January 29, 2021
The rise in popularity of cryptocurrencies has led to seven-in-ten nations studying ways to develop their own virtual money. The largest economy to get involved in the cryptocurrency quest is China. According to Xinhua, China’s state-run news agency, President Xi Jinping has been quoted as stating the importance of Blockchain in the next stage of China’s industrial transformation and technological innovation.
China’s official cryptocurrency is known as the e-Yuan, and its development has attracted attention from all across the globe. Investors are keen to get a piece of the new currency, hoping that it will rise to the levels achieved by Bitcoin. However, there is still considerable uncertainty about how much the e-Yuan will be included in China’s financial system. Critics of the currency claim that the state-controlled currency will never become completely decentralized from the government.
One particular problem that the e-Yuan may provide a solution for is the level of Chinese bad debt. China currently holds ￥2.4 trillion ($341 billion) of bad debt, which has accumulated from the illegal practice of guaranteeing multiple loans with the same capital. Senior blockchain researcher, J. Rothers, believes that the Chinese government will be able to use the e-Yuan as a solution. Using the e-Yuan, they will be able to track assets and liabilities, ensuring that the same collateral is not guaranteeing multiple loans.
The Chinese state will control how the cryptocurrency gets circulated, and only banks and authorized brokers will be allowed to sell the e-Yuan initially. As yet, it is unclear whether there will be any physical assets used to back up the currency. However, China’s recent acquisition of large amounts of gold to support its fiat currency suggests that the Chinese government will provide support to stabilize the price of the e-Yuan should it start to fall drastically. This assumption is one that is encouraging investors keen to buy the new currency.