Ready or Not in the US: China Prepares for Blockchain-Based Digital Economy, Introduces New Cryptography Law
A new cryptography law is being introduced by the Standing Committee of the 13th National People’s Congress in China.
Announced on October 26, China’s cryptography law goes into effect on January 1, 2020, according to local news outlet Xinhuanet.
The announcement comes only a day after Chinese President Xi Jinping detailed how China plans to embrace blockchain technology to tackle globalization, modernization and business inefficiencies.
According to the World Bank, the world’s second-largest economy, which has contributed around 30% of global growth in the past eight years, has unique challenges.
“Rapid economic ascendance has brought on many challenges as well, including high inequality (especially between rural and urban areas), challenges to environmental sustainability, and external imbalances. China also faces demographic pressures related to an aging population and internal labor migration.”
Blockchain technology utilizes cryptography to ensure that transactions are executed in a secure manner, safely storing data and value.
To leverage blockchain and the cryptography that underpins it, China will need to map out clear regulations. The proposed cryptography law addresses regulatory and legal requirements in commercial cryptography use-cases.
According to the proposal,
“Clear guidelines and regulations are needed to evaluate commercial cryptography technologies used in the major fields related to the national interest as the current ‘loose’ system is not suitable for the industry anymore.”
China’s national congress says the new law will support research and development related to commercial cryptography technologies. The country is also planning to develop a comprehensive and standardized regulatory framework for its markets.
Although cryptocurrency trading is still not legal in China, the People’s Bank of China is ramping up the development of its own sovereign digital currency. The acceleration is in response to Facebook’s project Libra, which, if launched, could reach Facebook’s user base of 2.7 billion people and dramatically tip the balance of the yuan’s use for global payments.
With Libra looming, China is calling the tech giant’s digital asset a threat to the country’s financial sovereignty.
According to a report by Alibaba-owned South China Morning Post, China will need to make a sustained bold push into new technologies to challenge Libra, which it believes could invigorate the US dollar and give it up a leg up in digital transactions.
“While China’s sovereign digital currency is welcomed and remains a pioneer among major economies, Beijing is encouraged to take bolder steps in reforms, according to Zhu Min, a former deputy managing director of the International Monetary Fund.”
The sovereign digital currency is also being developed to “accelerate the yuan’s use internationally and counter the challenge from cryptocurrencies like bitcoin.”
In July 2019, China’s congress published a draft proposal for the new cryptography law, requesting feedback from the general public.