Leading the charge are the world’s two most populous nations, China and India, which between them account for roughly three out of every eight people on the planet.
More than $2 trillion has been wiped from the “value” of the crypto market in the past year as the final stages of one of the world’s biggest ever pump-and-dump schemes play out. The fallout from the epic collapse of FTX (covered in depth by Yves here, here and here), has now spread to Binance and Coinbase, two of the world’s largest cryptocurrency exchanges.
Coinbase’s stock is down an eye-watering 86% so far this year and its bonds are trading close to 50% on the dollar. As for Binance, its books were just described as a “black box” in a damning Reuters special report. The value of its digital token is down 8% over the past month and 50% so far this year. Depositors have reportedly yanked billions of dollars worth of funds from the exchange in the past week, though CEO Changpeng “CZ” Zhao claims much of that money has returned.
One reason why investors are spooked is a recent report from that the US Justice Department is mulling going after Binance, “CZ” and other senior executives for an assortment of financial crimes including “unlicensed money transmission, money laundering conspiracy and criminal sanctions violations.” That came on top of the arrest last week of FTX founder Sam Bankman-Fried, who has been charged with money laundering and fraud, among other violations.
Now that the horse has bolted and trillions of dollars of investor funds have been lost, noises are finally coming from Congress about the need to regulate cryptos. This comes on the heels of Executive Order 14069, “Ensuring Responsible Development of Digital Assets,” which calls for “safeguards” to be put in place to “promote the responsible development of digital assets to protect customers”. Signed by Joe Biden on March 9, it also recommends creating a so-called “digital dollar” (more on that later).
It’s not just the US that is calling for sweeping regulation on cryptos. Yesterday (Dec. 19), the European Central Bank’s Vice President Luis de Guindos said that crypto assets need to be regulated at a global level to avoid loopholes in the global financial architecture. Last Wednesday (Dec.14), Germany’s financial market regulator BaFin made the exact same case, calling for global regulation of the crypto market to protect consumers, prevent money laundering and preserve financial stability.
While all this is playing out, to breathless coverage in the media, big moves are being made around the world on central bank digital currencies (CBDCs). And they are receiving virtually no coverage.
China and India Leading the Way
Leading the charge are the world’s two most populous nations, China and India, which between them account for close to three out of every eight people on the planet. No G20 economy is as far along the path toward implementing a nationwide central bank digital currency as China. Wired magazine noted last month that the Asian giant “is far ahead of the US and other countries, where the concept of an official form of digital cash is only at the discussion phase.”
The People’s Bank of China launched its first pilots of the digital yuan in 2019, and the CBDC is now being tested out in 23 of the country’s largest cities, including Shanghai, Beijing, and Shenzhen. In January this year, the digital yuan was given a promotional boost when visiting athletes and attendees of the Beijing Winter Olympics were invited to try out the digital currency. In September, the People’s Bank of China released the new digital yuan app for iOS and Android on domestic app stores, which is now freely available to anyone living in the 23 pilot cities.
Another major milestone was reached last week when China’s biggest mobile payment platform Alipay agreed to offer the app as an express payment option on its e-commerce platforms. Ant Group, the fintech powerhouse that runs the Alipay platform, is restructuring its business in order to comply with regulations imposed by China’s central bank, which recently set up an agency called the Digital Currency Institute to oversee e-CNY development, reports South China Morning Post, which itself is owned by Ant Financial’s parent group Alibaba.
While perhaps predictable, this move is hugely significant. Alipay, now in its 18th year of existence, is not just China’s but the world’s largest mobile (digital) payment platform, with over 1.3 billion users, 800 million more than Apple Pay. Together with rival Chinese tech platform Tencent’s payment app WeChat, which has 900 million users, Alipay has revolutionized the way Chinese people pay for the goods and services they consume.
Thanks to the ubiquity, convenience and popularity of mobile payment apps like Alipay and WeChat, coins and notes have largely disappeared from Chinese society. As an op-ed in China Daily proclaimed a few months ago, the cashless payment system is “now a reality” in China, thanks largely to “the e-payment apps and more than 1 billion smartphone owners.”
China’s government and central bank now want a piece of the action. The government already banned cryptocurrencies last year, ostensibly to curtail financial crime and prevent economic instability. Now the PBOC appears to be eyeing Alipay and WeChat Pay’s vast payment empires. As the China Briefing reported in September, WeChat has also announced it will begin allowing users to select e-CNY as a payment option to pay for services.
Beijing insists it is not treading on any toes. According to Shanghai Securities News, a subsidiary of Xinhua News Agency, the PRC’s official state news agency, while “some regard the digital yuan as a competitor to WeChat Pay and Alipay,” China’s central bank has “publicly refuted such claims.”
As the digital yuan inches closer and closer to its nationwide launch, the fear in other global capitals is palpable…
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Nick Corbishley 