The Economist Who Exposed China s Bitcoin Ban

The West thinks China banned Bitcoin because it was dangerous. That's wrong. In July 2021, a senior official at the People's Bank of China told me something off the record that I'll never forget. We were sitting in a private dining room at a Beijing restaurant, the kind with heavy wooden doors and waiters who disappear after pouring the Baiju. Vice Director Wang Xiaoming, not his real name, for reasons that will become obvious, was in his mid-50s, a 25-year veteran of China's central bank. We'd met several times over the years to discuss my research on Chinese monetary policy. But this night was different. After our second glass of Baiju, Wang leaned forward and lowered his voice. Dr. Jin, you asked me earlier why we're so concerned about Bitcoin. Let me tell you something we don't say publicly. He paused, looked at the door, then continued. Bitcoin isn't a currency problem. It's a control problem. That sentence explains everything you're about to see. We can't allow money we can't see, can't track, and can't stop. I remember those words exactly. I wrote them down in my notebook the moment I got back to my hotel. At the time, I thought he was being paranoid. China had already banned Bitcoin exchanges in 2017. The threat seemed contained. But two months later, in September 2021, the Chinese government announced the most comprehensive cryptocurrency ban in history. All transactions were illegal. All mining was banned. The entire crypto ecosystem was shut down overnight. And six months after that, in early 2022, the digital yuan became mandatory for all government workers. The pilot program expanded to cover 260 million people. The largest digital currency experiment in human history was underway. Wang Xiaoming's words haunted me. We're not banning crypto. We're replacing freedom with surveillance. The phone call. Before I explain how we got here, let me tell you about September 24, 2021. I was in London, seven time zones away from Beijing. My phone rang at 2.47 a.m. British time. It was Chen Wei, a childhood friend who'd become a cryptocurrency trader. We'd grown up on the same street in Beijing. His father and my father played chess together every Sunday. KU, his voice was shaking. It's over. They're shutting everything down. Chen had Y2.3 million, about $350,000 in various cryptocurrency accounts. He'd been trading for three years and he was good at it. He'd quit his job as a software engineer six months earlier. His wife was pregnant with their second child. She didn't know how much money he'd put into crypto. The government had issued an announcement at midnight Beijing time. All cryptocurrency related activities are illegal. Not just trading, not just mining, everything, immediately. The exchanges are crashing, Chen said. I can't withdraw. The apps are going offline. KU, how do I tell my wife I lost everything? I didn't have an answer. Over the next 48 hours, I watched from London as the Chinese crypto market imploded. Exchanges like Hobi and OKEX, which had relocated overseas after the 2017 restrictions, shut down services to Chinese users. Mining operations in Inner Mongolia and Sichuan, which had represented over 60% of global Bitcoin mining capacity, went dark. Chen eventually got about 40% of his money out. He lost Y1.3 million. He had to tell his wife. She moved back to her parents' house for two months. They're still together, but he told me he aged 10 years in those 48 hours. This wasn't an accident. This was the plan. Why China fears Bitcoin to understand why China banned cryptocurrency so aggressively? You have to understand something fundamental about the Chinese economic model. Capital controls. Remember the mayor economy I've talked about before? The decentralized system where local officials compete for growth? That system only works if capital stays trapped inside China. If money can flow out freely, the entire model collapses. Think about it. If you're a wealthy Chinese entrepreneur and you're worried about political risk, government crackdowns, or economic instability, what do you want to do? You want to move your money somewhere safe. Hong Kong, Singapore, Vancouver, New York. For decades, the Chinese government maintained strict capital controls to prevent this. The official limit is $50,000 per person per year. That's all you're legally allowed to move out of China. But people found ways around it. Underground banks, shell companies, fake trade invoices, and starting around 2013, cryptocurrency. Here's why Bitcoin was so dangerous to Beijing. It made capital flight trivially easy. You didn't need an underground banker. You didn't need a shell company in the Caymans. You just needed an internet connection and a crypto wallet. Buy Bitcoin in China, transfer it to an overseas exchange, sell it for dollars, and your money was