Will gambling online with China's CBDC be possible?

All eyes are on the People's Bank of China now that they are testing their central bank digital currency (CBDC) in earnest. Small-scale tests of the CBDC began in December 2019 with the help of a number of large commercial banks and telecoms. Testing is expected to slowly expand across China as 2020 plays out.

On the mind of more than one Chinese online gambler is whether or not China's CBDC will be available for use as a deposit method. In other words, will gambling online with the CBDC be possible? Will you be able to deposit it and then go play Mega Moolah at your favorite casino, for example?

Probably not. If you would like to know why, continue reading this post. It lays out exactly what central bank digital currencies are, what China's CBDC project is all about, and why it's highly unlikely that the People's Bank of China will ever allow its CBDC to be used as a gambling vehicle.

The CBDC concept

A central bank digital currency is a type of cryptocurrency that combines the technical aspects of true crypto with the principles of central bank control. For purposes of illustration, we will start by talking about Bitcoin and what makes it unique as an alternative monetary system. Then we will compare it to CBDCs.

Bitcoin is a monetary platform built entirely on computer code. It does not offer minted coins or printed bills, as you know. Coins are represented only as digits in the blockchain ledger. In order for people to buy and sell using bitcoin (BTC) encrypted transactions must transfer coins from one wallet to the next.

Depositing BTC in order to play Mega Moolah initiates a transaction that pushes BTC from your wallet to either a payment processor or the casino. The transaction is recorded on the Bitcoin blockchain as encrypted data. Likewise, your deposit triggers the creation of two keys: one private and the other public. Both keys are necessary to complete the transaction and secure the data.

A CBDC works on essentially the same principle. Printed bills and minted coins are done away with in favor of digital coins represented by data in a running ledger. Once the People's Bank of China initiates full implementation of its CBDC, physical yuan will disappear. Chinese citizens will no longer carry bills or coins; they will only have digital yuan maintained through the country's CBDC platform.

The difference is control

Cryptocurrencies and CBDCs are similar in terms of their technical aspects. The biggest difference between them is control. Bitcoin is a cryptocurrency that is controlled by platform developers, coin miners, and coin owners collectively. It is a truly decentralized platform in the sense that no government or central bank can exert any control over it.

CBDCs are entirely different in this respect. China's CBDC is the creation of the People's Bank of China, that nation's central bank. And because it is a central bank creation, China's CBDC is also controlled by the central bank. Central bank policies determine how many coins are in circulation at any given time. They determine how much a single coin is worth.

If you are beginning to suspect that a CBDC is nothing more than a digital version of fiat, you are absolutely correct. That is really all it is. A CBDC replaces fiat while simultaneously getting around security threats through encryption and other technologies. At the end of the day, a CBDC is still created, maintained, and controlled by a central bank.

Plans for domestic use

China has made no bones about the fact that it intends their CBDC to eventually become the only currency in that country. Domestically speaking, it means that every merchant will eventually have to accept CBDC payments as there will be no other option. Likewise, consumers will only have the CBDC to spend.

This will be true across all of mainland China eventually. If the People's Bank of China has anything to say about it, its CBDC may extend to Hong Kong, Macau, and Taiwan at some point. But that's not all. Chinese officials envision a day in which their CBDC is so strong that consumers and investors alike will have no interest in other cryptocurrencies or fiats.

Plans for international use

China's domestic plans for its CBDC are still in their infancy. It will likely be years before the CBDC is ready to fully replace yuan. But when that day comes, China has plans to take it internationally. They are already working on plans to make the CBDC the digital currency of choice for doing business with the country.

Imagine you are a major importer whose business relies on a steady stream of goods from China. At some point, you may have to purchase their CBDC in order to buy their goods. China intends to eventually insist that all business done with Chinese companies be transacted using their CBDC.

Furthermore, China hopes that their CBDC will eventually become a reserve currency so that governments, central banks, and commercial banks hold it in large volumes for the purposes of transacting international business. Right now, the world's preferred reserve is the U.S. dollar.

U.S. dollars are routinely bought and sold on FOREX markets. Nations the world over buy and hold onto dollars for the sole purpose of being able to purchase tangible goods from other countries. Commercial banks do likewise. Even central banks buy and hold on to dollars to fund their own operations.

Needless to say that this irritates People's Bank of China officials to no end. They, along with a number of European counterparts, think it is patently unfair. The U.S. exerts way too much influence over global economics simply because of the power of the dollar. China fully intends to change that with their CBDC.

Look for them to begin pushing their CBDC with Russia and some of their Middle Eastern allies once domestic implementation has been completed. If China can get enough international partners on board, they believe they can establish their CBDC as a reserve. Many have predicted the end of the U.S. dollar hegemony at that stage.

The impact on gambling

With all of that preliminary stuff out of the way, let us discuss online gambling with China's CBDC. We will begin with the fact that it is highly unlikely the Chinese government will ever allow it. Why? First and foremost, gambling in China - in any form - is illegal. It has been illegal since the 1940s.

Chinese law does not allow gambling of any kind. From playing Mega Moolah online to betting on a friendly game of dominoes, gambling is absolutely not allowed. Anti-gambling laws are strictly enforced as well. As such, online gamblers in China have to use creative means to do what they do. This includes making use of things like virtual private networks (VPNs) and BTC deposits.

Gamblers can expect that the People's Bank of China will use every technological tool at its disposal to track each and every CBDC transaction. Those tasked with enforcing the law will know for sure if someone tries to use what we call the digital yuan to gamble. Not only will such a transaction fail to go through, the authorities will know of the attempt and will probably deal with it accordingly.

This leads to the inevitable question of whether or not people will be able to convert their digital yuan to BTC. For the time being, we would say yes. But China is not necessarily all that friendly to cryptocurrencies now. It could be that domestic implementation of their CBDC will mean new laws making it illegal to purchase private cryptocurrencies. In such a case, even playing Mega Moolah with BTC could prove difficult for Chinese gamblers.

Controlling the money supply

Not allowing online gambling might seem foreign to people who live in countries that are more tolerant to it, like the UK for example. In many cases, taking action against online gambling is seen as a moral imperative. Politicians and bureaucrats view gambling as a vice that causes too many problems. They see online gambling as dangerous because it makes getting attached to the vice too easy.

All of that said, not allowing a CBDC to be used as a gambling vehicle is less about the moral aspects and more about controlling the money supply. Remember that in China's case, we are talking about a digital totalitarian state. The regime relies on maintaining a tight control on the money supply for its survival.

Give people too much economic freedom and they no longer need government. Give them too much money and they can either facilitate change or just leave and go elsewhere. Communism cannot afford either one. As such, the money supply in a communist nation is tightly controlled. Only those loyal to the state are allowed to have any measure of wealth.

All of this points to a system that could not allow its CBDC to be used for online gambling. Communist officials do not want people to have the freedom to play slots or place a bet on football. As such, we don't expect China to ever allow its CBDC to be used for online gambling.