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China bans bitcoin | reasons for China’s fight against Bitcoin? Fear or attempt to monopolize?

China bans bitcoin | reasons for China’s fight against Bitcoin? Fear or attempt to monopolize?

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Does China ban bitcoin? China’s war against bitcoin began with the Chinese government cracking down on cryptocurrencies with increasing intensity throughout 2021, and Chinese officials issued repeated warnings to their people to stay out of the cryptocurrency market, and singled out mining in the country, as well as currency exchange within and outside China.

The People’s Bank of China said on its website that digital currencies – including bitcoin – are not fiat currency and cannot be traded in the market, adding that it will prevent financial institutions, payment companies, and Internet platforms from facilitating the trading of those currencies.

As of late September 2021, cryptocurrency trading has been banned by Chinese regulators, and they have stated that they will “cut off financial support and electricity supply for mining.” These new instructions caused the price of digital currencies to drop around the world, especially Bitcoin, which lost about 5% of its value in less than 24 hours after this announcement.


The main reasons for China’s war against Bitcoin

It may be a bit strange to fight one of the largest countries in the world for digital currencies, especially with the increase in the world’s acceptance of these currencies day after day, as some countries and companies have begun to officially recognize them and allow them to be traded and dealt with easily and comfortably, and for this, it was important to know the reasons for the hostility China to Bitcoin, and in fact, China may have some logical motives, including the following.


Floating its own digital currency in China

Analysts see that one of the main reasons for China’s war against Bitcoin is the attempt by the Chinese authorities to float its cryptocurrency. When the “Beijing campaign” made headlines on cryptocurrency, the Reserve Bank of China created its own cryptocurrency behind the scenes, and this campaign may be an attempt for China to embrace its nascent cryptocurrency and revitalize its own financial system.


Let’s learn about China’s digital currency: (Digital Yuan)

The digital yuan, also known as “e-CNY”, “e-Yuan”, or “digital renminbi”, is the default form of the Chinese renminbi (the Chinese yuan) issued by the People’s Bank of China. e-CNY is not intended to replace the Chinese renminbi but must be circulated along with deposit accounts and other payment methods.

The goals behind China’s creation of its own digital currency

  • Reducing its dependence on the traditional banking system.
  • Central control of many transactions using digital currency.
  • Protection of the sovereignty of the Chinese currency and the legal status of the currency.
  • The globalization of the Chinese currency, allowing it to be a competitor to the US dollar in the international financial system.
  • Providing money that can only be spent on specific goods and services aimed at reviving the economy.

The Chinese electronic yuan appears to be primarily designed for domestic “retail payments” (within China only), meaning relatively small daily payments involving consumers, businesses, or public authorities, which can be made either online or in person. However, the Chinese electronic yuan could be used in the future for cross-border transactions, according to Wang Chen (a senior central bank official). China also indicated that the digital yuan will be in circulation along with banknotes and coins for some time.

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In addition, one of the other reasons for the emergence of China’s digital currency is to monitor the Chinese economy and people. The Chinese yuan is expected to give the Chinese government large-scale new tools to monitor its economy and people, that is, China’s version of the digital currency is controlled by the central bank, which will issue electronic money new trackable.

Which adds another tool to China’s tight state censorship. The government deploys hundreds of millions of facial recognition cameras to monitor its residents, sometimes using them to impose fines for infringing activities. The digital currency will allow for fines to be imposed and collected once the violation is discovered.

Also, controlling digital currency fluctuations that affect the country’s economy is one of the reasons for China’s launch of its own digital currency, as cryptocurrencies such as Bitcoin are famous for their high volatility. This will be overcome by the People’s Bank of China, which will strictly control the digital yuan to ensure there are no differences in valuation between it and banknotes and coins.

This means that it will not make sense for investors and traders to speculate on the digital yuan as some do with cryptocurrencies. That is, anti-counterfeiting measures will be designed to make it impossible for anyone but the People’s Bank of China to create a new digital yuan.

An official from the People’s Bank of China explained that e-CNY is legal tender, which means that no entity in China can refuse it, such as Chinese paper currency. The Chinese electronic yuan is equal to the paper currency yuan, and each will be exchangeable for the other.

Users can also hold e-CNY in the “e-wallet” mobile app, and the ability to purchase e-CNY is currently set to be possible through six large state-owned banks in China.

Bankers and other analysts say Beijing aims to eventually digitize all of its money.

China’s war against Bitcoin weakens the strength of the US dollar

China is outperforming the United States when it comes to innovation in the field of online money, which poses challenges to the status of the US dollar as the de facto global monetary reserve, and this is a key factor in China’s war against bitcoin, the dollar, and other digital currencies, and Beijing is also working on the status of the digital yuan For international use and designed to be unrelated to the global financial system, as we know that the US dollar has been king since World War II, China is seeking to break out of this decades-old financial system.

China also aims, via the digital yuan, to give those whom the United States seeks to punish the way they exchange money, in order to allow them to enter the financial system again without knowing the United States through the digital yuan, because there are many companies and legal persons in China who are imposed on the US sanctions, they can’t put their money in the banks because the banks are afraid of being held accountable for the sanctions imposed on them.

The opportunity to weaken the power of US sanctions is central to Beijing’s marketing of the digital yuan, and its efforts to try to internationalize the yuan in general, thus strengthening the global currency’s position as China ultimately seeks to break the dominance of the dollar settlement system.

“The Chinese created us a problem by getting rid of the influence of our sanctions,” Nicholas Burns, a longtime US diplomat favorite to be an ambassador in Beijing, told the group.

Analysts and economists say digitization by itself will not make the yuan a competitor to the dollar in bank-to-bank wire transfers. But in its new form, the yuan could gain momentum on the margins of the international financial system, boost its offshore circulation, win status in the IMF’s official reserve currency, and launch yuan-priced commodity contracts, but so far the Chinese currency remains a small player. On the world stage with a market share of 2% of the stock market.

The bottom line is that a thousand years ago, when money meant coins, China invented paper currency. Now the Chinese government is digitally minting the world’s first central bank electronic currency with the aim of reimagining money that could shake up one of the pillars of American power.

China’s digital moves are drawing attention to how the United States needs to modernize its financial infrastructure.

China bans bitcoin | reasons for China’s fight against Bitcoin? Fear or attempt to monopolize?


The potential threat to electricity

Professor Murawski says “Another reason why China wants to clean up the digital currency business is the potential threat to the electricity system,”.

The University of Cambridge project “Cambridge Bitcoin Electricity Consumption Index”, shows that bitcoin mining consumes an estimated 128.84 TWh of energy each year, which is more than the consumption of an entire country, such as Ukraine and Argentina.

China accounts for nearly 65% ​​of all bitcoin mining operations in the world, and the mining process uses a huge amount of electricity, but although mining has been done in areas where cheap energy is available in China, such as Sichuan Province, which benefits from abundant hydropower, However, as the profits of crypto miners rise, governments may become less willing to bear the high consumption of electricity, which could threaten the stability of the country’s power grid.


Summary

One day, the dominance of the dollar will end, either via digital yuan, bitcoin, some other form of money, or a combination of the above. It is therefore important to recognize these patterns so that investors can anticipate where the money will flow in times of conflict.

The most likely outcome is that when the dollar falls, the financial system becomes a multipolar world, indicating that investors will need additional diversification in their “safe haven” portfolio. The yuan may certainly deserve a place in this portfolio, especially as the Chinese economy continues to recover.

China bans bitcoin | reasons for China’s fight against Bitcoin? Fear or attempt to monopolize?

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