out. Between 2013 and 2017, an estimated $1 trillion left China through various channels, including cryptocurrency. The yuan was under pressure. Foreign reserves were falling. The government was losing control. In September 2017, they shut down domestic cryptocurrency exchanges. But the problem didn't go away. People just used overseas exchanges. Peer-to-peer trading continued. Bitcoin was still the escape hatch. That's why in 2021, they went nuclear. Complete ban. No exceptions. But here's what most people miss. The ban wasn't the end goal. It was clearing the field for something else. My cousin's story Before I explain the digital yuan, I need to tell you about my cousin, Zhang Ming. Zhang Ming is 43 years old. He owns a successful hotpot restaurant in Chengdu. Smart, hardworking, completely apolitical. He just wanted to provide for his family and maybe retire early. In 2020, as Bitcoin's price surged, Zhang Ming got interested. He didn't trade. He thought that was too risky. Instead, he invested in Bitcoin mining. He figured China has cheap electricity, abundant hardware, and mining is just running computers. What could go wrong? He invested Y1.2 million, his entire savings plus a loan, into a mining operation in Inner Mongolia. For a year, it worked beautifully. He was making about Y30,000 per month in profit. He was planning to expand. Then came September 24, 2021. The announcement didn't just ban trading. It explicitly banned mining. All mining operations were ordered to shut down immediately. Local governments were instructed to cut power to mining facilities. Zhang Ming's mining rigs—hundreds of specialized computers designed for only one purpose—became worthless overnight. He couldn't sell them. He couldn't even export them because the government banned that, too. The hardware that cost him Y1.2 million could be sold as scrap metal for maybe Y80,000. He still had the loan to pay back. He ended up selling his restaurant. He now works as a manager at someone else's hotpot place. He makes Y8,000 per month. It will take him 15 years to pay off the debt. The last time I saw him was during Spring Festival 2023. We had dinner at his old restaurant, now owned by someone else. He told me, KU, I thought crypto was the future. The government told us to embrace innovation. I believed them. It was just another trap. I remember his exact words because they reminded me of what Wang Xiaoming had said. The trap wasn't crypto. The trap was thinking you could have freedom in a system designed for control. What is the digital yuan? Two weeks after the cryptocurrency ban, I got a message from Wang Xiaoming. Just two words. Now watch. Within months, the digital yuan pilot program expanded dramatically. What started in 2020 as a small experiment in Shenzhen had grown to cover 23 cities and 260 million people by early 2022. Today, it's over 500 million users. But here's what the Western media gets wrong. The digital yuan is not a cryptocurrency. It's the opposite of cryptocurrency. Let me explain the difference clearly because this is crucial. Bitcoin is decentralized. No one controls it. No government can shut it down or track every transaction. It's designed for freedom and privacy. The digital yuan is completely centralized. The People's Bank of China controls every aspect. They can see every transaction. They can freeze accounts. They can program the money to expire. They can restrict what you're allowed to buy. It's the same technology, blockchain, digital wallets, cryptographic security, but used for the exact opposite purpose. Bitcoin was built to escape government control. The digital yuan was built to perfect it. When I finally understood this, I called Wang Xiaoming. We met again, this time over tea, more careful. I asked him directly, is this about surveillance? He smiled, which I took as confirmation. Then he said something I'll never forget. Dr. Jin, we don't call it surveillance. We call it efficient monetary policy transmission. Translation, we can now see and control every yuan in the economy. How it actually works. Let me walk you through how the digital yuan actually operates, because the details matter. The system uses what's called a two-tier structure. The People's Bank of China issues digital yuan to commercial banks, Bank of China, Industrial and Commercial Bank of China, and others. Those banks then distribute it to users through apps on their phones. When you use digital yuan, you're not using Alipay or WeChat Pay. You're using an official government wallet. Your money is a direct liability of the central bank, not a private company. And here's where it gets interesting. The money is programmable. What do I mean by programmable? The government can attach conditions to the money itself. They can make it expire after a certain date, forcing you to spend it. They can restrict what categories you're