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how is china leading the rise of digital currencies in asia

Sun Rises in the Digital East

Once upon a time, China was the leader among the world’s countries by the volume of crypto trading, having a considerable number of miners and crypto enthusiasts. Then one day, in the second half of 2017, the Chinese government prohibited all cryptocurrency trading in the country. 

Seemingly, it was the end of crypto-talk in China, or at least until last year when the government suddenly showed interest in blockchain and finally announced plans to launch China’s own digital currency.


Government backed cryptocurrency

Cryptocurrencies in their core exist outside the traditional banking system, offering individual liberty and a way to avoid the grasp of government. And that’s not the way China does things.

The government needed a national cryptocurrency so that cryptocurrencies could be brought back under state control. And to be sure that the Chinese really mean business, People’s Bank of China (PBOC) has already sought legal rights to more than 50 inventions related to the digital currency.

China still intends to launch the digital currency as scheduled, before the end of 2020, despite the delay caused by the novel coronavirus outbreak. Moreover, the outbreak will most certainly change people's habits and they will rely even more on electronic payments, and less on using cash. This could actually put more emphasis on the importance of the issuance of such government-backed digital currency, according to some analysts.

Digital Payments in China

Just two decades ago, China was basically a cash economy. Today, digital payments are so ubiquitous that the government had to remind vendors that it was illegal to accept only digital payments and ignore paper money.

 The “culprits” for the dominance of digital payments in China are payments giants and biggest rivals WeChat Pay and Alipay, who now account for 90% of the $17 trillion mobile payments market. 

An eMarketer study found that 49.6% of China's population used proximity mobile payment apps over the past six months, and predicted that percentage would climb to 60.5% by 2023. That’s a huge piece of cake everybody would like to taste.

The Chinese digital currency will initially launch on a mobile wallet app, and let users trade their yuan for the digital currency or make payments on the platform. It might seem like by launching its own digital wallet, the People’s Bank of China wants to compete against Tencent and Ant Financial (parent companies of Alipay and Wechat Pay), but a recent Forbes report suggests that the People’s Bank of China plans to partner with seven institutions - including Tencent and Ant Financial - to roll out the digital yuan.

The Difference Between the Chinese Digital Currency And Existing Cryptocurrencies

The main difference between a digital currency and a cryptocurrency is that a cryptocurrency uses a decentralized system to ensure no single entity controls the currency and underlying technology, whereas a digital currency can function without decentralization using existing financial database technology. 

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Source: GIS reports online

The Chinese digital currency is in fact designed to tighten the government's grip on its financial system and will be distributed through traditional banks and the monetary system. Furthermore, the blockchain ledger will be controlled by the Chinese government and not distributed across the system, while the currency will operate like a normal currency.

According to The Motley Fool, The PBOC will initially launch the cryptocurrency on a mobile wallet app, with the central bank tracking the origins and destinations of every transaction.

National Digital Currencies Taking Over Asia

Central bank digital currency is becoming a big topic in Asia. As a direct reaction to China’s plans to launch its national cryptocurrency, Japan is taking the necessary measures to counter with the digital yen, while Cambodia is pushing ahead on the launch of its own blockchain-powered tender. Meanwhile, the Hong Kong Monetary Authority and the Bank of Thailand have completed a working prototype of a cross-border digital currency payment system.