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China's crackdown on Bitcoin and other cryptocurrencies has been ongoing since 2017. In June 2021, the country issued new directives tightening the ban on crypto-related activities. In a joint statement the financial sector regulators prohibited financial and payment institutions from offering crypto services and products. This means the institutions are curtailed from accepting digital currency as a means of settlement or payments. Also, the institutions are banned from offering crypto exchange services between digital currencies and yuan or foreign currencies.
In addition, the directive bars Money Funds from using cryptocurrencies as investment assets. Moreover, payment companies are required to monitor the flow of money to crypto trading activities while electricity companies halt supplying electric power to crypto mining projects. The country had banned Initial Coin Offering in 2017. After the ban, miners have fled the country establishing mining activities in countries like the US, Russia, and Canada.
Why China Banned Cryptocurrency Mining
The Chinese government argues that crypto speculative trading disrupts the normal financial and economic order. In addition, it poses a threat to the safety of people's investments and property. The Crypto industry is relatively new and lacks solid regulations and therefore, it is susceptible to massive manipulation. Despite this fact, the best free crypto prediction site, forecasts for the crypto market to increase in value rather swiftly in the upcoming years.
According to professor Dong, the government should block money flow from capital sources and real industries to crypto transactions. This means the prohibiting crypto activities in the country is a deliberate plan to cut crypto trading out of the China financial systems and hence protect small and medium enterprises which form the backbone of the Chinese economy.
A Plan To Promote Digital Yuan
Some experts argue the Chinese government is reining in foreign digital currency trading to promote digital Yuan (e-CYN). Essentially, the country has developed digital currency to modernize the payment system, lower transaction costs, and enhance efficiency. In addition, A centralized digital e-currency will enable the government to monitor the economy and people.
China was the first country to introduce a central bank-backed digital currency. In April, the country completed the first phase of cross-border payments tests in the major cities such as Hong Kong and Hainan province. The country is also testing out cross-border payments with Hong Kong, Thailand, and the UAE. These tests are in readiness to promote the use of the digital yuan internationally.
In April, the first phases of cross-border payments tests were completed in the major cities such as Hong Kong and provinces such as Hainan. These moves will help greatly enhance the use of the digital yuan internationally.
The introduction of the digital Yuan seems to be part of China's bigger plan to weaken the Washington and US dollar. Internationalizing the Electronic Yuan will cut Beijing's reliance on the US dollar for international trade the same way the Belt and Road network is creating an alternative international trade network. What's more, it will make it almost impossible to sanction China. The digital yuan actually gives the government more surveillance capability than independent cryptocurrencies and fiat money. In other words, the government is in a better position to combat illicit activities such as tax evasion, money laundering, and illegal gambling.
The crackdown is to promote the adoption of the Central bank's digital currency. This means the government will have surveillance on financial activities and hence keep track of economic activities. In other words, Beijing will have the power to track spending in real-time. According to top carter, the crackdown on Bitcoin and cryptocurrencies in China is ostensibly to cut capital outflow through cryptocurrencies and stable coins.
The digital Yuan or e-CNY will put the Chinese government in deficit competition with the corporate payment systems and cryptocurrencies. It is in line with the government's push to control tech companies. The cryptocurrency private systems are quite unpredictable. The e-CNY provides a backup plan should there arise a technical or financial problem that can destabilize the Chine financial system
Crypto trading has high returns potential. For instance, the price of Bitcoin has proliferated from $10 000 to $60 000 from January to May 2021. In fact, a well renowned portal providing cryptocurrency forecasts, predicts that the bitcoin price will further increase in the months that follows. For various mentioned reasons, many investors have shifted from conventional investment assets such as bonds to hedging using cryptos. In fact, the PBOC deputy governor said they are concerned about the financial system developed outside the regulated financial system.
The government is persuading the citizens rather than forcing them to use cryptocurrency. For instance, it has given millions of dollars freely, which people can use to make purchases in big premises, including China-based American companies like Walmart. Some local government employees have also received their salaries in digital currency.
The plan to ostensibly replace the US Dollar as the global reserve currency has been criticized heavily by the US. However, Beijing has refuted the claims.
The digital Yuan or e-CNY will put the Chinese government in direct competition with the corporate payment systems and cryptocurrencies. The government will also maintain its control over tech companies. Remember, cryptocurrency private systems are quite unpredictable. The e-CNY, therefore, acts as a backup plan should there arise a technical or financial problem that can destabilize the Chinese financial system.
Control of Online Business
China has not hesitated to cut down online businesses if they seemingly grow out of control. For instance, the government has recently fined Alibaba and ordered it to downsize. In addition, it has also targeted the Tencent of WeChat and other tech giants. Didi, a ride-hailing service, is under inquiry after being pulled out of app stores.
Ant Group and Tencent holding private Chinese companies have set up massive crypto mining and payment systems. These companies have played a significant part in the increase of Bitcoin value growth of the decentralized technology. This is quite a departure from the historical Chinese financial history, which is majorly centralized. Despite the lack of regulation making the crypto industry uncontrolled, it was obvious the Chinese government would rein in the industry.
Final Word
The crackdown on Bitcoin and cryptocurrency-related activities is an elaborate plan by the Chinese government to promote the adoption of the People’s Bank of China's digital currency. These measures enable the government to have surveillance on financial activities. Therefore, Beijing will have the power to track spending in real-time and keep track of economic activities. In a nutshell, the crackdown on Bitcoin and cryptocurrencies in China is ostensibly to cut capital outflow through cryptocurrencies and stable coins.