China’s virtual currency is expected to generate major changes within the crypto world. Some of its advantages and disadvantages are described below.

Since the future launch of Facebook’s virtual currency Libra was announced in the middle of the year, the world’s governments have been on alert. In particular, the Chinese government has decided to take the initiative in the face of the threat to its power, accelerating the program for the creation of its virtual currency.

China Virtual Currency

Undoubtedly, the development of the Chinese virtual currency was accelerated after the announcement of Libra. This would be an attempt by the government of this country to have an instrument with which to combat the most negative effects of Libra on the capacities of the State, especially regarding the control of the money market, whose monopoly it holds.

However, the effort for the creation of this virtual currency has not come out of anywhere, or because of Facebook. It is part of a national technological strategy, which has been analyzed for years by the Chinese government and has now been accelerated by Libra.

The position taken by the President of China, Xi Jinping, would be a sample of who publicly supported Blockchain technology. It has encouraged the country to take advantage of the possibilities that blockchains offer to national development, which would show that support for the development of Blockchain would be a piece in a much larger planning.

Advantages of Virtual Currency for China

Therefore, China’s main objective in developing Blockchain technology is to use it for national aggrandizement. It is aimed at serving as a dynamizer of its economy and a constituent element of a desired international supremacy.

This is possible thanks to the tangible benefits that blockchains would bring to the country and its government. Of course, it would start with the internationalization of the yuan, as its virtualization would allow the Chinese government to push its national currency beyond borders. It would run its Blockchain as a platform parallel to SWIFT (the traditional international banking system), driven by the One Belt One Road initiative.

This would also have the potential to become an inter-company payment system, since WeChat’s virtual payment platform is currently the most common method for peer-to-peer transactions. Virtualization has not been as successful when it comes to businesses, something that could help the government’s virtual currency.

Besides, the government’s Blockchain could also provide the government with greater control over the food and medicines that enter the country. It would keep a watch through the blockchain on the status of the food, as well as the authenticity of the medicines that enter and move through the country.

Risks of the Currency

Regarding the launch of China’s virtual currency, not everything is positive. This currency involves several risks that threaten both China and the entire world economy, the main one perhaps being the possibility of a new crypto bubble.

The experience left in the crypto world after the bullish rally of 2017 teaches that bubbles are very possible if the potential of a virtual currency is overestimated. This can happen once the virtual yuan is in circulation since just President Jinping’s speech led to a 40% increase in the shares of all blockchain-related businesses on the stock exchange.

Besides this, there is also the risk of excessive centralization of Blockchain technology by government entities. If they were able to combine in their virtual currencies the advantages of cryptocurrencies, together with government control, it would be a death blow for the rest of the cryptocurrencies. These would be eroded by the competition of the State to maintain control over the money market.

By Willmen Blanco


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