What is the Chinese CBDC Prohibition Act?
The Chinese CBDC Prohibition Act is a bill introduced in the United States Congress that would prohibit money services businesses (MSBs) from engaging in any transaction that involves a central bank digital currency (CBDC) issued by the People's Republic of China. The bill is currently in committee and has not yet been passed by either the House of Representatives or the Senate.
What is the potential impact of the bill on the crypto sector?
The passage of the Chinese CBDC Prohibition Act could have a significant impact on the crypto sector. If passed, the bill would effectively ban the use of the digital yuan, China's CBDC, in the United States. This could have a chilling effect on the development and adoption of CBDCs more broadly, as it would signal that the United States is not supportive of this emerging technology.
In addition, the bill could also make it more difficult for U.S. businesses to transact with Chinese businesses that use the digital yuan. This could disrupt global trade and commerce, and it could also make it more difficult for U.S. businesses to compete with Chinese businesses in the global marketplace.
Is the bill good for developing crypto in the long term?
The long-term impact of the Chinese CBDC Prohibition Act on the development of crypto is uncertain. Some argue that the bill could actually help to promote the development of crypto by forcing the industry to innovate and find new ways to operate without the use of CBDCs. Others argue that the bill could damage the crypto industry by making it more difficult for businesses to operate and for investors to access crypto assets.
What geopolitical matters are linked to the bill?
The Chinese CBDC Prohibition Act is a reflection of the growing geopolitical rivalry between the United States and China. The United States is concerned that China could use the digital yuan to assert its dominance in the global financial system and to spy on its adversaries. China, on the other hand, views the digital yuan as a way to challenge the U.S. dollar as the world's reserve currency.
Additional details
The Chinese CBDC Prohibition Act is not the first bill that has been introduced in the United States Congress to regulate or ban CBDCs. In 2022, Rep. Andy Barr (R-KY) introduced the Empowering Financial Innovation and Consumer Protection Act, which would have required the Federal Reserve to study the potential impact of CBDCs on the U.S. financial system. The bill was not passed by Congress.
It is also worth noting that the United States is not the only country that is concerned about the potential impact of CBDCs. In 2022, the Bank for International Settlements (BIS) issued a report warning that CBDCs could be used to circumvent capital controls and to facilitate illicit activities. The BIS also called for international cooperation on the regulation of CBDCs.