Talk of China’s proposed national stablecoin has tapered off– is there still hope?
Based on recent events in China’s cryptocurrency world over the last two years, speculation has circled regarding the country’s plans to create its own stablecoin.
China is known for being the first country in the world to create a national cryptocurrency. However, it appears that the Asian superpower’s ambition and enthusiasm has lost steam and that the project is facing setbacks.
Some years ago, China was at the leading edge of cryptocurrency-related activities worldwide.
The Asian giant was estimated to control about three-quarters of hashing power on the Bitcoin network and 95 percent of all Bitcoin trading volume. However, a shift occurred towards the end of 2017, almost around the time when cryptocurrency experienced a massive market boom.
The Chinese government suddenly became anti-crypto and established and extensive ban on cryptocurrencies. The anti-crypto campaign succeeded in making domestic ICOs and exchanges illegal. All through 2018, crypto miners in various regions of China were under pressure to terminate their operations.
The Chinese central bank and government felt Bitcoin and other cryptocurrencies were a major threat to its economy and proceeded to warn citizens about the risks of crypto trading. Hacker Noon stated, “Chinese economic initiatives were highly subject to their ability to retain and increase their authority over the international flow of money”. In a bid to increase China’s influence, restricting something like cryptocurrency from weakening the system appealed to the country’s regulators.
Although there have been various degrees of regulatory tension from the Chinese government against cryptocurrency, the Chinese blockchain industry remains unaffected and continues to grow. In a speech given in May 2018, President Xi Jinping mentioned blockchain while remarking on the importance of technological development.
Later in the same month, the China Center for Information Industry Development (CCID) Research Insitute of the Ministry of Information and Technology unveiled the first-ever public blockchain assessment index, while announcing it will establish a national set of standards for blockchain. The standards are expected to come into force by the end of the year.
Desmond Marshall, Managing Director of fintech lab The Floor in Hong Kong, stated in an interview with Finance Magnates that China had experienced major growth in the technology sector and that people are becoming more interested in blockchain technology. He said the popularity of Bitcoin galvanized people’s understanding of blockchain and that China is very hospitable towards the technology’s potential applications.
Moreover, he claimed that blockchain development, including on China’s national stablecoin, is occurring at a wide range of scales and administrative levels– from the central government to local provinces and down to local startups.
The country’s involvement in the development and testing of a national cryptocurrency has been public knowledge for some time. Most media outlets reported as early as June 2017 that China was the first country to create its own stablecoin– a cryptocurrency that has been designed to maintain a stable value, generally by pegging it to a fiat currency. At the time, the country’s central bank, the People’s Bank of China (PBOC), was said to have developed a prototype of a national coin and tested it by transferring it between commercial Chinese banks.
There had been increasing pressure to complete and issue the coin. Yao Qian, the lead researcher of the national cryptocurrency at the PBOC, in November 2017 said, “The advancement of digital economy needs central bank-issued electronic currency more than ever and it is essential that the research and issuance speed is increased.”
The urgency of the project has however disappeared, as there have been no public discussions about the possibility of a Chinese national stablecoin since the end of 2017. In December 2018, an independent researcher at the PBOC published a report entitled, “A Brief Analysis of Stablecoins.” The report said that in the future, for a national economy to be able to compete with the rise of private stablecoins, such an economy has to place their interest in a central bank-issued fiat digital currency.
This report might have been responsible for prompting OKCoin Founder Star Xu to announce in October that the company would be launching a Yuan-backed stablecoin via its US branch.
Apart from OKCoin, there has been at least one other move made to create a stablecoin within China. Chinese firm Grand Shores Technology Group was reported by LeapRate to be developing a stablecoin in early December of 2018, with the hope of releasing it into the markets in February. According to the report, the Chinese government of Hangzhou, capital of the Zhejiang Province, is backing the project.
However, the report also stated that instead of the Chinese Yuan, the currency will be pegged to the Japanese Yen, potentially to prevent any reaction by the Chinese government towards the locally issued stablecoin. Nonetheless, the possibility remains for a blockchain company to convince the Chinese government to create its national cryptocurrency on its system.
When Finance Magnates interviewed Filipp Egorov of PR firm the Vinci Agency, he said that as a Shanghai-based firm, they often have off-record conversations with fund runners and government-approved blockchain projects in China.
He mentioned how China tried to lobby NEO as the ‘national’ cryptocurrency in 2018. He explained:
The NEO lobby in the Chinese government is very strong, seeking an enforcement backed ecosystem, KYC/AML compliant, isolated, transparent to the states, regulated – and a stronger one aiming at further proscription of any crypto-related activities.
Nonetheless, Egorov says he does not believe in the possibility of a national cryptocurrency anytime soon and that the stablecoin is a feat that cannot yet be forecast. China holds a very firm view on crypto assets, and as far as they are concerned, the government does not want to allow crypto users to link digital currencies with real-world money.
Although China has made little progress in developing a national cryptocurrency, a lot of countries have begun to develop their own initiatives to create national cryptocurrencies.
Of all the countries with the ambition, none have successfully seen the project through to completion. They include the (proposed) Russian CryptoRuble, the Swedish e-Kroner, Kyrgyzstan’s gold-backed cryptocurrency, Estonia’s national cryptocurrency, Iran’s state cryptocurrency.
Creating a national digital coin has its benefits, which include reducing the price of electronic transactions such as debit card transfers, which could also profit the country as a whole and not just the issuer. If the vision became a reality, it is expected that any fees connected to the transactions could fund state projects and benefit the people.
A national cryptocurrency could make it easier for citizens to access financial and banking services. Providing people with low-cost e-banking options could fuel economic growth from the bottom up.
Some experts have highlighted the potential appeal of a national cryptocurrency to a body like the Chinese government, because of how easy it will be to control and monitor its usage. Depending on how the system is set up, users of the blockchain network could have personal identification information attached to each and every transaction made with their cryptocurrency.
The South China Morning post interviewed PBOC researcher Yao Qian in 2017. She admitted that the central bank finds it easier to trace virtual currencies, including their “velocity” and whereabouts. The data could be used to improve monetary policies accordingly.
The implications strike some enthusiasts as beneficial. They agree that it would be a herculean task to counterfeit cryptocurrency. Therefore, financial crimes would be significantly reduced.
Additionally, blockchain networks are incredibly secure– they are usually manned by thousands of computers (nodes) spread across wide geographical locations. The process of hacking the blockchain would require compromising more than 51 percent of the nodes on a network, which is highly implausible. However, there has been little consensus on how the nodes would be selected.
Even if it released a national cryptocurrency, China is unlikely to open itself to the rest of the cryptocurrency world. This is partly because the Chinese government aims to regulate and monitor the economic sector. The launch of a national cryptocurrency would only serve to further stamp out Bitcoin and other ICOs from the country.
Furthermore, Desmond Marshall of the Floor in Hong Kong said in an interview last year with Finance Magnates that the PBOC’s effort to develop a national cryptocurrency did not involve talk of crypto trading.
According to him, the conspicuous lack of discussions on crypto trading sends the message that its digital currency is being developed for a specific purpose and ICO tokens do not fall under electronic payments, which he referred to as “a definite no-no.” He said he has no expectations of the crypto-ban being lifted.
Another uncertainty left is if the Chinese national cryptocurrency would be open to foreign buyers. That could attract investment to the Chinese economy, but make regulation tedious.
Though it appears that the Chinese government has ignored its national cryptocurrency initiative, the blockchain Chinese community continues to grow and in the near future, may need some kind of infrastructure to take shape.
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