{"id":7727,"date":"2021-05-05T12:28:59","date_gmt":"2021-05-05T16:28:59","guid":{"rendered":"https:\/\/cointelegraph.com\/magazine\/?p=7727"},"modified":"2021-05-05T12:31:37","modified_gmt":"2021-05-05T16:31:37","slug":"china-softening-on-bitcoin-turn-of-phrase-stirs-crypto-world","status":"publish","type":"post","link":"https:\/\/cointelegraph.com\/magazine\/2021\/05\/05\/china-softening-on-bitcoin-turn-of-phrase-stirs-crypto-world","title":{"rendered":"Is China softening on Bitcoin? A turn of phrase stirs the crypto world"},"content":{"rendered":"

They were only two seemingly innocuous words: \u201cinvestment alternatives.\u201d But when applied to Bitcoin \u2014 the seminal cryptocurrency \u2014 by an official from the People\u2019s Bank of China in a recent panel discussion, they reverberated like a firecracker.<\/span><\/p>\n

\u201cA remarkable step for BTC,\u201d Lennix Lai, director of financial markets at OKEx, calls the statement. Michael Peshkam, executive in residence at European business school INSEAD, describes the central banker\u2019s remarks as \u201ca significant shift in the country\u2019s position\u201d on crypto.<\/span><\/p>\n

To recap: On April 18 at a CNBC event at the Boao Forum for Asia, Li Bo, deputy governor of the PBoC \u2014 China\u2019s central bank \u2014 <\/span>said<\/span><\/a>: \u201cWe regard Bitcoin and stablecoin as crypto assets. […] These are investment alternatives.\u201d CNBC reporter Arjun Kharpal commented:<\/span><\/p>\n

\u201cIndustry insiders called the comments \u2018progressive\u2019 and are watching closely for any regulatory changes made by the People\u2019s Bank of China.\u201d<\/span><\/p><\/blockquote>\n

\u201cYes, I do see a change in tone\u201d in China, \u201ca softened and more open approach to considering the role of Bitcoin,\u201d Kevin Desouza \u2014 professor of business, technology and strategy at Queensland University of Technology Business School \u2014 tells Magazine. \u201cI still do not see a full embrace of Bitcoin.\u201d<\/span><\/p>\n

\u201cThis is a very important development,\u201d Daniel Lacalle, chief economist at Tressis SV, tells Magazine \u2014 one that involves a \u201csignificant change of heart\u201d on the part of China\u2019s government as it \u201cseparates itself from its former monetary policy.\u201d\u00a0<\/span><\/p>\n

The government is saying, in effect, that it isn\u2019t going to ban or put the brakes on the growth of Bitcoin and other cryptocurrencies, which have been an ever-present risk for both China and other governments, Lacalle suggests.<\/span><\/p>\n

If so, why now? China is close to rolling out one of the world\u2019s first major central bank digital currencies at scale \u2014 sometimes referred to as the Digital Currency Electronic Payment, or digital yuan. \u201cIf it wants a digital yuan that works, it can\u2019t ban crypto,\u201d Lacalle says. Rather, it needs to show that its DC\/EP is as attractive as a crypto alternative.<\/span><\/p>\n

Connecting the dots: BTC and DC\/EP<\/span><\/h4>\n

What exactly, though, is the connection between Bitcoin and China\u2019s DC\/EP? Aren\u2019t they two different things \u2014 one an emerging global store of value, like gold, and the other a domestic payment system?\u00a0<\/span><\/p>\n

The Chinese yuan, as currently constituted, is used in very few international transactions. \u201cIt is underutilized globally because China maintains capital controls,\u201d Lacalle tells Magazine. China has long feared that if it were to drop these controls, its economy would quickly become \u201cdollarized\u201d \u2014 i.e., its citizens would send dollars away from China to the United States.\u00a0<\/span><\/p>\n

As things stand today, the rollout of a digital yuan would be an international failure, though it might succeed domestically. Outsiders would assume that the Chinese government wants to control it like it does its traditional yuan.<\/span><\/p>\n

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\u201cBut if they open the market for crypto in China, they are signalling that capital controls won\u2019t apply to the digital market,\u201d including a digital yuan, Lacalle explains. This is arguably an \u201cintelligent move\u201d on the part of the Chinese government, which like Russia before it now sees benefits in opening its economy to crypto. In fact, cryptocurrencies may eventually \u2014 albeit, in a \u201cdistant future\u201d \u2014 hurt Western fiat currencies, authorities speculate. But in the meantime, a new tolerance with regard to Bitcoin can make its digital currency more viable beyond its borders.\u00a0<\/span><\/p>\n

A potential currency?<\/span><\/h4>\n

Peshkam tells Magazine that Li\u2019s statement goes beyond recognizing BTC as just another investment asset, which is scarcely an earth-shaking revelation. China now sees crypto \u201cas a future potential currency in global trade.\u201d<\/span><\/p>\n

Using Google Trends data from 2014 to the present, Peshkam notes that interest in Bitcoin within China<\/span> \u2014 i.e., among its domestic population \u2014 follows a similar pattern as in the U.S., as well as the world at large, as measured by the number of searches for the word \u201cBitcoin.\u201d Ignoring this growing interest on the part of its populace \u201cmight not be economically and financially prudent for the country in the long run, thus the shift\u201d in Chinese policy, opines Peshkam.<\/span><\/p>\n

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China\u2019s DC\/EP will probably become \u201cthe main means of daily trade from grocery shopping to payment of bills and larger ticket items\u201d domestically, Peshkam says. But it is too early to gauge its international impact, including whether or not it will be a threat to the U.S. dollar as the world\u2019s primary trading currency.<\/span><\/p>\n

Just in case, continues Peshkam, China would like to have BTC on hand to reduce its dependence on the dollar for global trade. A strong BTC could also similarly weaken the dollar\u2019s hold on China\u2019s regional neighbors, making them more open to using the new digital yuan. \u201cThe shift in China\u2019s position seems to be a strategic move to safeguard its future economic dominance should Bitcoin move from \u2018investment alternative\u2019 to \u2018trading currency alternative,\u2019\u201d says Peshkam.<\/span><\/p>\n

Who is Li?<\/span><\/h4>\n

Perhaps one is reading too much into a single person\u2019s statement? Li, after all, is just <\/span>one of seven deputy governors<\/span><\/a> of China\u2019s central bank. Might these remarks on the matter of Bitcoin and cryptocurrencies simply be one banker\u2019s opinion?<\/span><\/p>\n

No, Lacalle tells Magazine. \u201cThat doesn\u2019t happen in China.\u201d Not in forums like these. \u201cWhen they want to alert the world about some new [financial] policy, the first comment is often from an analyst in a state-owned bank.\u201d Next, typically, is a statement by a central banker. And finally, at a later date, the policy is officially announced, explains Lacalle. This is what happened when China devalued the yuan in 2015, for instance. \u201cIt is subtle but efficient.\u201d<\/span><\/p>\n

China\u2019s central bank is not as independent as some of its Western counterparts, including the U.S. Federal Reserve, another source, who wished to remain anonymous, tells Magazine: \u201cIn his [Li\u2019s] place, it would be natural to check whether his statement is in accord with the government view. Or, alternatively, he has been tipped that this is the government view.\u201d<\/span><\/p>\n

 <\/p>\n