Excitement builds for the launch of China’s E-Yuan cryptocurrency

Cryptocurrency investment has risen by leaps and bounds over the last 12 months or so, largely due to the rise in the price of Bitcoin, as well as other tokens such Ethereum. This is the second such rally for Bitcoin, with a similar increase in price having been seen in 2017, but that instance was followed by a crash in 2018, which may have kept a lot of potential investors away this time around as well. However, confidence is building that Bitcoin and cryptocurrencies in general are here to stay, and will have a big role to play in the world in the years to come. Based on this optimism, we have seen a number of central banks also investigate ways to develop and launch their own digital currencies, known as Central bank digital currency (CBDCs), and perhaps the country that is the closest to launching one at the moment is China.
 
By some estimates, seven in ten countries are researching CBDCs, with China leading that effort in terms of how far it has got. The Chinese government has committed to adopting crypto and blockchain, with president Xi Jinping having spoken about how blockchain can play a key role in the next stage of China’s industrial and technological development. In that respect, the development of the e-yuan has garnered a lot of attention from all over the world, with observers waiting to see if the digital currency will be decentralized from the government. There are some who believe that it could rise to the levels that Bitcoin is at currently, and the size of China’s economy certainly means that there is a huge market for it to be used in. There are various related sectors where cryptocurrencies, and therefore the e-yuan, when it is launched, have begun to be utilised heavily, with online gambling being one such area. It may not be a surprise to see the e-yuan become the digital currency of choice on such gambling sites in a few years in this region, along with other new cryptocurrencies that are gaining popularity in online gambling. Areas such as retail are also potentially extremely attractive for the e-yuan to pick up customers quickly, once those sectors recover to normal levels following the impact of the COVID-19 pandemic.
 
One way in which the e-yuan can help the Chinese economy is with its debt. China currently holds $341 billion of bad debts, which have accumulated due to the illegal practice of using the same capital to guarantee multiple loans. In these situations, the e-yuan can help the government track assets and liabilities, which will ensure that the same asset is not used as collateral for multiple loans. However, there are concerns as well around the level of control that the Chinese government will exert on the e-yuan, with only banks and certain authorized brokers being allowed to sell the e-yuan initially. There is still uncertainty around whether any physical assets will be used to back up the currency, although China has purchased large amounts of gold to support the yuan recently, so that may be a way of possible intervention if the price of the e-yuan falls below acceptable levels. This is a big reason behind investors being bullish about the currency though - the fact that it will likely be supported by the Chinese government in some form, preventing its price from falling too drastically.
 
The e-yuan can also provide an opportunity for China’s huge middle-class to gain wealth, if it performs anywhere close to how Bitcoin has. This is the biggest area of opportunity that the e-yuan is bringing to China, and it will be fascinating to track its progress once it is launched.