China banned cryptocurrencies because it is not more suited to its traditional economic systems, a former government official has said. The ban on cryptocurrency in China has been met with varied reactions but the country refused to give an official reason why it announced the ban in August.
China banned active cryptocurrency trading and also announced that it would increase its crackdown on crypto miners across the country. The development has led to the mass migration of miners and the suspension of certain user functions of top cryptocurrency exchange platforms such as Binance and Huobi.
Zhuo Xiaochuan, former president of the People’s Bank of China, commented on the rise of cryptocurrencies, CBDCs, and China’s ban on crypto trading and mining. Zhuo said that although cryptocurrencies are used for storing value, they have no place in the Chinese traditional economic system as payment methods because of some underlying issues.
According to Zhuo, cryptocurrencies do not meet the dynamics of the traditional economic system and that is why the Chinese government has banned them in favor of its CBDC, the Digital Yuan. he said that the decentralized cryptocurrency system does not sit well with the Chinese government’s policies and that poses a battle for the survival of the fittest to emerge as the preferred payment system.
CBDCs Vs Cryptocurrencies
China launched its CBDC, the DIgital Yuan, in August after months of work. The Digital Yuan is expected to replace the fiat Yuan in a short time since China already uses a cashless financial system. The launch was greeted with mixed reactions but the majority favor adoption of a digital token that everyone can use. CBDCs have several advantages over cryptocurrencies; they are government-backed, regulated, provide reduced transaction costs, higher convenience, and are much faster in transaction speed. The launch of the DIgital Yuan will give smaller businesses a shot at going digital and having less financial accounting work to do. Cryptocurrencies have been criticized for their relatively high transaction fees, network congestion, and slow transaction speed. The issue of decentralization is also a sore point with governments who prefer a financial system that they can control, sanction, and regulate with ease.
Although global cryptocurrency adoption has been predicted to increase, regulatory policies are largely absent and government officials in the US have called for the government to do more to make the crypto industry safer for everyone.
Last week, MacDonald’s and a few other American companies with a presence in China were reported to be under pressure from the Chinese government to accept the Digital Yuan ahead of the Winter Olympics starting February 2022. As other countries and China seek global adoption of their digital token, the dynamics of local and international trade are about to change. The world is not far from the global adoption of digital tokens. The question to be asked is this: will it be the decentralized blockchain-powered cryptocurrencies or the Central Bank Digital Tokens that will become the preferred carrier of the new digital economy?