China’s digital currency, the Digital Currency/Electronic Payment (DCEP), is a game-changer.

The entire globe is currently at the crossroads of a relatively long-standing fight against COVID-19. While apprehensions concerning the adverse effects of the pandemic on the global economy are not getting any easier, widespread curiosity in digital currencies has surged. In recent news, Russia’s legislative body, the Duma, enacted a new law concerning digital currencies, and its legal status as digital assets, within the purview of the Russian government and the Central Bank of Russia. Meanwhile, China has been in the works to launch its very own state-backed cryptocurrency, reaching one step closer to its goal. Although the global race of numerous nations to be a leader in the digital currency arena is not uncommon, China has been trying and testing to be the victor in the race to launch the world’s first sovereign digital currency.

China’s legal treatment of cryptocurrencies

Early this year, the 13th National People’s Congress, the highest legislative body of the Chinese government, passed a particularly significant law. The Civil Code of the People’s Republic of China, as it is known, has provisions to extend the scope of inheritance rights, which also include cryptocurrencies. By adopting the new civil code, the Chinese government aims to strengthen property rights, particularly involving cryptocurrencies. Apart from this, the Chinese legislation encompassing cryptocurrencies remain apparent. The Chinese government does not approve of digital currencies as legal tender. However, Beijing recognizes these currencies as a digital commodity. A case in point is the recent ruling by the Shanghai No.1 Intermediate People’s Court, which acknowledged the protection of cryptocurrencies, as an asset, within the Chinese legal framework. Therefore, China’s legal framework, regarding digital currencies, is walking a fine line between giving up control and maintaining absolute authority.

Chinese clout in the digital currency arena

Although China has a strict ban on initial coin offerings, citing investor protection, and risk prevention while having severe restrictions on cryptocurrency trading platforms, it remains the world hub of cryptocurrency mining. A recent report, named “The Bitcoin Mining Network,” suggested China homes close to 70 percent of the world’s crypto-mining capacity. That means that close to two-thirds of the entire cryptocurrency computer power falls within Chinese territory, and therefore, Chinese control. All thanks to the readily accessible devices and cheap labor, China has the potential to rise as the global leader in cryptocurrency mining, while having restrictions on cryptocurrency trading. The tremendous clout, through sheer processing power developed by the Chinese in the digital currency arena, could very well keep the future of the novel technology under Chinese control. It is also intriguing to note that the National Development and Reform Commission of China had planned to kill the cryptocurrency mining industry, in early 2019, however, ostensibly owing to the plan to become a world leader in the digital currency arena and further its development of blockchain solutions, the move to ban cryptocurrency mining was abandoned later that year.

The digital yuan

China has been working on its digital currency for a long time. Its sovereign digital currency termed the Digital Currency/Electronic Payment (DCEP) is expected to replace cash payments, including all banking-related activities. The plan to develop the world’s first state-backed sovereign digital currency was shifted to overdrive when Facebook announced its intentions to enter the cryptocurrency platform, employing their Libra cryptocurrency. Just like Libra, the digital yuan will be outfitted with a digital wallet under the authorization of China’s central bank. The DCEP, as opposed to its present-day competitors, including Tencent’s WeChat Pay and Alibaba’s AliPay, can support transactions even without an Internet connection. The digital yuan is currently being tested in a few Chinese cities, namely, Shenzhen, Suzhou, Chengdu, and Xiong’an. While certain news outlets have mentioned Beijing’s plan to unveil the digital currency during the 2022 Winter Olympics, to be hosted in Beijing, the move is lauded to be one of the most anticipated reforms in the financial sector, envisioning a radical change within the country. Revolutionary change, in this case, implies unprecedented control.

Cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, and even the Libra, have an element of decentralization which was its sole purpose. However, the Chinese model of cryptocurrency does not subscribe to that sentiment. The DCEP is and always will be state-controlled. That would give the Chinese government and the Chinese central bank uninterrupted access to the spending pattern of every individual in the country, something that was not feasible with paper money. Due to the visibility, it would provide into the entire financial system, the state’s capacity to combat financial crimes is improved. However, considering this peripheral advantage, the essential privacy of every Chinese citizen is put into question.

Road ahead

An alternative to fiat currencies, tied to the global financial system, cryptocurrencies were launched in the aftermath of the 2008 financial crisis. As the Chinese efforts at developing its sovereign digital currency is one step closer to realization, a prominent Chinese group, known as the Chinese People’s Political Consultative Conference, has plans to launch an East Asia cryptocurrency backed by fiat currencies like the Chinese yuan, Hong Kong dollar, South Korean won, and Japanese yen. Its success or failure is not what matters, but the potential after-shock it could create in the global financial market, especially the challenge it poses to the USD dominance in global trade. Tied to it is the likely threat posed by the Chinese digital currency to consumer privacy. The Chinese government and the Chinese central bank have secured control over its financial and monetary policy since the Mao era. This influence can be seen in their approach towards cryptocurrencies, as well.

It is all the more striking, that the nation, being the largest cryptocurrency miner, ceases to acknowledge the trading of the same. It can be likened to a scenario where the producers refuse to sell their produce, albeit being the largest producer in town. However, the advancement meant to proliferate secure and private value transactions, with no central authority, has been met with the surveilling eyes of the Chinese government. China, consequently, is eligible for two titles, the country introducing the world’s first sovereign digital currency, and the most fitting, Big Brother.