president Patrick Harker talked about the inevitability of the Fed developing a crypto currency of its own.
Adding to the momentum for national central banks to issue their own digital currencies is the Bank of International Settlements (BIS). The BIS’s chief Augustin Carstens said his organisation is helping worldwide central banks to develop their own crypto currencies.
The major concern about non-governmental crypto currencies like Libra is that they could be open to misuse for criminal activities like money laundering. In addition, governments feel they are missing out on taxes by being unable to easily monitor cryptocurrency transactions.
Cryptocurrency regulation in China
China has even banned cryptocurrencies like Bitcoin on the basis they were out of the government’s control.
The question is whether the core cryptocurrency markets will adopt government-based cryptos.
Cryptos were developed by individuals and companies keen to avoid the problems attached to reserve currencies like the US Dollar. The original desire was to be independent of sudden financial and economic crashes which massively affect currency values.
That’s not to say that cryptocurrencies don’t have enormous volatility of their own.
The other question is whether the launch of government-backed cryptocurrencies will stabilise the digital currency markets in general.
There’s a chance this could happen because digital currencies behave differently to traditional fiat currencies. Instead of being limited to a finite amount like fiat currencies, digital currencies can expand indefinitely without losing their face value.
It can be argued that digital currencies are also more or less indifferent to the influence of inflation or economic performance. Instead, they’re more dependent on the interactions of large blocs of cryptocurrency miners and traders.
Wrapping up, is China’s planned cryptocurrency the first step in a regulated environment for all cryptos? It would appear so, given the interest shown by other governments and central banks in expanding into this lucrative space.