Contradicting Opinions About The Effect Of Digital Yuan On The Cryptocurrency Market
China is pushing to launch a digital yuan and has carried out several tests across some major cities. However, the impact that the project could have on both the mainstream and cryptocurrency marketplace remains a subject of debate.
The Chinese government has been firm on decisions against cryptocurrency activities within its borders. Transacting in cryptocurrencies using government-issued currencies like the yuan is completely banned in China. Residents who seek to participate in cryptocurrency transactions have resorted to using stablecoins like tether (USDT) as an on-ramp to boycott the restrictions of the government.
Tether Could Be Banned In China
At the moment, investors are still able to explore stablecoin opportunities to participate in the crypto market. However, Phillip Gillespie, CEO of crypto market maker and liquidity provider B2C2 Japan, the eventual launch of the digital yuan would likely lead to a total clampdown on the industry by China.
China’s role in the cryptocurrency market is well known, as a lot of volume and liquidity flows from that direction. Recent reports suggested that the latest rebound by Bitcoin after dumping was influenced by Chinese investors that were buying the dip by using the stablecoin, tether. Therefore, considering the amount of liquidity that comes from China, Gillespie believes that a total clampdown in the region will have a ripple effect on the entire market.
Gillespie sees the possibility of banning tether in China once the digital yuan is launched. If this becomes the case, the route by which Chinese traders have used to engage the market since the ban of yuan-crypto transactions would be blocked. He thinks that this could lead to massive panic selling that will cause a lot of liquidity problems for the marketplace. For this reason, he thinks that the introduction of the digital yuan could be one of the biggest risks in crypto.
Tether and Other Stablecoins Would Rather Support The Digital Yuan
Tether CTO, Paolo Ardoino holds a contrary view from Gillespie. In his opinion, stablecoins would rather serve as a complementary tool that will help CBDCs function better. He explains that the success of tether has provided a blueprint of how CBDCs like the digital yuan could work.
Tether’s success has provided a blueprint for how a CBDC could work. Furthermore, CBDCs are unlikely to be available on public blockchains such as Ethereum or Bitcoin. This last mile may be left to privately-issued stablecoins.
China’s digital yuan project is the most advanced compared to any other national digital currency project. Trials and tests have been carried out in major cities like Shenzhen, Suzhou, Beijing among others. Last February, the People’s Bank of China (PBoC) joined the cross-border digital currency projects with other central banks from Thailand, United Arab Emirates, and Hong Kong.
What About The Mainstream?
Beyond what effect this could have on the cryptocurrency industry, there are suggestions that it would also challenge the supremacy of the US dollar. In some cases, the proposed digital yuan is perceived as a weapon in the cold war as China seeks to challenge the US over monetary supremacy.
Sources in China have repeatedly denied that the purpose of the digital yuan is to displace the dollar. Instead, they have argued that it is simply a project that would offer the government a better alternative in managing transactions, especially in cross-border trades.
China’s digital yuan project is serious and several successful trials have already been carried out. How the project will impact the world of digital currencies is not yet known. What is clear so far is that it is a digital currency that will be under the full control of the government. Also, from the trials so far and other developments, the project is being designed to be able to integrate with existing systems, especially in the mainstream.