Market Overview

People’s Bank of China has started a crackdown campaign on digital currency in Shanghai and Shenzhen. Since a legal ban on digital currencies trading was introduced in 2017 most of such “exchanges” moved outside mainland China to Japan or Singapore, even EU and US. The most likely reason for a recent crackdown is to cease any operations in digital currencies to prevent capital flight.

Capital flight from China had substantially decreased to $22 billion in 2018 vs $675 billion in 2016 and $380 billion in 2017. But capital flight accelerated to $139.2 billion in the first half of 2019 amid US-China trade tensions. 

PBoC authorities claimed some 39 “illegal” digital currency exchanges are spotted in Shenzhen only. Many of digital currency exchanges in China are operating on peer-to-peer platforms that enables users to buy or sell digital currencies using Chinese yuan, some offer to buy US stocks using digital currency. Mounting pressure on such firms followed by suspension of exchanges’ accounts with social media like Chinese WeChat and Weibo, local police investigations.

China itself is dedicated to “accelerate the development of blockchain technology”, President Xi Jinping stated late October on Politburo study session. PBoC is likely to launch national digital currency in 2020. The VC of the China International Economic Exchange Center Huang Qifan quoted by Sina Finance saying, “the People’s Bank of China has been studying [digital currency] for five or six years, and I think it has matured. [It] is likely to be the first central bank in the world to introduce digital currency”. Li Wei, the head of technology for the People's Bank of China, the central bank urged commercial banks to increase their use of blockchain technology, the backbone of digital currencies. China's parliament in October passed a cryptography law that will take effect on Jan. 1 and aims to support research into blockchain technology and increase of government regulation of such research. The head of the Chinese central bank’s digital currency research institute, Mu Changchun said in August that such a digital currency is “almost ready”. However, in September, Chinese central bank chief Yi Gang said there was no timetable for its rollout and that it still needed to meet requirements, such as anti-money laundering.

Nevertheless, fears grasped the markets over China’s possible intentions to introduce new, more efficient SWIFT-like technology, a rival cross-border payment system. That could be a further step to undermine US grip over cross-border money flows.

Countries line up to explore centralized digital currencies

Not only China but many other nations exploring benefits of own digital currency. Turkey’s President Recep Tayyip Erdogan announced launch a blockchain-based digital currency after likely by end of 2020.

Swedish Central bank outlined a plan to implement its digital currency, “e-krona”, Bank of England governor Mark Carney suggested that a “private or state-run digital currency could serve as a global counterbalance to the [US] dollar”.

The Bank of International Settlements’ study concluded that of 63 central banks surveyed, 70% are studying possibilities of Central Bank digital currency (CDBC), albeit mostly at a conceptual stage. Most central banks see themselves unlikely to rollout CBDCs in the short term, with the possibility increasing in the medium-long term. BRICS countries are considering launching a joint payment system and digital currency.

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