How cryptos reveal the root cause behind China-USA rivalry

DateOctober 19, 2021
Reading Time3 min
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Etienne Goffin
Senior Economist
While US financial institution starts embracing crypto-currencies (e.g. recent approval of a crypto ETF by the SEC), the Chinese authorities, recently outlawed cryptocurrency transactions (i.e. the recent decisions of the People’s Bank of China).

USA and China’s approaches to economic regulation are philosophically different: whereas American businesses are free to chase new opportunities, Chinese authorities want to keep everything under control. I may be caricaturing somewhat, but we can distinguish two diametrically diverging economic visions at play: free market and state monopoly. This gives a new perspective to the greater role and deeper meaning of crypto currencies.

The Far West

The Far West: economic liberalism

The economic system of the West displays strong support for a market economy and private property of production capacities. Competition is generally accepted as an essential prerequisite in most sectors. The exception to the rule concerns only a minority of sectors which varies depending on specific countries (such as the military, education, healthcare,...) under state monopoly. Public intervention and economic privileges such as artificial scarcities and market power are typically seen as distortive. Yet, currencies have been very much kept under state monopoly for decades. Substitutes, like gold and diamonds, have proved impractical as a means of payment while the usage of foreign currencies is usually discouraged, for instance through legislation and fiscal policy.

The growing adoption of Bitcoin, Ethereum, and other cryptoassets has reopened the debate on privately-issued currencies and monetary competition. The issue had not been discussed much since the current monetary monopoly was established in the 19th and early 20th centuries in most countries. Before that, private banks used to issue their own banknotes and central banks were originally private institutions (for instance, the current shareholding structure of the National Bank of Belgium, which is partly held by the private sector, is a reminiscence of this era). Since then, they became a sort of public authority, with the privilege to mint coins and print banknotes. Crypto-currencies challenge this monopoly and push back money in the free market sphere. As such, they are increasingly adopted by large US banks, such as BNY Mellon, JPMorgan, Citigroup Goldman Sachs, and State Street Bank, which are starting to recognize that these new private currencies are here to stay.

The Far East

The Far East: economic dirigisme

The economic system of China, for its part, is based on the predominance of public ownership and state-owned enterprises within a market economy. In practice, the state undertakes commercial activities and tightly controls financial services. On the latter, China has been considered as a currency manipulator during most of the 21st century, fuelling large trade surpluses. Over the last few years, the situation changed dramatically, as Chinese investors made more investments outside the country. The authorities thus started to implement strict restrictions to control capital outflows. Cryptoassets became an effective tool to circumvent such limitations.

China is now pressing ahead with a more repressive approach to crypto-currencies. These state interventions, aka market distortions, have likely played a role in Bitcoin’s drop to about half its mid-April record near $65,000. “China doesn’t like crypto as they are beyond the government’s control”, says Raymond Yeung, author of China’s Trump Card: Cryptocurrency and its Game-Changing Role in Sino-US Trade. Even when they are mined in China, crypto-currencies are still outside of the authority of the Chinese Communist Party. That is why China favors virtual money backed and issued by its central bank and plans to scale the use of digital yuan. It should help increase state control, as every transaction can be monitored and controlled by Chinese authorities.


This quick comparison of the two approaches to crypto confirms the idea that competition increases the satisfaction of consumers by offering a greater range of alternatives to choose from. In addition, consumers are far more likely to pay lower prices in more open sectors. That is why numerous liberalization and privatization of public sector activities have been taking place since the 1970s. The public sector appears more efficient in only three main cases: to guarantee universal access when some segments are not financially viable (e.g. postal services), to enable economies of scale when costly infrastructure is involved (e.g. rail tracks), to address potential distortive effects when externalities are not sufficiently accounted for (e.g. prison facilities). However, even in these circumstances monopoly companies must be able to demonstrate that they treat the private sector fairly. As such, the rationale to keep currency under state monopoly is, more than ever, open to debates. The need for governments and central banks to defend the free market is made more urgent with the rise of liberticide temptations.

Written by Etienne Goffin

A senior economist from Brussels, Belgium. He has a 10+ year career in the financial sector both within the public sector (Central Bank of Malta) where he was an innovation consultant and economic advisor as well as the private sector where he has worked as a banking consultant (Needle Strategy) with expertise in corporate financing, monetary policy, and business innovation. He advised both governments and fintechs globally. Etienne is also Senior Economist and a member of the public affairs team at OSOM. You can find him @EtGOFFIN on Twitter or at

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Etienne Goffin
Senior Economist

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