There is a global competition for domination in the cryptocurrency markets, and China is not lagging. Amidst the COVID-19 pandemic, China announced its intentions to launch an East Asian Cryptocurrency to compete with Bitcoin and the US dollar worldwide. The cryptocurrency will comprise the Chinese yuan, Japanese yen, South Korean, and the Hong Kong dollar.
A political advisory body called the Chinese People’s Political Consultative Conference met in Beijing on May 10th, 2020, and proposed this new form of digital currency. There is no official name given to it yet, but the crypto is referred to as DC-EP or Digital Currency- Electronic Payment. Ideas for making a digital basket to include all four fiat currencies are going back and forth. However, the final decision is yet to be confirmed by an official.
Bitcoin transactions have been banned in China by the Public Bank Of China (PBOC), since December 2013.
Initially, this regulation came into play for financial institutions, but later on, by January 2018, all Bitcoin mining in China saw a complete crackdown and ban. However, with more people moving towards the digital currency platform, China has been developing a cryptocurrency for a few years now. PBOC has started testing out digital yuan in several cities in China to judge the response it gets before launching it globally.
China has claimed that this cryptocurrency intends to reduce cash-flow problems and prevent inflation. Digital currencies such as Bitcoin aren’t governed by any centralized authority and provide complete autonomy. The Chinese cryptocurrency, however, will be regulated by a central power. It will also become a part of the surveillance state of China.
The meeting conducted at the Great Hall of the People consisted of a 10-member committee. They proposed that since there are four currencies involved in creating the East Asian cryptocurrency, the ratio of endorsements should be based on each currency’s economic scale. For example, the yuan and the yen will account for 60% and 20% of the calculated guarantee.
The value of the digital currency will be corresponding to the current value of the paper currency and coins. People will be able to convert paper notes through the central bank and use digital currencies for transactions. China hopes that the digital form of money will make it more convenient for people to perform their monetary operations and bring transparency to transactions.
There is a free trade agreement underway between China, South Korea, and Japan, and negotiations are still on-going. The agreement will not only discuss the launch of the cryptocurrency but also reflect on the countries’ trade policies using digital money. It can also be seen as an attempt by China to maintain relations with other East Asian countries as it faces backlash from the USA.
Meanwhile, the US is trying to scale its development of the digital dollar as questions of the dollar’s dominance as the world’s reserve currency started rising. Facebook’s Libra Association is already planning to launch and organize separate digital currencies as per the sanctioned currencies of individual countries. It will include the dollar and the euro. Thus, Libra could ultimately prove to be a counterpart for the digital dollar.
China is trying to change the dominance of dollar-based transactions worldwide while promoting the Chinese currency. Currently, the dollar has been imperative for global trade and business transactions. Internationally, the dollar holds more value than any other currency in trading. The East Asian cryptocurrency is China’s attempt to change this global scenario and build its own network for payments.