Chinese banks are increasingly embracing cryptocurrency, with the Agricultural Bank of China, the Industrial and Commercial Bank of China, and the China Construction Bank all recently announcing plans to pilot digital yuan wallets. This move comes despite the recent collapse of Silicon Valley Bank, which has become the second-largest bank failure in US history. This move by the Chinese banks has raised many questions amongst investors especially considering the ban on crypto involvement by the banks in Mainland China. To this end, we have examined in this work some possible reasons that seem to be driving interest in crypto adoption amongst Chinese banks today.
What you need to know about crypto
Crypto, short for cryptocurrency, is a digital asset designed to work as a medium of exchange using cryptography to secure transactions and control the creation of additional units. It was created as a decentralized alternative to traditional currency and financial systems, allowing for secure and anonymous transactions without the need for intermediaries such as banks.
Why Are Chinese Banks All in on Crypto Despite US Financial Collapse?
Observing the rising interest amongst many Chinese banks towards adopting Cryptocurrency recently, some analysts believe that the recent US bank crisis could have possibly played a major role in driving this interest in crypto investment amongst the Chinese banks today. Thus, with the demise of three central US technology banks, Silicon Valley Bank (SVB), Silvergate Capital, and Signature Bank, it goes without saying that this could as well be an excellent opportunity for Chinese banks to step in and help fill the resulting hole as more people seeking to buy Cryptocurrency in USA using the banks might consider investing with these Chinese banks. This move is quite revolutionary, as having an account for cryptocurrencies at a traditional financial institution has become all the more challenging.
Additionally, with the failure witnessed amongst the traditional banking systems, Bitcoin and other cryptocurrencies are now seen as a hedge against the risks posed by the current financial system. This no doubt aligns with the purpose for which Bitcoin was created in 2008 as a response to the prevalent financial crisis at the moment; which witnessed the collapse of many financial institutions such as Washington Mutual and Lehman Brothers.
The manifest loss of trust in the traditional banking system during the economic turmoil in the past decades led to the creation of Bitcoin, which served as the first decentralized peer-to-peer financial system at that time, obliterating the need to depend on third parties and intermediaries which is often very expensive.
In addition to being a hedge against the risks posed by the current financial system, cryptocurrency is also seen as a way to diversify and protect investments. This was demonstrated during the Cyprus banking crisis of 2013, when European citizens diversified out of euros and Russian rubles into Bitcoin, driving the price up.
More so, Chinese banks are also interested in cryptocurrency because it aligns with the government’s push to digitize the economy. The government has been working on a digital yuan for several years, and it has already been piloted in several cities. The digital yuan is seen as a way to increase financial inclusion and reduce the use of cash, which is expensive to produce and can facilitate illegal activities.
Overall, Chinese banks’ interest in cryptocurrency can be seen as a response to the risks posed by the current financial system, a way to diversify and protect investments, and a way to align with the government’s push to digitize the economy. As more banks and governments around the world embrace cryptocurrency, we will likely see more widespread adoption in the coming years.
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