China banned all crypto transactions. But it is creating its own crypto. Do you think this is an attempt to control what is supposed to be uncontrollable? 

I don’t know what their intentions are. I also think that their intention isn’t really what we should be focusing on. 

We need to recognize that China is the first mover in trying to contain crypto explosion. 

But we have to distinguish between privately mined Bitcoin and China’s efforts to create a digital yuan. 

Bitcoin is in line with the idea of a private currency that circumvents the exclusive right of the state to issue money, China’s digital renminbi (RMB) is trying to do the exact opposite. It is a state-backed digital currency that would enable consumers to access digital legal tender straight from their bank. 

China is currently the most vibrant market in nonbank mobile payment. In 2018–2019 it experienced a growth rate in electronic transactions of 55%, compared with less than 10% in the U.S., and has reached a mobile payment penetration rate of 86%. Until recently, fintech companies like Alipay and Tencent have led the way in digital payment. Now the state is claiming an increasing role in the market. 

I think China will experiment with the digital yuan and they will refine it by the time other countries are just about to delve into it. 

Private cryptocurrency has been criticized internationally for its potential to enable illegal, untraceable transactions. In contrast, the digital RMB leaves a complete account of cash transactions in the hands of the state. 

China’s relationship with cryptocurrency has evolved over the last few years. China has been the world’s most important hub for cryptocurrency mining, with a share of around two-thirds of global production. But the Chinese authorities have shifted to a policy of containment reflected in a tightening of regulations in 2013 and 2017—and now the most recent attempt to restrict cryptocurrency services. 

This pattern represents a more general pattern in China’s economic governance: Markets are being used as a tool to initiate change and unleash dynamism, but speculation is suppressed in order to maintain economic, social, and political stability. 

As I show in my book How China Escaped Shock Therapy, when China first introduced market reforms in the 1980s, the country’s economists were divided over the right approach. Some favored shock-like overnight liberalizations that would have cut the direct ties between state and market, while others argued for reform through state market creation, which was the path ultimately taken. 

The result of China’s distinct reform path is a highly marketized economy with active state participation in systemically significant markets, with the aim to balance market dynamism and the dangers of market volatility. This logic is reflected in the development of the cryptocurrency market in China.