• China shoots against Bitcoin & Co.
• Own digital currency on trial
• e-CNY should also simplify cross-border payment transactions
China takes action against Bitcoin
The Chinese government has been fighting the cryptocurrency market for years – even though virtual currencies were flourishing in China when Bitcoin was introduced in 2008. However, the unregulated transactions were a thorn in the side of the People’s Republic’s leadership from the start, which is why the use of digital currencies for the purchase of real goods and services was banned as early as 2009. Chinese financial firms were then banned from doing bitcoin business in 2013, before implementing a 2017 ban on crypto exchanges exchanging cybercoins for fiat currencies. Then, just last year, the People’s Bank of China declared all cryptocurrency-related transactions illegal.
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Test phase of central bank digital currency
Official reasons for Beijing’s crypto-hostile policy have always been the protection of consumers from fraudulent systems, the prevention of money laundering and environmental concerns regarding the energy-intensive mining process that occurs with Bitcoin, for example. However, it should not be ignored that the Chinese central bank is working on its own central bank currency: the e-CNY. The digital currency, officially known as “Digital Currency Electronic Payment”, is said to be a digital version of the Chinese renminbi yuan. As part of a pilot project that began in 2020, the domestic Bitcoin alternative is already being offered at 23 locations spread across 15 of China’s 31 provinces, according to the Chinese news agency Xinhua in July this year. Consumers who participate in the tests usually receive bonus payments. In addition to retail, e-CNY is also used for corporate lending and possibly tax payments. Zou Lan, Director of the Department of monetary policy of the People’s Bank of China, explained that they now want to expand the pilot project further.
Pilot project is extended to four provinces
This now appears to have happened. According to the South China Morning Post (SCMP), the e-CNY is now set to arrive in Guangdong, Hebei, Jiangsu and Sichuan provinces, according to Fan Yifei, deputy central bank governor, at a financial meeting. However, the representative did not announce when the time would come, saying that this would happen “at a suitable time”.
User numbers doubled in a very short time
In addition, Fan not only describes the digital yuan as “an important infrastructure in the digital age”, but also attests to “steady” growth in consumers, merchants and transactions. Although the vice governor did not give any details on the number of users, as of the end of 2021, 261 million people were using the service, as the newspaper reported. In October 2021, there were still 140 million users using e-CNY, as Mu Changchun, director general of the central bank’s institute for digital currencies, revealed to the Reuters news agency last year.
International payment transactions aimed for
According to the SCMP, since the beginning of the year the use of the digital currency outside of the Middle Kingdom has also been examined in cooperation with the Hong Kong monetary authority. Contact was also made with the currency guardians of Thailand and the United Arab Emirates for appropriate tests. In this way, the e-CNY could simplify cross-border payments between China and other countries. The People’s Bank of China has not yet announced when the crypto-yuan will be introduced nationwide.
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