For a long time, China’s stance concerning cryptocurrencies was unfriendly. As such, Alibaba’s (BABA) cryptocurrency operations, like other Chinese companies, took place through third-party companies. However, the narrative seems to be changing as the launch of a Chinese government cryptocurrency draws nearer, according to a Reuters report.
According to a Forbes report, China is likely to launch “a state-backed cryptocurrency” on China’s Singles Day on November 11. Forbes reported that the People’s Bank of China would take charge of the issuing process. The currency will be issued to seven of China’s most prominent companies, including Alibaba. Subsequently, the companies will disperse the digital currency to China’s population of 1.3 billion.
Citing an anonymous source, Forbes detailed that “the technology behind the cryptocurrency has been ready since last year.” It explained that the choice of the “two-tiered” system of launching the cryptocurrency was to ensure that the central bank had total control of it.
Chinese government crypto shares similarities with Facebook’s Libra
Facebook (FB) is also gearing up to launch Libra, a cryptocurrency it believes can become a global medium of exchange. The Libra Association governs the operations of the currency. Unlike Bitcoin and other cryptocurrencies, Libra has the backing of real assets, which should reduce volatility. Interestingly, this is one similarity Libra shares with the upcoming Chinese government cryptocurrency. The Chinese crypto has the backing of the government, which is a strategy to increase confidence in the digital currency.
Nonetheless, Facebook’s Libra is already facing challenges. On the one hand, the Fed believes the implementation of the project will pose serious problems to global financial stability. On the other hand, the European Union thinks Libra will create a hegemon out of Facebook, which might lead the company to stifle competition. In particular, EU regulators would like a clearer understanding of Libra’s governance structure and membership for better judgment. Such challenges provide an opportunity for the People’s Bank of China to learn the hurdles its cryptocurrency might face.
Nonetheless, the Chinese central bank refutes the similarities between its crypto and Libra, according to the Forbes report. Unlike Libra, which is largely code-based, the Chinese crypto will be more like fiat cash but in digital form. Therefore, the currency will be centrally controlled, unlike typical crypto, whose governance is decentralized.
Alibaba’s cryptocurrency plans could get a boost
Last year, Alibaba launched a crypto mining platform but adopted a third-party model by which it would simply “loan space on the cloud-based platform for its clients to mine cryptocurrency using its high hashrate infrastructure.” The inability of Alibaba and other Chinese conglomerates such as Tencent to launch solid crypto operations has a lot to do with China’s ban of crypto activities within its borders.
However, if the government goes ahead with the launch of the crypto, we believe Alibaba’s cryptocurrency ambitions could get a boost. In particular, the company might find the legitimacy to launch the operations without fear of reprisal. Nonetheless, a Global Times tweet on August 28 shows that the People’s Bank of China denies having plans to launch a crypto anytime soon.