This is the 115th article in the series – The China Chronicles.
Read the articles here.
Bitcoin’s price tumbled last month following the news that regulators in China would ban domestic banks from dealing in cryptocurrencies. Chinese banks will not process payments made in cryptocurrencies or allow bank customers to hold bitcoin in their accounts. It also stopped Chinese banks from converting bitcoin into yuan or any other type of currency. India, too, has been mulling over the ban on cryptocurrencies’ operations in the country and it was announced that a bill would be passed in Parliament to outlaw cryptocurrencies in the country, except for the digital rupee one that is backed by the Indian government, similar to what China is attempting with the digital yuan. China’s latest move is another iteration of its crackdown on cryptocurrencies. In 2017, it outlawed the operation of Initial Coin Offerings (ICOs), the cryptocurrency analog for an Initial Public Offering (IPO) for stocks.
Digital currencies and cryptocurrencies are a thorny issue for nations and regulators. Afterall, if cryptocurrencies are allowed to proliferate and be used as a substitute for a nation’s currency, it can potentially infringe on the sovereignty of the country as central banks lose control over production and supply of coinage. In response, China, India along with several countries’ central banks have floated ideas for a Central Bank Digital Currency (CBDC), a digital representation of a nation’s currency backed by blockchain technology. Whether this is by design or accident, Beijing has been influencing policies of other nations when it comes to cryptocurrencies, and, consequently, how cross-border payments work. China and Chinese companies’ decisions on digital payments companies can be seen as a form of tech diplomacy.
If cryptocurrencies are allowed to proliferate and be used as a substitute for a nation’s currency, it can potentially infringe on the sovereignty of the country as central banks lose control over production and supply of coinage. In response, China, India along with several countries’ central banks have floated ideas for a Central Bank Digital Currency (CBDC), a digital representation of a nation’s currency backed by blockchain technology
CBDCs are a new and untested idea and though it holds a lot of promise for different countries, its implementation and actual use cases are yet to be fully developed. China has begun piloting its CBDC, but in the larger geopolitical landscape, it represents a threat to the United States dollar as the world’s dominant currency. If the usage of the digital yuan increases with countries, it could undermine Washington DC’s efforts to uphold international sanctions by prohibiting transactions using the US dollar. Currently, the United States wields an enormous influence on the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system, which is used by banks and financial institutions to send money transfer instructions. The digital yuan, using blockchain technology, can bypass these restrictions.
Against this backdrop, there is an opportunity for India to wield some influence over tech diplomacy with digital payments.
Chandni Chowk to China
Though China is now a strategic rival to India, New Delhi and Mumbai are tempted to follow in their footsteps by enacting a similar ban on cryptocurrencies. However, the 2020 Galwan clashes have disturbed India-China relations. Chinese capital and technology ideas have influenced India’s domestic payments ecosystem. The most notable is Paytm, where Ant Financial has a 30 percent stake in the company. Paytm along with other digital wallets in the country helped popularise the idea of QR code payments in the country. Paytm CEO, Vijay Shekhar Sharma, said that the company was inspired by how Jack Ma’s Alipay used QR code payments to…