allowed to buy. They can limit how much you can transfer to other people. In 2022, during COVID lockdowns, several cities distributed digital yuan stimulus payments. But the money expired in 30 days. You had to spend it or lose it. This wasn't a bug. It was the feature. The government wanted to stimulate consumption, so they programmed the money to force consumption. Think about the implications. Traditional cash is dumb. A 100 yuan note doesn't know who's holding it, where it's been, or what it's being used for. Digital yuan is smart. Every transaction is recorded. Every note is tracked. The government knows exactly where every yuan goes. There's also a feature that Western systems don't have, offline capability. You can make digital yuan payments even without internet connection using NFC technology. Why does this matter? Because it means the system can work everywhere, including rural areas with poor connectivity. It's designed for total coverage. The pilot program. In January 2022, I returned to Beijing to visit family. The digital yuan pilot had just expanded to the city. I wanted to see how it actually worked in practice. I met with Wang Xiaoming's assistant, Li Hua, a 34-year-old economist at the PBOC. She'd been working on the digital yuan project since its beginning. We met at a cafe near her office. I asked her, be honest, is anyone actually using this? She pulled out her phone and showed me her digital yuan wallet. I have to, she said. Government workers are required to receive 50% of our salary in digital yuan. It started last month. Mandatory adoption. This wasn't voluntary experimentation. This was forced migration. Li Hua walked me through her wallet. I could see her transaction history going back months. Every coffee purchase, every subway ride, every grocery trip. Complete transparency. Do you mind that they can see everything? I asked. She shrugged. I have nothing to hide. And honestly, it's convenient. The app works better than Alipay sometimes. But then she lowered her voice. Though some people are worried. There's a professor at Tsinghua who studies privacy issues. He told me he only uses digital yuan for official transactions. For personal stuff, he still uses cash. He's worried about data being used for, she paused, choosing her words carefully, other purposes. She meant the social credit system. She didn't want to say it directly, but we both knew what she meant. If the government can see every transaction, they can judge every decision. Buy too much alcohol? Your social credit score drops? Donate to the wrong charity? Flagged? Send money to someone blacklisted? You're now under investigation. The system isn't just about money. It's about behavior modification at scale. The vendors fear. That same week, I went to a small grocery store in my old neighborhood. The owner was Mrs. Liu, a woman in her late 60s who'd run the shop for 30 years. She remembered me from when I was a child. She had a new QR code displayed at the counter. Digital yuan accepted here. Mrs. Liu? I asked. Are people using the digital yuan? She looked around nervously, then leaned in. Some government workers, yes, they have to, but I don't like it. Why not? Because they can see everything. You know my son is in Hong Kong? Sometimes I send him money, just a little, to help with rent. If I use digital yuan, they'll see. They'll ask questions. Why is she sending money to Hong Kong? Is her son a troublemaker? She wasn't imagining this. In 2019, during the Hong Kong protests, the Chinese government froze bank accounts of people suspected of supporting the protesters. If your transaction patterns showed you were sending money to Hong Kong regularly, you could be investigated. Mrs. Liu was right to be afraid. Digital yuan makes this surveillance infinitely easier. So what do you do? I asked. I still use cash for the Hong Kong transfer. I give money to a friend who runs a money exchange. Old way. They can't track cash. But for how long? The government's goal is to eventually phase out cash entirely. When that happens, people like Mrs. Liu will have no privacy at all. The displacement strategy. There's another layer to this that most analysis misses. The digital yuan isn't just about government control of citizens. It's about government control of data. For the past decade, two private companies have dominated Chinese digital payments. Alipay, owned by Ant Group, Alibaba, and WeChat Pay, owned by Tencent. Together, they process over 90% of mobile payment transactions in China. That means Alibaba and Tencent, not the government, have the most comprehensive financial data on Chinese citizens. They know your spending habits, your income level, your social networks, your lifestyle choices. This data is incredibly valuable, and it's sitting in private company servers. Beijing has always been uncomfortable with