China's Digital Yuan Ambitions Are Driving Bitcoin Out of Circulation

China, Hong Kong, Singapore, and Taiwan continue to be the some of the most active Asian jurisdictions in terms of cryptocurrency activity and blockchain development, but recent developments point towards stricter regulation. Without a doubt, China is the largest and most attractive market for digital currencies, but the Communist Party and the government have different ideas in this regard.

Financial regulators in China have not stopped their relentless crackdown on Bitcoin mining and circulation. According to recent reports, the country’s central bank released an outline for a ‘national digital currency’ that “aims to prevent money laundering and financing of terrorism.” This is the government’s official policy and it is expected that China will become the largest economy to issue its own state-backed digital currency. There have been reports that the new digital currency will be able to rival the popularity of the yuan, or renminbi, in the region.

The news comes from Reuters, which cites experts who believe that the new digital currency will help the Communist Party tackle the challenges of inflation. The central bank is expected to create a new digital currency that will be issued as a result of a planned “renminbi internationalization” plan and will be convertible to the Chinese currency. Chinese government officials are expected to introduce the new digital yuan and other virtual currencies will only be allowed for trading within the existing system.

This is a pretty aggressive stance by China’s government and it raises the question about what consequences this decision will have for Bitcoin. It is highly probable that the government could move to ban Bitcoin outright by means of criminal prosecution.

Meanwhile, the China Blockchain Application Research Center, which at one point was the leading institution in terms of blockchain development, seems to be winding down its operations because regulators are making operations very difficult. What many analysts believe is that China's plan to take on the United States dollar and the euro with the digital yuan is going to pick up steam over the next two years, and this means that other currencies, both fiat and crypto, will likely stop circulating in the most powerful Asian economy.