TLDR Breakdown
- Surging demand in China for Bitcoin
- China Construction Bank announces purchasing of bonds using Bitcoin
- Tight regulation of cryptocurrencies as China rolls out hotly anticipated digital yuan
- Speculative foundations for a new financial system
China construction bank primes Bitcoin
China Construction Bank, the world’s second-largest bank by assets, has announced a multi-phase plan to raise $3 billion from the sale of bonds that can be purchased with Bitcoin and U.S dollars. The commodity (virtual currencies, such as Bitcoin, are determined as commodities under the Commodity Exchange Act or CEA), has recently rallied to over $16,000 per Bitcoin – a peak that surging demand from China helped it to attain.
Last week China Construction Bank announced that $58 million worth of digital certificates will be available for public subscription on the Fusang Exchange, a Malaysia-based bourse that facilitates trade in cryptocurrencies. Fusang has delayed the listing until further notice, as per the request of the issuer Longbond Ltd. China Construction Bank’s Labuan branch could not be reached for comment.
Rolling out the digital yuan
China continues to tightly regulate Bitcoin and other cryptocurrencies, even as it begins the rollout of its highly anticipated digital yuan. Other countries are also considering the possibility of launching their own central bank digital currency. The list of governments who have announced their plans is The United Kingdom, Switzerland, Norway, Sweden, Denmark, Spain, The Netherlands, Lithuania, Germany, Israel, Iran, Japan, South Korea, Thailand, Singapore, India, Canada, South Africa, Australia, New Zealand, Uruguay, Marshall Islands, and the Bahamas.
The digital yuan is central bank-backed, and analysts say that the pilot project has extended China’s lead in the race to develop a central bank digital currency. It has been designed to replace banknotes and coins in circulation, not long term deposits in bank accounts.
Unlike cryptocurrencies, the yuan will not use blockchain, distributed ledger technology which allows transactions to be validated without the need for banks.
Both commercial bank distributors and the central bank will keep databases tracking the flow of digital yuan from one user to the next.
From a user perspective, users download a digital wallet in which their funds are stored, which will generate a QR code that can be scanned at payment terminals. Commercial banks will play a role in distributing the digital currency to users. To do so, they must deposit the same amount of their reserves with the People’s Bank of China as the digital yuan they distribute.
Widespread use of the digital currency will give policymakers in China greater visibility into how money flows around China’s economy. Their visibility will be improved to track any illicit flow of funds and experiments by targeting monetary policy interventions on specific economic classes, regions, or groups.
In extreme economic circumstances, it would also allow them to have negative interest rates for cash.
Could China Construction Bank opening up to cryptocurrency mean anything to the future of crypto?
As cryptocurrencies aren’t directly involved in the monetary policies of states, cryptocurrency is defined as an asset. For now. The adoption of Bitcoin and crypto by China’s banks, making up four of the world’s five largest, could potentially bring a fresh wave of demand for Bitcoin and similar digital assets across Asia.
Is China Construction Bank paving the way for a new financial system?
China’s economy has grown over the past few decades. As these changes continue to take shape, the Chinese banking system continues to undergo a program of transition from state to private ownership. It has been speculated that the Peoples Bank of China can be integrated into a global decentralized financial system, where all the central global banks will have equal rights. It has also been speculated that the country will have to integrate its digital yuan into the global payments system. For now, it’s a matter of speculation until such time that these integrations have taken place.
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