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China's Central Bank Ready to Ban Cryptos Issuance

China ban

November 11, 2020 | 

JOHN K MWANIKI |  1 Comments| 

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Another day another China crypto-related ban. China has never hesitated to ban cryptos before. It earlier in 2017 banned Initial coin Offering (ICO). It had also been considering banning crypto mining due to the rising costs. The mining also brought challenges as miners would also steal electric power.

Through the years, the country is ever placing restrictions on cryptocurrency commerce.

The latest in a row of restrictions is the People's Bank of China (PBOC) call to ban crypto issuance. The central bank is collecting public comments to stop the digital currencies.

The document seeks to stop any unit from creating or reselling crypto tokens. It also bars the circulation of coupons and other currencies that rival the Chinese Yuan.

The Scope of China's Ban on Crypto Issuance

One of the concerns in crypto Regulations has been defining the scope. The new proposal defines the Chinese Yuan as the physical aspect and digital form. It looks to protect the national currency.

The law targets the stablecoins issuers. This is to avoid any direct competition. It prohibits any entity from creating or using symbols that would also compete with the Yuan.

The law provides for a fine of five times the proceeds from such sales. It also wants digital currency issuers to halt operations and lose their earnings. 

The new laws will replace the 2003 central banking laws. They have been the guide for the financial sector through the past years. The growth of the crypto world calls for changes to accommodate the new assets. If the law passes, it will be the first time China has cryptocurrency laws in writing. 

The focus on Yuan's competition is a move to the future of the currencies. The Chinese government is planning to release a central bank digital currency. Banning the other cryptos is the only sure way to ensure it prospers. 

Understanding the digital Yuan

The news on China ban cryptos is not a surprise for anyone following the crypto trends. The country has not been the friendliest with cryptocurrencies. It was one of the first nations to ban cryptos citing disruption to the traditional currency

It is also more contradictory because the country wants to be the leader in the crypto economy. It believes crypto is the way to go for states looking to become dominant in the future. It was thus one of the countries to have supported crypto mining. It then afterward changed and ban crypto-related businesses.

Different script, same goal. China wants to dominate the crypto space by launching a digital national currency. The government is at the advanced stages of testing the electronic cash project. It is already testing the viability of the coin on the users. 

Last week it gave out $1.5m worth of digital currency. The coin attracted over 2million applicants through lottery, with 50,000 nationals winning. 

The currency works such that one downloads a digital renminbi app. They receive the currency through the app and can use it in more than 3000 merchant stores. Several local stores and pharmacies are part of the test phase. 

The Shenzhen trial is the biggest one the project has undertaken so far. It also looks to be the determinant of how successful the coin can get. 

The digital Yuan is to operate like the traditional fiat currency. The only difference is that it will be all digital. The central bank will keep its role as the sole supplier and controller. It means the other entities, like commercial banks, will still play the same functions.

Also, the digital Yuan will integrate the current digital payment platforms like WeChat.

The digital Yuan is different from Bitcoin and other decentralized cryptocurrencies. The decentralization means the virtual coins don't have any control authority. For that, they are susceptible to use in illegal transactions and volatility. 

The Chinese government believes in the possible success of the digital currency. It believes several other countries will adopt the coin. That at some point, all countries in the world will be using digital currencies. This would break the USD dominance. 

Worldwide View on StableCoins and CBDCs

The aspect of China wanting to ban cryptos is not an isolated case. Several other countries have banned cryptos before. This is mostly to safeguard the existing fiat currency

Others also want to extend their national crypto projects. Venezuela, for example, banned all cryptocurrencies except Petronas. 

Venezuela also wants to avoid economic sanctions through cryptocurrencies. Still, the national digital currency failed. They now embrace all the other coins like Ethereum and Tether

Of all the crypto projects, stablecoins remain the most concern for governments. Even though virtual currencies have been developing, they come with volatility issues. It means most users still prefer fiat currencies due to its stability. Stablecoins are yet to provide access to cryptos without the volatility concerns. 

The stablecoins tie their values to fiat currencies or other commodities. They do not face market changes like the other cryptos. 

The coins are thus a threat to the national currencies. 

A successful stablecoin would see most users abandon the traditional fiat economy. Banks would struggle to get deposits for operations. The government and the central banks would also lose control. The fear has seen ambitious projects like Libra and Tron face hurdles. Some also ban cryptos altogether. 

Still, the governments also acknowledge cryptos are an idea whose time has come. No matter how much they ban or control it, the coins will prosper. The only way then is to join the fray.

Several governments are considering the possibility of developing central bank digital currencies. The Bank for International Settlement is working with other central banks on this. They have already released a framework for the CBDCs

A successful CBDC means they retain the status quo. It's only the operation platform that moves to the blockchain space.

Bottom Line 

The prospects of the digital Yuan have made China consider to ban cryptos. It is looking for a competition-free area for the national currency. The move by China seems like a first with many other countries to follow.

Creating CBDCs and banning cryptos is the way for the traditional economy to survive.

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