Market Bounces After Adverse Response to PBoC Announcing Crypto Trading Crackdown

The Chinese Central Bank reiterates its 2017 regulation to disallow financial institutions from providing banking and settlement services for crypto-related transactions.

By
Chung Yee
on
June 22, 2021
Category:
Blockchain News

China’s Regulatory Concerns Continues to Spook Investors

The People’s Republic Bank of China (PBoC), the regulatory body that governs the financial sector in China, recently released a statement reiterating its stance on the 2017 regulation. This regulation prevents financial institutions from providing banking and settlement services for crypto-related transactions. The purpose identified by the central bank is the risk of virtual currencies disrupting normal economic and financial order, illegal cross-border transfer of assets, money laundering and other illegal and criminal activities.

Source

The central bank now requires banks and payment institutions to implement a few regulatory requirements earnestly as part of their customer identification obligations to mitigate financial risks associated with virtual currencies. Upon identification, such categories of customers must not be allowed to open accounts or to participate in activities that involve virtual currencies through the mainstream financial institutions.

The present concern is a real one although the regulation has been around since 2017. The increased effort and scrutiny by the authorities in identifying crypto related transactions is telling of the Chinese government’s firm stand against such activities. The comprehensiveness of its monitoring mechanism to identify and track such activities is crippling the domestic crypto market. 


China Does Not Ban Ownership of Virtual Currencies

Despite shutting down its domestic crypto exchanges and making crypto ownership increasingly difficult, China allows crypto ownership. Citing the volatility of virtual currencies and price manipulation, the Chinese government has been consistently adopting a hostile relationship with crypto assets. Despite such harsh treatment towards crypto assets, the regulation and policy surrounding blockchain related development has been a totally different treatment. 

The Chinese government has been making its own roadmap for adoption of blockchain technology. Recognising the need to be competitive, the two main areas that have been identified for blockchain adoption are economy and finance. This has been revealed through a document officially released by its Ministry of Industry and Information Technology. 

This preferential treatment seems to lead to one conclusion: the ease of transfer of value that virtual currencies can facilitate is destabilizing to the Chinese financial system. Therefore from the list of concerns outlined by the central bank the targeted approach seems to have its focus on cross border transfer of assets. Physical assets or fiat currencies are easily regulated by the existing framework of governance. Even if it slips regulatory safeguards, it is traceable, hence the granting of autonomy to crypto assets owners can be quite concerning. 


China Own Central Bank Digital Currency 

China, just like other sovereign nations, is starting to see the benefits of digital currencies. However, these digital currencies must be controlled by the sovereign state’s governing body. In most cases, it is the central bank. The recent clampdown and tightening of the regulatory noose is a knee jerk reaction from the state’s own initiative in launching its digital yuan. 

China’s digital Yuan will soon be circulating as legal tender | Source

In a recent development, the state owned bank, Industrial and Commercial Bank of China has allowed for conversion between the digital currency and the physical currency. Real world trials are ongoing as China is preparing to launch a nationwide adoption of the digital currency. Crypto assets that can play the role of a digital currency are seen as a threat that will invariably dilute the use of the digital yuan. In order to be coherent and consistent in its regulatory enforcement, the ban and enforcement that is currently taking place cannot be seen to discriminate against the type of crypto asset. 


Conclusion 

The crypto market continues to wean itself from relying on China, resources and focus are slowly shifting to more pro crypto nations. Since the adoption of Bitcoin as legal tender in El Salvador, initiatives are now focussed on renewable geothermal energy for Bitcoin Mining.The current devaluation of crypto assets is painful but there is a silver lining in the clouds.

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.

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