Will China’s ‘digital yuan’ reinvent money as we know it?

What’s behind China’s latest crackdown on crypto? For some time, Beijing has banned bitcoin and other cryptocurrency exchanges from operating within its borders. Last week, the Chinese Communist party extended the ban to criminalise anyone dealing in crypto. ‘Virtual currency-related business activities are illegal,’ declared the People’s Bank of China. The CCP would ‘resolutely clamp down on virtual currency speculation… to safeguard people’s properties and maintain economic, financial and social order’.

China accounts for nearly half of the world’s crypto mining, a process in which high-powered computers are used to generate the digital currencies. Most of China’s crypto mining takes place in the country’s most remote regions, such as Inner Mongolia, where vast, hastily thrown-together warehouse complexes are packed with humming computers, swirling fans and tangled bunches of cables. This industry is extremely energy-intensive — it consumes more electricity than entire countries, including Switzerland, Austria and Singapore.

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Crypto allows people to spend money in ways that the government can neither control nor trace. The latest crackdown can be seen as a way to clear the decks for the CCP’s new enterprise: the digital yuan (or renminbi), a currency controlled by the government. It’s a perfect fit with the Chinese surveillance state, yet it is also an experiment being closely watched by the world.

The early vision for cryptocurrencies was essentially libertarian. They are not regulated by central banks or governments and were seen as seeds of a genuinely independent financial system. Early adopters dreamed of doing away with banks and other centralised authorities, and embraced the anonymity. It hasn’t worked out that way and has been a gift for criminals. It’s the currency for guns, drugs and ransomware extortion. Crypto has become synonymous with evading the authorities, and so central banks are trying to take back control.