In recent years, digital currencies have garnered increasing interest worldwide. These assets, rooted in cryptography and decentralized ledgers, boast traceability and tamper-proof features. They are reshaping approaches to transactions and value storage, potentially rewriting the international financial playbook.
Introduction to Cryptocurrencies
The Communist Party of China recently released a statement detailing three types of digital currencies: cryptocurrencies like Bitcoin, stablecoins such as USDT and USDC, and Central Bank Digital Currencies (CBDCs) like China's e-CNY. Bitcoin, born from complex algorithms and 'mining,' caps at 21 million coins—with 19.8 million already circulating. Its decentralized nature sidesteps national credit, much like gold, but its high price volatility makes it a risky asset.
Strengthening the Dollar through Stablecoins
According to a letter from the Chinese Party, Bitcoin is not a true currency—it's more of a quirky asset. But it's stablecoins, pegged to the dollar, that are changing the game in the cryptocurrency market, providing DeFi liquidity and replacing weaker local currencies in developing countries. With a $180 billion market by late 2024, stablecoins are further cementing the dollar's global influence.
Future of Digital Currencies in China
Central bank digital currencies like the e-CNY reflect sovereign money in digital form. China's e-CNY, tied to the yuan, shines in retail but lags in broader use, restricted to replacing cash (M0). For broader application, Chinese media suggests three strategies: expanding e-CNY to M1/M2, creating yuan-backed stablecoins via tech platforms, and promoting IMF's digital SDR, which could challenge dollar dominance.
China continues to actively explore and develop digital currencies with the aim of strengthening its position in international finance. This includes creating innovative solutions that integrate with global economic processes, potentially altering long-standing cross-border transaction paradigms.
