China’s Crypto Market: Digital Yuan as an Alternative to Private Cryptocurrencies

In May–June 2021, China—allegedly to preserve financial stability—banned mining of bitcoin and other crypto assets in such major mining centers as Inner Mongolia, Sichuan, Xinjiang and Yunnan. The total ban on mining was far from unexpected for miners as the Chinese authorities had repeatedly issued warnings over the risks of bitcoin mining since 2013. There are at least three reasons for the intervention of regulators in crypto mining in China. First, they need to combat speculation. Second, to eliminate competition with the digital currency of the People’s Bank of China. Third, to prevent environmental and other damage to society. We shall turn to each of these aspects in greater detail.

Speculative craze

China has never experienced any major financial crises causing damage on a scale comparable to other leading global economies. The country’s relatively stable economic development can be explained by China’s financial sector never having been particularly innovative. Paper money, China’s unique 9th century invention, was used mostly to service trade along the Silk Road; unlike in the West, paper money in China did not serve to accelerate the advance of capitalism. The fractional reserve system—the basis of contemporary banking—spread from Britain to other nations in the 19th century, bypassing China until the last quarter of the 20th century.

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