this. Remember the Ant Group IPO cancellation in 2020? Jack Ma's company was about to become the world's most valuable fintech firm, with unprecedented data on hundreds of millions of Chinese consumers. The government stopped it. The digital yuan solves this problem elegantly. As more transactions shift to the government wallet, the data flows to the central bank, not to private companies. It's not just financial surveillance. It's data consolidation. I spoke to a former Alipay executive in late 2022. He was bitter. They're not building a better payment system, he told me. They're nationalizing financial data under the pretense of innovation. And we can't say anything because that would be unpatriotic. The digital yuan isn't competing with Alipay on features or convenience. It's competing with state power. And in China, state power always wins. International Ambitions But China's ambitions for the digital yuan go far beyond domestic control. They're aiming at something much bigger, challenging the U.S. dollar's global dominance. For decades, China has chafed under what they call dollar hegemony. International trade is dominated by dollars. When China buys oil from Saudi Arabia, it pays in dollars. When it exports to Europe, it invoices in dollars. The dollar is the operating system of global commerce. This gives America immense power. The U.S. can impose sanctions by cutting countries off from the dollar system. When the U.S. sanctioned Russia after 2022, Russian banks couldn't access dollars, couldn't use SWIFT, couldn't participate in international finance. The sanctions only worked because the dollar is indispensable. China wants to build an alternative. And the digital yuan is a key piece. Here's the strategy. First, mandate digital yuan used domestically to build the infrastructure and gain experience. Second, integrate it into belt and road trade. Chinese companies doing business in Pakistan, Kenya, or Ethiopia can pay in digital yuan. Third, offer it as an alternative to countries facing U.S. sanctions or dollar volatility. It's already starting. In 2023, China completed a digital yuan oil transaction with Russia, bypassing the dollar entirely. The amounts are small now, but the precedent is set. The European Central Bank is watching nervously. They're developing their own digital euro, partly to keep pace with China. The Bank of England is exploring a digital pound. Over 100 countries are researching or piloting central bank digital currencies. China moved first, and they're moving fast. Not because they believe in cryptocurrency's original vision of decentralized freedom, but because they see an opportunity to build centralized control at a global scale. The irony. This is where the story gets almost poetic in its irony. Cryptocurrency was invented as a response to government control. Bitcoin's creator, the mysterious Satoshi Nakamoto, released Bitcoin in 2009, right after the 2008 financial crisis. The message embedded in Bitcoin's first block referenced a newspaper headline about bank bailouts. The subtext was clear. We can't trust central banks. Bitcoin promised a world where money wasn't controlled by governments, where transactions were private, where freedom and sovereignty belonged to individuals, not states. China looked at that promise and said, we can use the same technology for the exact opposite purpose. They took blockchain, cryptography, digital wallets, all the tools of cryptocurrency, and built the world's most sophisticated surveillance and control system. They banned the freedom version and created the control version. It's the ultimate 21st century irony. The same technology, the opposite philosophy. And here's what keeps me awake at night. China's version might win. Not because it's better, but because governments prefer control over freedom. And the technology makes control easier than ever before. When I think about Wang Xiaoming's words from that night in 2021, we're not banning crypto. We're replacing freedom with surveillance. I realize he was telling me much bigger than I understood at the time. This isn't about money. This is about the future architecture of power in the digital age. Return to Wang Xiaoming. In November 2023, I returned to Beijing for a conference. I reached out to Wang Xiaoming to see if we could meet. He agreed, but he suggested we take a walk in Jingshan Park instead of meeting at a restaurant. More private, less surveillance. The irony wasn't lost on me. We walked slowly through the park, past elderly people practicing Tai Chi and young couples taking selfies. I asked him, did you know this would happen? Back in 2021, did you know the digital yuan would become this big? He smiled. Not the exact timeline. But yes, I knew the direction. That's why I told you to watch. And the Bitcoin ban? That was always part of the plan? Of course. You can't introduce