It can seem at times as if China is essentially seeking to leapfrog bitcoin. At various times in the last several years the government has imposed restrictions on the leading digital currency; just last year, in fact, local exchanges halted service as part of a fresh crackdown.
This time though, the restrictions came about even as the country's top leadership announced support for blockchain technology — with a Chinese digital currency founded on that technology on its way.
Now, that Chinese digital currency is beginning to make itself known. Controlled by the People’s Bank of China, this currency is meant to be an exact digital replica of the yuan, and is now known as the e-RMB (or digital RMB). And its primary perk is expected to be stable value.
Because it’s effectively a state-backed currency, its value can be more or less controlled, just as the ordinary Chinese yuan (or any national currency) can be to some extent.
This in theory separates the e-RMB from bitcoin and other cryptocurrencies. It is not another cryptocurrency so much as a digital fiat currency that will utilize some similar blockchain features. The hope among Chinese authorities is likely that this difference will be meaningful, and that people will opt for the stable asset over the notoriously volatile bitcoin.
The interesting thing about this, however, is that bitcoin’s volatility has suddenly subsided. Since the middle of May — when cryptocurrency had largely recovered from the spring financial crash — the value of bitcoin stayed primarily in a range between USD 9,000 and USD 10,000 (with the exception of a recent jump toward 12,000).
Now, for a fiat currency, this would still be a large window and would qualify as significant fluctuation. For Bitcoin, however, this represents an unusually stable period.
Furthermore, because it came in the aftermath of a halving event (which reduces the amount of bitcoin mined at a given time), there is at least some reason to believe that decreased volatility is a fundamental shift rather than a random occurrence.
The question now is whether or not this could be a problem for the adoption of the e-RMB. The negative way of looking at it, from the Chinese government’s perspective, would be that a stabilized bitcoin would have fresh appeal to people — and in the process would make the e-RMB somewhat less necessary. That’s not to say the e-RMB would be obsolete upon arrival, but it might be less of a solution than it’s intended to be.
On the other hand, momentum and history still favor a strong rollout of the e-RMB. Where momentum is concerned, the digital yuan is already being tested by banks, and specifically China’s “big four” state-owned banks.
This essentially means that the rollout is already in progress. Employees of these banks are already using digital currency in transactions, and a broader public launch could be coming fairly soon.
As for history, it’s not unreasonable to assume that bitcoin’s recent stabilization could still be temporary. While there are some who believe it’s a fundamental shift, as mentioned, the past tells us that bitcoin has more crashes and jumps ahead of it.
Nevertheless, this is not something to keep an eye on. If bitcoin remains relatively stable for a while longer, it could be more directly competitive with the e-RMB than expected.
This story is authored by Mason Donnelly.
