It is amazing to see just how quickly things change in the news cycle. Just a few weeks ago, the hottest topic in cryptocurrency was the news of Facebook's planned launch of their Libra and Calibra projects. Facebook remains in the news, but the hotter topic these days is China's pending state-backed cryptocurrency speculated to be ready for release later in 2019.
Seasoned cryptocurrency followers know better than to get too excited over anyone's future plans for a crypto project. As for everyone else, opinions over what China's crypto will look like are all over the board. Your best bet at this point is to not make any plans one way or the other. Not only is the information coming out of China limited, but there are rumors that the currency will not launch at all this year (2019).
Rumors started it all
Let us assume that Chinese banking officials do have a cryptocurrency project close to launch. It should follow other projects of similar size and magnitude in that it will not become reality overnight. Facebook's Libra is a good example. Facebook announced plans for a digital currency some time ago. Their white paper wasn't released until June 2019. Launch is not scheduled until sometime in 2020, yet it was recently revealed in an SEC filing that Libra might never get off the ground.
In China's case, rumors of a digital currency controlled by the state began circulating months ago. Those rumors spoke of a People's Bank of China (PBoC) project working on a prototype coin that would eventually be used as legal tender in China. Those rumors became official news stories by early August 2019.
The PBoC accelerated the rumors by releasing a statement on August 2 proposing that research into their prototype coin will be accelerated. The impetus behind the proposal was apparently a fear that the U.S. economy would be strengthened on the launch of Libra. Though it sounds strange, PBoC officials somehow think that there will be some sort of hegemony between Libra and the U.S. dollar.
It is unclear as to why such hegemony would exist given the U.S. government's inherent distrust of Facebook. Moreover, U.S. regulators are not going to give up even the slightest amount of control over the U.S. dollar. If they perceive Libra as a threat, they will do everything they can to regulate it into oblivion.
That notwithstanding, the PBoC statement verified at least one aspect of the rumors: that they are working on a digital currency with hopes of eventually making it legal tender.
Not ready in November
With the August 2 statement clearly paving the way for a state-backed coin, the rumor mill took things up a notch. By the middle of August it was assumed that PBoC would be ready to release their project by November. Now it appears that the November target date is out the window.
For the record, the PBoC did not just start working on their cryptocurrency project out of the blue. They have already been working on it for five years. We only know about it now because the PBoC is deathly afraid of Libra. They let the cat out of the bag in their attempt to get ahead of Facebook.
Anyway, let's get back to the November launch date. According to an August 28 statement from the Global Times - the English-language tabloid published by the state-owned People's Daily - there will be no state-backed cryptocurrency launched in November 2019.
The paper labeled the November rumors as "inaccurate speculation" of a "state-backed cryptocurrency in the coming months." They all but shut down any hope of the coin being ready by November. So where does that leave the project? No one knows.
Information is limited
China is a closed country that tends to keep official business as private as possible for as long as possible. As such, information about their crypto project is limited. The little bit we do know suggests a digital currency controlled by the PBoC in every respect. That much is not surprising given that China is a communist country.
We also know that the PBoC hopes to eventually replace the yuan with some sort of digital alternative. Whether or not that happens as soon as their cryptocurrency is released remains to be seen. The most logical thing for the PBoC to do would be to release their cryptocurrency and then use it to gradually recall all of the yuan in circulation.
There are also rumors that the communist government eventually hopes to ban all other fiat and cryptocurrencies in China so that the state-backed crypto would be the only way to pay for things. Again, those are just rumors. Keeping every other currency - fiat and crypto alike - out of China seems like an impossible task.
They have been able to do it in North Korea, but that's only because North Korean citizens are basically unaware of anything outside their own borders. Most North Koreans have never even heard of cryptocurrency. That is not the case in China. Crypto is alive and well in the People's Republic; virtually everyone knows about it, and a lot of people use it.
More rumors of early plans
So, where do we stand now that the PBoC doesn't appear ready to launch their coin by November? We are left with going back to the rumor mill. The latest rumor running through that mill is an August 27 report suggesting that the PBoC has already decided who the first beneficiaries of its digital coins will be.
According to Forbes, the former head of financial strategy for China Construction Bank says as many as eight institutions will receive the first round of coins eventually released by the PBoC. Researcher and consultant Paul Schulte believes that the China Construction Bank, the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China, and the Union Pay Banking Association will all be first-round recipients. He says Alibaba and Tencent are also in the running.
The first six institutions on the list are all state-owned banking institutions. It is no surprise that they would be included in first-round distribution. After all, China needs its banks on board if it hopes to realize the goal of replacing the country's fiat with a digital currency.
As for Alibaba and Tencent, the rationale seems to be a bit different. The former is arguably China's largest retail conglomerate and exporter. The PBoC would need them on board in order to introduce their digital currency as a trading platform for cross-border commerce.
The latter is a global investment conglomerate with a heavy focus on technology and internet related products and services. Their participation would ensure that anyone dealing with China for technology related matters would have to rely on the state-backed crypto for payments back and forth.
No one really knows
After looking at all of the rumors and the limited amount of official information coming from the PBoC, one thing is clear: no one really knows what is going to happen. Only the people actually working on the project have any clue as to where it is going. That's why there is no point in making any plans right now.
For all we know, China's cryptocurrency project could already be well on its way to launch. And when it does launch, it could completely transform Chinese economics. Perhaps it will become the default currency in China at some point down the road. Perhaps yuan will be a thing of memories within the next 2 to 5 years.
On the other hand, the project could completely flop. It seems odd that the PBoC has been working on it for five years and still isn't ready to go with at least a basic token. Their slow speed seems to indicate trouble in a country that otherwise seems to be right on the cutting edge of technology.
Of course, we cannot take Hong Kong out of the equation here. The recent protests in Hong Kong are testing China's ability to control politics and economics off the mainland. And if Hong Kong's economy were to ever crash, it would have a significant impact on mainland China.
Let's wait and see
The best course of action here is to adopt a wait and see attitude. Just like there is no point getting excited about Libra right now, there's no need to try to figure out what to do if and when China does launch a state-backed cryptocurrency. If it does launch, it will be what it will be.
In the meantime, established coins like Bitcoin and Ethereum already have a daily impact on global economics. As prices rise and fall, investors move their money around from asset to asset. Bitcoin is especially intriguing as it seeks to find a comfortable price point somewhere around $10,000.
Understand that Bitcoin is not likely to be affected by a state-backed coin in China. It may face stiff competition from Libra, but that remains to be seen. All we know right now is that Bitcoin continues to be the world's dominant cryptocurrency. Bitcoin is where all of the real intrigue is found. Will it fall back to start-of-the-year levels, or will it finally break through the $12,000 ceiling ahead of a new bull market? When viewed through that lens, China seems less important.