Published: January 13th, 2020
– The relationship between the U.S. and China is weird. Both countries realize that their economies depend on one another and that good trade between the two is healthy not just for the residents of the two countries but for the benefit of the global economy as well. Yet, the games they play and the competition that these games have fostered, is astounding, for lack of a more befitting word. Sometime in 2019, the games got to the blockchain space, and it seems China is intent to keep the amusement going.
Early in 2019, China, which conveniently houses about 70% of the world’s cryptocurrency mining activity, astounded industry players, by announcing that it contemplated banning the activity. The leading economy in the orient recently went ahead to preempt a ban on cryptocurrencies altogether.
While the action is mindboggling, it is understandable in the light of the fiat currency world. It also makes sense in the light of China’s relationship with the US, which is considered the world’s headquarters of blockchain innovation. However, could these facts alone have triggered China to act in a manner so bewildering?
For starters, the threats that finance industry players imagine that cryptocurrencies can have on the space has sent authorities to consider limiting these coins or to ban them altogether. But, with Facebook announcing its cryptocurrency project, Libra, there has been an about-turn of sorts with some countries going full throttle on national blockchain and cryptocurrency projects. China’s reaction seems to mirror that of many countries.
Facebook proposed that Libra competes with Bitcoin. The tech giant’s game-changing stablecoin hopes to provide faster transaction durations and generally perfect all the areas where Bitcoin has slackened. That, notwithstanding, Libra has received lackluster reception probably because of the parent company’s privacy woes.
But, Libra and China’s initiatives aside, the industry has noted with approval, the upsurge in drafting policies, rules and regulations that govern the creation, release, and distribution of cryptocurrencies. Most of the countries making strides in this arena cite the need to protect the domestic fiat currency as the key reason.
The fact that there is a clear yet intentional misunderstanding, or rather, a strained relationship between China and the U.S. has pushed the two nations to point of a convenient, mutual distrust. Most of the transactions happening between the two nations happen on the backdrop of this underlying condition. This probably explains why a trade deal has taken so much back and forth.
Interestingly, China’s latest interest and approach to the blockchain will see the country have just a portion of the rib. While it is keen to see off crypto, it is maintaining a firm grip on the blockchain technology. The idea is to harness the potential of this technology to push the official currency, Renminbi (RMB) to the global trade arena.
While bolstering RMB seems like a clever undertaking, what is the real motivation?
According to Flex Yang, the brain behind Babel Finance, and its CEO, China wants to counter Libra, which most people in China consider a project of the U.S. By hastening the development of a fiat digital currency initiative, China simply is seeking to dispel the pressure that the Libra will have on RMB. In so doing, the country hopes to reposition itself and its domestic currency at the helm of the global finance map. By dismissing crypto while having a firm grip on the blockchain, is China interested in the space like it wants people to believe?
Yang believes that China’s interest in the blockchain confusing. He finds it skin deep in certain instances, and very superficial in others. The finance executive contends that the national prioritization of the blockchain is to make up for the shortfalls of the RMB globalization strategy. The country’s dismal performance in this front did not make the currency as globally attractive as the blueprint deemed. China, as such, is looking to the blockchain to help make RMB both stronger and acceptable globally.
What experts deem as China’s two-faced approach to the blockchain is easy to see if you consider that it has encouraged the use of the technology in several segments of the economy such as supply chain management. This almost half-hearted attraction to the technology, thus, is cumbersome to understand.
The first step in positioning the domestic currency will see the People’s Bank of China (PBoC) apply the blockchain in its digital replacement for cash project sometime later in 2020. The country hopes that this move will help get the RMB to the global trade arena. Moreover, with the advancement in China’s attitude towards the distributed ledger technology, the country hopes for a relatively fast uptake.
Experts think that China will keep experimenting; keeping what works and ditching what does not. This assertion is in light of the projects, both proposed and ongoing. Regarding the receptivity of the country to players in the space, the same experts think that China is not yet ready for the companies that left the country just before the anti-crypto pronouncements.
This position may, however, change if the country enacts clearer rules and regulations; an undertaking that does not seem feasible in the short term. The only parties that may have an easy ride now are the firms or companies whose projects are aligned to the interests of China. For instance, firms that want to research on the use of blockchain in the supply chain environment and source tracking in the pharmaceutical and food industries, in particular, have a huge advantage.
These are interesting times for both China and the blockchain space; the mixed reaction of the former towards the latter, notwithstanding. If the country can fast-track its digital replacement for fiat fast enough and achieve its objectives for the domestic currency, it may have space to allow for more adoption of the blockchain. What happens now henceforth, however, only remains to be seen.