Is Chinese Crypto about to Hijack the Global Economy?

By:  Keval Dholakia

This is the time when the world is busy inspecting the crypto dip. Crypto’s patterns are studied by even the smallest investors, and everyone wants to keep a track on their insanely volatile nature of the altcoins. One half of the finance market is busy understanding what these coins are and how do they work, while the other half is busy building its fortune in the form of crypto portfolio. The financial experts who believed in holding the stocks for decades to gain the maximum benefit out of it are currently dumbstruck analyzing the instantaneous boom in the international tokens in the recent phase. 

Despite crypto’s labile nature, people are investing blind-folded ascertaining the value of seconds. The lengthy analytical process of studying the securities is replaced by quick impulsive calls by many individual investors while trading these digital coins. Some countries have gracefully accepted this as the medium of exchange with some regulatory measures whereas others are still calculating its impact on country’s finances, to ensure state’s control over the monetary policies. 

 

China, due to its finance directive policies, stopped regulating all the crypto currency related financial services within a few months after validating its existence, in 2013. On 4th September 2017, China’s three financial bodies — the National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China released a notice announcing a ban on all the other financial tokens other than the Chinese Yuan. On 18th May 2021, the same state representing regulatory bodies issued a joint statement targeting financial transactions related to cryptocurrency trading and controlling growing financial risk from these activities; restricting foreign coins with the aim of promoting Chinese coins.

 

What is China up to?

When the world is going crazy over Elon Musk’s tweets, China is carefully innovating its finances. As facilities like transaction history, coin ownership, portfolio surveillance and mine tracking is not possible with crypto, the government fears to lose control over its country’s transactions, which is assumed to be one reason behind the Chinese decision to ban these coins. In order to keep a constant check on one of the world’s biggest economies’ financial system, the Chinese launched a digital variation of their own currency allowing its free flow in the market. Digital Yuan was gifted to several citizens last month and the government has declared transacting it legal for everyone. 

China is the first country to come up with the idea of plastic form of money after Bahamas and despite of this being a smaller project, it holds the capacity to turn into a huge decision in future. As there is no single administrative body to handle international finances associated with crypto related transactions, and a large group of people who are partly the owners of the coins have the database of the same so no individual coin-whale can manipulate or unethically change databases. Such control by the communes makes it almost impossible for one governing body to monitor, regulate or direct coined transactions which also could be a reason why few governments are not of the opinion to provide full liberty to the coin miners. 

 

Impact on Crypto

Last month, the Chinese again declared that its economy would not be regulating the crypto related transactions but it’s still considered legal, and the barriers are quite lenient as compared to the previous ban. The exchange rate between Chinese Yuan and the stablecoin named Tether dropped down by 4.4% after the government’s warning. In April 2020, China contributed 65% of the world’s computing power for Bitcoin mining, as compared to 7% by the U.S., according to a study by the University of Cambridge. Because the country is such an influential nation, its network, trade and reliability are spread to regions in every part of the world. Any minor decision in processing can lead to major shifts in prices of any currency, mainly because China is the home to majority of the miners and the government is having absolute control inside and outside its geographical boundary, which seems quite unfavourable for the investors across the globe.

 

The Chinese Crypto

The government has prepared a plan. After the ban, subtle relief on stablecoin is not something the Chinese administration would opt for. Introduction of Digital Yuan is one implausible step. The Chinese government has already begun to issue block chain-based digital currency to its citizens which is said to be transacted through a digital application. Things have come into action and considering its demographics and level of participation in international trade, this non-official coin might produce jaw-dropping results, bringing benefit to the Chinese economy and if anything, the Chinese trade. As this is not officially a coin to be traded as security but to be treated as a financial commodity, the value of this digital currency might escalate through the roof in no time. The world is about to realize what difference can constantly innovating concentration of power and clever use of finance cause in a rapidly changing business environment. 
 

International Trade

The Chinese have been dominating world trade since the last decades. Despite its uncordial relations with several countries including The United States and India, no country is having the geoeconomic courage to step up and restrict imports from China at a large scale. This trend stems from the fact that these administrations deep down understand the fact that they cannot live without Chinese goods. Not one, not two- but in almost every industry including fashion, cosmetics, plastics and technology- Chinese goods and services are found flooding the market. 

With this interesting shift in Chinese finances, there is no way things are going to remain unaffected in other countries. How much these factors impact transnational economies will depend on the responsive measures that the rest of the world will take. 


Sources
https://seekingalpha.com/article/4418567-bitcoin-china-launched-digital-yuan-and-will-change-everything
https://thewire.in/world/china-becomes-first-major-economy-to-issue-digital-currency
https://www.mondaq.com/china/fin-tech/944330/regulation-of-cryptocurrency-in-china
https://scroll.in/article/994652/chinas-digital-yuan-could-be-the-future-of-money
https://www.bloombergquint.com/quicktakes/how-china-rivals-elon-musk-in-rattling-crypto