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US Intelligence Chief warns of China’s dominance in crypto-currencies: Report

The United States’ Director of National Intelligence John Ratcliffe warned of China’s growing influence in the crypto-currency universe in a letter to the Securities and Exchange Commission (SEC), the Washington Examiner reported. Ratcliffe, in his letter, says that more than half the world’s crypto-currency mining operations take place in China and that China’s own Central Bank-backed Digital Currency (CBDCs) would make it tough for US-based companies to compete.

The report says that Ratcliffe offered to have senior economic intelligence officials brief the SEC Chairman Jay Clayton. The Examiner also quoted an unnamed senior intelligence official who said that there are serious national security concerns about China’s control over Bitcoin and Ethereum and that China’s CBDC and artificial-intelligence measures would cement its dominance in technologies and innovations that are likely to run the world for decades to come.

Unlike crypto-currencies which are issued without a central bank backing and are privately held and distributed, a CBDC is a digital currency which holds the same value as fiat currencies issued by a country’s central bank.

In August this year, Ripple, one of the largest cryptocurrency companies in the US, wrote that the Chinese government subsides energy costs for crypto-miners and that at least 65% of Bitcoin mining and a large portion of Ethereum mining is controlled by China. “China’s efforts to control the digital asset space is an extension of their multi-decade effort to erode the U.S. Dollar’s position as the global reserve currency. A China controlled system could be a world where payments are blocked if the originator has too low a “social credit” score; or a world where payments are designed to evade U.S. sanctions and money laundering controls,” Ripple said.

Similarly, in a September 2020 report, Deutsche Bank said that by issuing one of the first CBDC’s in the world, China would become a world leader in science and innovation by 2050 and provide a reserve currency, which will have domestic and international ramifications, as countries that are involved in China’s One Belt and One Road program could be the first adopters, followed by companies that trade with or in China. “Another global implication is that a CBDC could remove the need for China to use the SWIFT system (Society for Worldwide Interbank Financial Telecommunications) on transactions within the country and with other country users of this CBDC. China’s digital payments could thereby make the country more independent from international money exchange systems and controls,” the report said.

According to a September 2020 report by Chainalysis, between July 2019 and June 2020, India received over US$6.6 billion worth of crypto-currencies. According to a report by Arcane Research, India and China each hold 33% of the total Person-2-Person (P2P) traded volumes of crypto-currencies in the Asia Pacific region. While China was the dominating country in Asia in terms of P2P volume in the early days of the P2P trading market, the Chinese government banned its citizens from buying bitcoins in February 2018 which led to a crash in volumes emanating from China, the report said. In India, “the volume has seen a steady rise over the last few years and has currently surpassed China as India has become the largest contributor to the Asian P2P volume during the summer of 2020,” it added.

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While the Bahamas became the first country to issue a CBDC in late October this year, many other countries are developing their own or at the least have begun serious discussions about issuing a digital currency. According to a January 2020 survey covering 66 central banks by the Bank of International Settlements (BIS), 80% of central banks across the world were engaged in research and experimentation of a CBDC. In October, the BIS published a report laying down the core principles and requirements that central banks should follow when developing and issuing a CBDC.

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