The People’s Republic of China is, to this day, the second largest world economy. And yet its currency, the Yuan, is still heavily influenced by the Dollar, the currency of a country which is perceived by the PRC as antagonist.
However, as recently as April 2021, the PRC announced the experimentation of a digital version of the Yuan, the Digital Yuan, which leans towards a defined trend of the Chinese population using more and more digital payments instead of physical cash.
The implications of a digital currency are numerous and at the same time is difficult to predict but the Chinese government has started another initiative regarding the world of non-physical currencies, and that is the crackdown on the legality of cryptocurrencies. As of today, mining or possessing cryptocurrencies such as Bitcoin or Ethereum in the PRC is illegal.
This article aims at analysing the political opposition by the PRC against cryptocurrencies and to take some lessons from this phenomenon.
The PRC and digital currencies
Cryptocurrencies are produced via a complex process informally called “mining”, which consists of obtaining an amount of precise data (the cryptocurrency) by employing a computer that process the algorithm of a certain cryptocurrency (called blockchain). This process was first applied as part of the first cryptocurrency, the bitcoin, and a large part of other existing cryptocurrencies follow this basic pattern (Nakamoto, 2008).
Deciphering the algorithm requires powerful computing units, often very large, whose energy consumption is so high that the mining of cryptocurrencies has been rising concerns over the environmental impact of this activity.
The PRC was, surprisingly, one of the most important countries worldwide regarding cryptocurrencies for one main reason: the PRC has large amounts of cheap electricity and therefore is cheaper to mine large amounts of cryptocurrencies for a lower cost (Ostroff, 2021).
However, the PRC has attempted for a number of years to limit the circulation and extraction of cryptocurrencies in the country by imposing to banks a ban on transactions regarding Bitcoin or other currencies and finally came to outright ban the use and extraction of such tokens declaring that the risk for uncontrollable money laundering was too high (China declares all crypto-currency transactions illegal, 2021).
Is not like the PRC wants to opt for a more traditional circulation of cash. Aside from being one of the countries where non-physical transactions are at the highest, the PRC recently launched its own non-physical currency, the digital Yuan, which could realistically push the monetary policy of the PRC way ahead of its current dependency towards the US Dollar, the currency to which the Yuan is usually pegged (Bansal and Singh, 2021). The Yuan has seen periods when it was pegged to the US Dollar and others when it was not but since 2015 it was unofficially pegged again (Adinolfi, 2015).
The digital Yuan is of course a challenge to the economic hegemony that the United States of America have built in the aftermath of World War Two known as Washington Consensus but the challenges posed by the Digital Yuan are also physical as it could give the opportunity to countries that are hit by American economic sanctions to have a privileged way of doing business with the PRC (Freidin, 2020).
The director of the Digital Currency Initiative at the Massachusetts Institute of Technology (MIT) described a similar simulation he was asked to be a part of by the Harvard Kennedy School’s Belfer Center and the hypothesis of the People’s Republic of Korea being able to build a warhead funded by the Digital Yuan was enough to create panic across media (Kharpal, 2020).
The existence of a digital version of a currency is not unheard of, as other projects have been undergoing experimentation. However, as of the day this article is being written, evidences suggest that the main competitors are lagging behind the pace of the PRC, which successfully launched the first stages of the digital currency (Bilotta, 2019). Bilotta also stresses that is unlikely that the launch of the digital Yuan alone could challenge the Dollar-led system worldwide but also hints at the aforementioned geopolitical consquences.
Connecting the dots
The intentions behind the ban of cryptocurrencies by the PRC makes little sense on its own but might offer a clearer picture when seen in the larger picture as the PRC is pushing towards a digital Yuan, stronger by virtue of not being aligned to the US Dollar change rate.
The PRC is attempting to become the most important actor worldwide as according to the Chinese Socialist ideology the purpose of the PRC should be the one of bringing the Socialism with Chinese characteristics all over the world, by becoming a metaphorical “center” of the globalized world (Cheng, 2018).
At the same time, it must be remembered that the control over the population by the Chinese government implies also a degree of control not only over opinions expressed in social media and over actions but also over currencies that lack any form of control by central agencies or governments unlike physical currencies. Another argument regarding this is how recently the Chinese government have been shifting towards a stricter control over external cultural influences, which are perceived as potentially undermining of what Chinese Socialism has achieved, while at the same time fostering a sense of nationalism (Garrick and Bennett, 2018). The Chinese government has already limited in some sense the freedom of its citizens, by implementing a technology that does not allow Chinese citizens to navigate the World Wide Web freely (Reuters, 2018) and that is supported by the political principle of not allowing Western influence to undermine the success of the Chinese socialism, the so-called “Document 9”, which underlines this specific principle (Chinafile, 2013).
To support this theory, I can find a significant example: Krishnan writes that the Blockchain technology can have effects over the empowerment of social, civil, violent and non-violent resistance or opposition to governments (Krishnan, 2020).
To sum up, what at first glance might seem like incoherency by the PRC on the digital currency makes in fact much more sense once other factors are taken into consideration. Although the political ideology of the Chinese government will not allow something as free and uncontrolled as cryptocurrencies. However, the initial success of the digital Yuan puts the PRC much ahead of similar projects of the European Union or the United States of America and could potentially have meaningful impacts over economic and even foreign policies.
References
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Bansal, R. and Singh, S., 2021. China’s Digital Yuan: An Alternative to the Dollar-Dominated Financial System. Carnegie endowment for international peace, pp.1-21.
BBC News. 2021. China declares all crypto-currency transactions illegal. [online] Available at: <https://www.bbc.com/news/technology-58678907> [Accessed 9 November 2021].
Bilotta, N., 2021. An International Digital Yuan: (Vane) Ambitions, (Excessive) Alarmism and (Pragmatic) Expectations. [online] IAI Istituto Affari Internazionali. Available at: <https://www.iai.it/en/pubblicazioni/international-digital-yuan-vane-ambitions-excessive-alarmism-and-pragmatic> [Accessed 9 November 2021].
Cheng, 2018. Marxism and Its Sinicized Theory as the Guidance of the Chinese Model: The “Two Economic Miracles” of the New China. World Review of Political Economy, 9(3), p.296-314.
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Garrick, J. and Bennett, Y., 2018. “Xi Jinping Thought”. China Perspectives, 2018(1-2), pp.99-105.
Kharpal, A., 2020. China’s digital yuan could help North Korea evade US sanctions, launch missiles, experts say. [online] cnbc.com. Available at: <https://www.cnbc.com/2020/01/24/a-digital-yuan-could-help-countries-evade-us-sanctions-experts-say.html> [Accessed 9 November 2021].
Krishnan, A., 2020. Blockchain Empowers Social Resistance and Terrorism Through Decentralized Autonomous Organizations. Journal of Strategic Security, 13(1), pp.41-58.
Nakamoto, S., 2008. Bitcoin: A Peer-to-Peer Electronic Cash System. SSRN Electronic Journal, [online] pp.1-9. Available at: <https://bitcoin.org/bitcoin.pdf>.
Ostroff, C., 2021. Cryptocurrency Companies Are Leaving China in ‘Great Mining Migration’. [online] WSJ. Available at: <https://www.wsj.com/articles/cryptocurrency-companies-are-leaving-china-in-great-mining-migration 11629624602#:~:text=Despite%20a%20longstanding%20position%20against,hubs%20of%20Sichuan%20and%20Yunnan.> [Accessed 10 November 2021].
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By The European Institute for International Law and International Relations.
