Synopsis
With the rise of decentralization, cross-border transactions are going to be more prevalent than ever. A surge in crypto adoption is not only impacting the global trades but also affecting the bilateral ties of global powers. This piece has discussed the reasons behind the increasing crypto regulation in China. We have also deliberated over the impacts of cryptocurrencies on US-China relations.
China has taken a huge leap forward to become the second largest economy in the world. Today China stands head-to-head with the US, challenging its global hegemony. From water to skies and from defense to finance, the lust for power of both nations is visible in their global stands.
A conflict of interest between these states is driving their stances on blockchain innovation and cryptocurrencies. When the world is searching for a way to move towards a global regulatory consensus for cryptocurrencies, these contrasting stands are counterproductive.
In the article ahead, we are going to address the contradictory stance of the US and China on cryptocurrencies. We will also try to understand the impacts and prospects of this conflict by examining their external affairs policies.
With over $650 billion of mutual trade, the US and China trade relations are one of the largest in the world. Capturing the consumers of the US, China treaded its ambition of global expansion. As China emerged to claim a bipolar status in the international markets, it had to face strong resistance from the US and friends.
The trade conflict could not stay at the bay for long and become a contest of supremacy between two military giants. Be it Taiwan or the South China Sea, America is bringing each incident to International forums. Covid-19’s blatant blame on China, aggressive Pacific policy, and the formation of QUAD were direct threats to China’s ambitions.
On the other side, China has called these attempts mere ‘reflexive efforts to undermine China’s rise’. Chinese foreign experts are clear about America’s relative decline in global authority and prioritize ‘peace’ in its external policy. The race to become a global superpower is not expected to end soon and cryptocurrency is only adding a layer to it.
China’s take on cryptocurrencies took a U-turn when it made crypto and its mining illegal. With a strong regulation on financial institutions and payment ecosystems, China is allowing only digital RMB to flourish within the country.
China is laying the foundation for RMB crypto by eliminating the private players in its financial space. This not only promotes the internationalization of China’s own currency but also shifts the financial control from US streets to Beijing. With an ambition to challenge the hegemony of the US dollar, China is working to create a new global order of trade. The increased dominance of the RMB will not only strengthen the Chinese soft power but also make US trade sanctions ineffective.
The Chinese crypto regulations are strictly enforced and were a prominent reason behind the declined crypto market capitalization in the latter part of 2021. The attempts to centralize the decentralized in the name of monetary sovereignty would be nothing but a backlash on the future of crypto, specifically in Asia.
The United States is home to the latest tech innovation complemented by effective state policies of non-intervention. The non-regulatory stance of the US made it a breeding ground for new-age crypto startups. China’s abrupt ban on crypto and related activities resulted in a thriving crypto trade in the US. Recording over a 40% spike, Bitcoin trade volumes in the US reached $1500+ million in 2020.
With no hints of direct intervention in the crypto sphere, the USA (Wyoming in particular) has become a confidant of one of the most exemplary blockchain projects. However, a complete lack of crypto regulations is becoming the bone of contention for Washington. Now, the United States is showing an interest in minting its own CBDC (Central Bank Digital Currency) which it had no intentions of in the past.
Even though the US is not seeing crypto expansion as a direct threat to the dollar’s hegemony, the decline of the dollar as a global currency is evident. And the unregulated crypto adoption can further propel this decline to become an international exchange standard.
Washington is eager to move forward with crypto regulations but skeptical about its adverse impacts on blockchain innovation in the country. This dance of balancing innovation and regulation while dealing with multiple challenges from Russia and China would be a diplomatic test for the USA.
US-China relations could say to be at the worst of their phases. With a sudden ban on all crypto activities, China has forced a mass Bitcoin migration to the US. However, industry experts find the US a better place for crypto in the long term. Moving from China to the US assures the entrepreneurs that the rug will not be pulled without undergoing a transparent decision-making process.
On the other hand, the mining shift from China to the US is allowing the financially weaker states to redefine their economy. The state mayors are welcoming the mines as the US is touching the highest crypto activities in the world. Even though this could cost the USA an increased carbon footprint, states are more than happy to incorporate new mining rigs. The federal government is also allowing the flourishing ecosystem to achieve its financial targets.
The USA has also blamed China for being a ‘currency manipulator'. It claims that China is gaining unfair leverage through the internationalization of the Yuan. Statements like these have not only invited a stern response from China but also increased the trade tensions between the two.
In actual fact, China is losing its capital control and could not lose it any further by breeding the world’s biggest mining farms. Fixating a taxation regime is important for crypto regulation in China, but doing so would only legitimize it further. And the Chinese Communist Party cannot control the decentralization of money which will affect its global ambitions.
The increasing tensions and rising geo-political conflicts between the US-China are intensifying the present crypto challenges. On one hand, China had out-rightly banned all crypto activities, and the USA is still trying to find the right balance between regulation and innovation. The contradictory stands of these global powers are reflected in their policies and widening the communication further.
With the rise of decentralization, cross-border transactions are going to be more prevalent than ever. As we have witnessed in the recent Russia-Ukraine war, cryptocurrency emerged to become a fallback for Ukrainian governments. Ukraine was able to crowdfund its war efforts by relying on multiple NFT campaigns and received global help in the form of Bitcoins.
China has to digest the fact that the future does not belong to authoritarianism and they have to change accordingly. Washington on the other hand also has to retire its mindset of bipolar world order. The future of finance is going to be decentralized and we are going to witness the development of more diversified and multi-polar world order.