a state-controlled digital currency if private cryptocurrencies are competing. You have to clear the field first. Economics is always secondary to control. I pushed further. But doesn't this worry you? The level of surveillance this enables? He stopped walking and looked at me directly. Dr. Jin, you studied in America. You absorbed their values. Freedom. Privacy. Individual rights. These are American concerns. China has different priorities. Stability. Order. Harmony. The digital yuan serves those priorities. Even if it means knowing everything about everyone? Especially because it means knowing everything about everyone. How can you maintain social harmony if you can't see the threats before they emerge? How can you prevent capital flight if you can't track the money? How can you ensure common prosperity if you can't see who's hoarding wealth? His answers were calm. Logical. Completely sincere. He genuinely believes this is the right approach. And millions of Chinese officials think exactly the same way. As we parted, he said one more thing. The West thinks we're building a dystopia. We think we're building the future. In 20 years, we'll know who was right. The Trap China Built So let me bring this full circle. Why did China ban Bitcoin but build the digital yuan empire? The simple answer is control. Bitcoin threatened the government's ability to control money, capital, and ultimately people. The digital yuan perfects that control. But there's a deeper answer. One that connects to everything I've talked about in previous episodes. The mayor economy only works if capital is trapped. The housing bubble only stays inflated if money can't leave. The shadow banking system only functions if the state can manage the rollovers. The Belt and Road Initiative only succeeds if yuan can be tracked and controlled. Cryptocurrency, free, borderless, untraceable, threatened to puncture the entire system. Money would flow out. The yuan would weaken. The closed-loop financial system would break. So China did what China does. It banned the threat and built a state-controlled version that serves its needs. The digital yuan is the ultimate expression of the Chinese model. It's the mayor economy applied to money itself. It's state control masquerading as technological innovation. It's the party's answer to the question, how do we modernize without liberalizing? And here's the uncomfortable truth. It might work. China has shown that you can have economic growth without political freedom. Now they're showing you can have digital currency without financial privacy. The question is, what does the world do with this model? Already authoritarian regimes around the world are watching. They see China's playbook, ban crypto, build CBDCs, achieve perfect surveillance. Russia is exploring it. Iran is testing it. Even some democracies are tempted by the control it offers. China banned Bitcoin but built the digital yuan empire because the goal was never about currency innovation. The goal was always about power. My friend Chen Wei, who lost Y1.3 million in the crash, told me something last year that stuck with me. We were having dinner and I asked if he was bitter about the ban. He said, I'm not bitter about losing the money. I'm bitter about what we lost as a country. We had a chance to be leaders in real financial innovation. Instead, we built the world's most sophisticated financial prison and we're teaching other countries how to build their own. That's the real cost of China's choice. Not the money lost by crypto traders, but the freedom lost by everyone. When I think about Wang Xiaoming's confident prediction, in 20 years, we'll know who was right. I wonder what he thinks success looks like. A world where every government can track every transaction, where money is programmable and privacy is obsolete, where the price of efficiency is total surveillance. If that's the future, then Bitcoin's original promise, freedom from government control, looks increasingly like humanity's last chance to preserve financial privacy. China didn't ban Bitcoin because it was a scam. They banned it because it was working. It was giving people a tool the government couldn't control. And in a system built entirely on control, that tool was the greatest threat imaginable. The digital yuan empire isn't a technological achievement. It's a philosophical statement. In China, innovation serves the state, not the individual. Progress means better control, not more freedom. The trap China built isn't just for its own people. It's a model being exported to the world, one central bank digital currency at a time. And the question for the rest of us is, will we build walls around their model? Or will we adopt it ourselves? Because once the trap is built, it's very hard to escape. The West thinks China banned Bitcoin because it was dangerous. That's wrong.