According to Chinese sources, the People’s Bank of China is pulling out all the stops in an effort to develop its own digital currency. In the aftermath of a crackdown on cryptocurrency trading and cryptocurrency mining, many analysts thought that the country was intent on controlling the digital currency space within its borders, although it was unclear whether the country was intent on banning cryptocurrency or merely putting a stop to private cryptocurrency until it could develop its own. Now that Facebook has announced its Libra cryptocurrency project, it appears that the latter was correct, with China moving full steam ahead to create its own national digital currency.
A Chinese national cryptocurrency would be a watershed for the cryptocurrency world. While nations such as Venezuela have created their own cryptocurrency already, Venezuela’s petro has no widespread acceptance. Other countries that have developed their own cryptocurrency include smaller island nations whose currencies again don’t have widespread traction. But a Chinese national cryptocurrency would be immediately available for use by a significant portion of the world’s population, and could even be used to settle international trade transactions. Its impact on the world economy and world finance shouldn’t be underestimated.
There is speculation that a Chinese cryptocurrency could even be rolled out before Facebook’s Libra is set to launch, which would certainly be a great coup for China. But would a currency that could see use by over a billion people be launched all over China immediately? Details aren’t clear, but it’s not inconceivable that a new digital yuan might be launched regionally first in order to test its efficacy and the ability of the government to control it.
What effect might a crypto-yuan have on Bitcoin? That’s a good question. It would be hard to supplant Bitcoin’s adoption outside China, which would be the major stumbling block for the crypto-yuan to gain traction worldwide. But if the crypto-yuan were to start being used outside China’s borders then there would obviously be crypto-yuan-Bitcoin exchange rates developing, allowing Chinese citizens once again to exchange their assets, even digital ones, for Bitcoin. In a way, that could be a backdoor way for everyday Chinese to get back into to Bitcoin markets, which could be a big boost for Bitcoin.
It remains to be seen whether the Chinese would trust their government’s national cryptocurrency, or whether they would prefer to use more trustworthy currencies such as Bitcoin, Litecoin, Ethereum, etc. But rest assured, there’s no way a national digital currency will supplant Bitcoin anytime soon.