Of all the technological revolutions we’ll live through in this next decade, none will be more fundamental or pervasive than the transition to digital cash. Money touches nearly everything we do, and although all those swipes and taps and PIN-entry moments may make it seem as though cash is already digital, all of that tech merely eases access to our bank accounts. By 2023, China had made significant strides in promoting the adoption of e-CNY, both domestically and abroad. The government focused on increasing the e-CNY’s use in cross-border trade and international payments, aiming to reduce reliance on the U.S. dollar and enhance China’s economic sovereignty. China’s strategic actions, backed by years of regulatory and technological groundwork, are accelerating the integration of the e-CNY into both its domestic economy and the global financial system. The e-CNY was introduced in pilot programs across several cities, representing China’s vision of state-controlled digital money that could coexist with the traditional financial system.
This legal escalation effectively removed any ambiguity about the government’s stance, signaling a zero-tolerance approach to cryptocurrency activities. The notice also called for strengthened coordination among government agencies, including financial regulators, telecommunications authorities, and internet regulators, to ensure comprehensive enforcement of the ban. Furthermore, payment institutions and internet platforms were instructed to cease providing any services that could facilitate cryptocurrency transactions. Following the mining crackdown, the regulatory focus broadened to encompass all cryptocurrency-related activities.
This move was part of a broader effort to prevent capital flight and maintain control over the country’s financial system. This paper discusses the key considerations of CBDC design to balance benefits and risks and presents best practices in CBDC design from a global perspective. Using China’s CBDC as an illustration, this paper discusses two-tier or multi-tier ledger design and proposes ten enablers of mass adoption and successful implementation. This proposed design allows central banks to manage the process flow, focus on the monitoring and control, without bearing all the load or exposing to over-centralized risks. It concludes that CBDC will be the primary tool in the future digital economy, and countries that are conversant with the technology will have a competitive advantage. Learning from the implementation, continuously reviewing the existing regulation, and improvising whenever international dynamics change the landscape are vital attributes of a successful implementation.
One of the most immediate and visible impacts of the ban was the exodus of cryptocurrency mining operations from China. Mining companies relocated to other countries, leading to a more geographically dispersed distribution of Bitcoin hash rate and a shift in global mining power dynamics. This relocation had short-term disruptions to the Bitcoin network, but in the long run, it arguably contributed to greater decentralization and resilience of the network by reducing its reliance on a single jurisdiction. For China, the mining ban meant the loss of a potentially significant industry, albeit one with considerable energy consumption concerns.
This final crackdown went beyond previous measures by explicitly prohibiting not only cryptocurrency trading and ICOs but also cryptocurrency mining, effectively aiming to eradicate all aspects of the cryptocurrency industry within China. The 2021 ban was signaled through a series of increasingly stringent announcements and directives from central government ministries and local authorities, ultimately culminating in a definitive statement in September 2021 declaring all cryptocurrency transactions illegal. This comprehensive ban represented the most forceful and decisive regulatory action to date, effectively closing the door on cryptocurrency activities in China and causing a significant shift in the global cryptocurrency landscape. Fintech and decentralized finance have penetrated all areas of the financial system and have improved financial inclusion in the last decade. In this paper, we review the recent literature on fintech, cryptocurrencies, stablecoins, and central bank digital currencies (CBDCs).
This article provides a comprehensive timeline of China’s critical actions on cryptocurrency, from its initial warnings and crackdowns to its ambitious development of the Digital Yuan (e-CNY). “It’s going to be essentially the central bank versus the big tech companies and that’s going to be quite interesting to watch,” he said. A sense that the popularisation of the digital renminbi could come at the expense of Alipay and WeChat Pay is reinforced by Beijing’s messaging through state media coverage.
For crypto investors and tax professionals, grasping China’s evolving stance on cryptocurrency is not just crucial, it’s a necessity for navigating the volatile crypto market and making informed financial decisions. Despite China’s status as the world’s second-largest economy, the yuan or renminbi lags far behind other international currencies. It accounted for 2.13% of global foreign reserves in the third quarter of 2020, according to the International Monetary Fund. Its share of global payments was just 1.88% in December, according to SWIFT, a provider of secure financial messaging services. In late October 2020, the head of China’s digital currency program told the public that the currency would not compete with WeChat Pay and Alipay, the dominant privately run e-payment platforms in China. WeChat and Alipay are wallets, while the digital yuan is the money in the wallet,” said Ma Changchun, according to the South China Morning Post.
The answer to be explored by this paper is by embracing elements of cryptocurrency technology in the form of digital payment systems and blockchain technology. The financial sector in China is well known as a government-dominated hierarchy, and the access to financial services has been controlled primarily by the state-run banks. Fin-tech businesses or so-called “Internet finance,” in China have included new actors such as Internet companies, small and medium enterprises, and small lay investors in the financial regime. The new entrants’ technology-mediated interactions with the government engendered new politicoeconomic relations within and beyond the market, in the cyberspace and in everyday life.
The government’s ban on Initial Coin Offerings (ICOs), a popular fundraising method for blockchain projects, and the closure of local cryptocurrency exchanges clearly showed its intent to control the financial system and closely monitor cryptocurrency developments. China’s relationship with cryptocurrency is complex, with layers of caution and occasional hostility. In December 2013, the People’s Bank of China (PBOC) issued its first warning against Bitcoin, highlighting the potential risks of the emerging digital currency. The PBOC prohibited financial institutions from using Bitcoin, marking the beginning of China’s cautious and often hostile approach to cryptocurrencies. The e-CNY, China’s state-backed Central Bank Digital Currency (CBDC), is designed to provide a digital counterpart to the physical yuan. Unlike decentralized cryptocurrencies such as Bitcoin, the e-CNY is fully controlled by the People’s Bank of China (PBOC), giving the government strict oversight over the currency’s use and distribution.
By banning decentralized cryptocurrencies and promoting the e-CNY, China is seeking to maintain control over the digital currency space and ensure that digital financial innovation aligns with its national interests and centralized control structures. The e-CNY, launched in pilot programs in 2020 and expanding since, represents China’s alternative to decentralized cryptocurrencies – a state-controlled digital currency aimed at enhancing government oversight and efficiency in the financial system. The ban on cryptocurrencies can be interpreted as clearing the path for the widespread adoption and dominance of the e-CNY within China, solidifying the government’s control over the digital economy.
