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Chinese CryptoYuan origins

Chinese CryptoYuan origins

Less than a decade ago, China actively opposed all types of cryptocurrencies and their mining. Even today, Chinese President Xi Jinping mentioned blockchain technology in his speech and called for accelerating the development of other core technologies in this area. Somewhat later, the Chinese media reported testing a new Chinese cryptocurrency that could challenge the global dominance of the U.S. dollar. 

Back in 2014, when Bitcoin, the world's most famous cryptocurrency, was just gaining popularity in the world, many financial experts and leading Western politicians were quite confident in saying that cryptocurrencies are financial pyramids designed to deceive naive people. Probably, they would have changed their minds if they had found out that the People's Bank of China started secret developments of its own cryptocurrency just that year. 

In 2017, the bitcoin exchange rate broke a historical high, breaking the $17,000 mark per coin. The world witnessed a rush. New types of cryptocurrencies and their derivative tokens appeared, people actively bought up video cards to mine new digital coins, and people invested their money in new cryptocurrency exchanges. The success was so great that many countries even began to consider legislative initiatives aimed at regulating this sector in earnest. In the same year, China established a research institute for digital currencies, but even this fact passed by the public. Meanwhile, the PRC launched a policy of restricting the use of digital money. A law was passed that severely restricted the operation of cryptocurrency exchanges, forcing them to close. Meanwhile, mining farms started to undergo state inspections, forcing them to leave the country or pay fines. However, most of the mining farms were concentrated in the Celestial Empire. 

Two years later, as Bitcoin dropped and the excitement died down, Chinese President Xi Jinping announced full support for blockchain technology, a key cryptocurrency component, calling for more investment in the industry. His statement came out of the blue. The most opposed country to digital money sharply changed its mind. Following the announcement, bitcoin rose more than 30 percent in a matter of days. Everyone was convinced that China would soon loosen its strict policy and that this would boost the development of a new type of currency.  

Yet bitcoin holders were wrong. Shortly afterwards, the second news rocked the financial world once again: the People's Bank of China started testing its own cryptocurrency in four cities. While experts and officials from various countries unequivocally hinted that cryptocurrency is just a soap bubble, siphoning money from gullible people, one of the world's largest economies has been actively working in that direction. Today, no one doubts that if Bitcoin can be called a "bubble", then the new "CryptoYuan'' can hardly be called so. After all, there is a multitrillion-dollar superpower economy behind it.   At that time, however, it was impossible to find out exactly how the digital currency of the future would work. Official representatives did not provide any specific comments, thus only spurring the curiosity of financiers. There were also frauds: several "organizations" appeared offering to buy the new Chinese money in paper form. The scale took such a turn that the People's Bank was forced to give official denials. 

How crypto juan works

Today, as testing of the CryptoYuan, called DCEP (数字货币和电子支付工具  или Digital Currency Electronic Payment) started expanding, we already know how exactly the new monetary unit will work:

  • First, the DCEP exchange rate is pegged to the yuan and has a ratio of 1:1. This makes it easier to accept new money and avoid confusion in settlements. 
  • Secondly, the creators completely abandoned the decentralization found in traditional cryptocurrencies. The advantage is that the Chinese economy becomes the guarantor of the "CryptoYuan," which significantly raises the level of confidence among other countries and organizations. 
  • The third thing is that there are no inter-bank transaction fees. This significantly simplifies transfers, while an additional speedup of transactions helps local businesses adapt faster to the new realities. 
  • Finally, total control and accounting of all financial transactions have been introduced. Blockchain acts as a ledger, recording the transaction history of each coin. This will improve the taxation field in order to prevent money laundering more effectively. 

Altogether, these features allow DCEP to overcome three obstacles that have traditionally hindered any existing cryptocurrency: legitimacy and security from a strong economy, exchange rate stability, and distribution via existing payment systems.

World dominance

Yet, the real dominance in the financial world can only be achieved if the new monetary system works not only in China but also elsewhere. This can be achieved by developing a special infrastructure allowing everyone to buy digital money anywhere in the world in a very short period. 

Currently, such financial infrastructure is the American Society for Worldwide Interbank Financial Telecommunications or SWIFT. The world's largest system allows the exchange of financial information and payments in a standard and secure form. Most world banks are somehow included in this structure, while the total daily volume of payments passing through the SWIFT environment exceeds 5 trillion dollars.

The Celestial Empire created its own analog of this system to put pressure on the Americans, namely, the Cross-Border Interbank Payments System (CIPS). Launched in 2015, it is still considered by many corporations to be an additional version of SWIFT for those who deal with the Chinese and conduct settlements in yuan. As China's economic influence in the world grows, so does the popularity of CIPS. 

Still, both systems are primarily focused on the existing monetary system, which is based on paper and electronic money. Although it takes a few days to transfer digital money, the transfer of paper money (which also occurs along with digital money) is much slower. In addition, paper money incurs many financial costs, such as transportation, replacing old bills with new ones, keeping them in safe places, etc. While such systems were fully justified in the past, today, they create problems in the era of the superfast Internet. For example, in the spring of 2020, the dollar exchange rate went up in many countries because of the closed borders. No cash banknotes could be delivered in time, and they were in short supply at the exchange offices. Another more recent example: the European Union and the U.S. banned the importation of new banknotes to Russia. CryptoYuan has a good chance to take the lead on the world stage in such a situation.  

Therefore, if the PRC can upgrade its CIPS infrastructure or create another one for cryptocurrency, it will solve the current economic problems. In the eyes of ordinary people, corporations, and entire countries, this will automatically raise the value of infrastructure. Another advantage of the new Chinese infrastructure will be avoiding sanctions imposed by the U.S. government. This way, foreign companies can work with businesses and entire countries with no fear that such sanctions will affect them as accomplices. 

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