The government aims to use blockchain technology to increase its control over citizens’ financial activities
China’s digital currency aspirations are both unprecedented and unparalleled, writes Cryptoslate journalist Shaurya Malwa. But judging from recent developments, the advancement of disruptive technology is not China’s motive for spearheading digital currency development.
Instead, China wants to leverage blockchain to exert greater control over its citizens’ financial activities – an agenda that conflicts with bitcoin creator Satoshi Nakamoto’s aim of decentralizing money.
Capping all large transactions
Nikkei Asia reported on June 27 that the country will now track all “large” transactions over RMB 100,000 (or $14,000 at current rates) to curb capital flight and closely monitor fraud.
Starting in July, banks in China’s Hubei province will record serial numbers for all cash transactions over the 100,000-yuan threshold; and reporting gross figures to the People’s Bank of China (PBoC).
Eventually, the digital yuan will be deployed to provide real-time insights on transaction for Chinese regulators – with the ultimate aim of stamping out currency fraud in the country.
While there is no exact date yet for the digital yuan’s launch, reports suggest President Xi Jinping is pushing for sometime before the 2022 Winter Olympics in Beijing.
Observers believe the event will be fully digital, with the digital yuan playing a significant role in terms of financial transactions.
Hubei denizens get a small-cap, those in Shenzhen – a technology hub bordering with Hong Kong – get a 200,000-yuan ($28,000) threshold.
Business accounts have their threshold set at 500,000 yuan in the two areas and Zhejiang province. This is presumably to accommodate cash dealings.
The government has been cracking down on individuals trying to smuggle yuan out of the mainland to acquire Hong Kong or US dollars. Beijing hopes to put in place a complete tracking regime that will help prevent capital outflows.
Another factor is the ongoing US-China trade war, whichhas affected the stock markets in both nations and, to some extent, their fiat as well.
Nikkei notes: “China’s foreign reserves exceed $3 trillion, the figure is less when accounting for the surge in dollar-denominated debt, as well as for US government bonds that can be cashed out quickly.”
Capital outflows have, historically, led to the dumping of the yuan. This weakens the Chinese currency and squeezes its foreign currency reserves.
In 2020 alone, capital outflows from China via bank transfers and other channels exceeded $30 billion in the January-March period. While the question of capital flight being controlled by issuing a digital yuan is debatable, one thing is evident: China is not looking to embrace the decentralized ethos of cryptocurrencies anytime soon.