In late September 2021, the People’s Bank of China (PBOC) banned all cryptocurrency transactions. The PBOC cited the role of cryptocurrencies in facilitating financial crime as well as posing a growing risk to China’s financial system owing to their highly speculative nature. However, one other possible reason behind the cryptocurrency ban is an attempt to combat capital flight from China.
Apart from this, The PBoC also outlawed ICOs, a method of raising money by issuing new digital currencies. The trend has become hugely popular, with over $1.5 billion raised using this method in 2017 alone. The PBoC said that virtual currencies that are “not issued by the monetary authorities… do not have legal status equivalent to money, and can not and should not be circulated as a currency in the market use.”
There were speculations about China removing the crypto bans after it telecasted a video on the official channel about Hong Kong’s crypto endeavours making people believe that China will withdraw from the strict crypto norms and regulations.
But the recent action led the speculations to go in vain when Pan Gongsheng was named the top Communist Party official at the People’s Bank of China. The move potentially puts Pan in the running for PBOC governor and was viewed as a signal of policy continuity at the institution, which in 2021 declared all crypto-related transactions illegal.
The appointment Saturday also surfaced some historic but unusually multicoloured comments for a Chinese bureaucrat, which Pan made amid an earlier clampdown on crypto. “If you sit by the river and watch, one day the corpse of Bitcoin will float in front of you,” he said at an event in 2017, citing an analysis by Kedge Business School professor Eric Pichet.
Since 2014, the PBOC has been developing a digital fiat currency fully backed by the government. The PBOC began conducting studies of digital currency several years ago when it established an Institute of Digital Money within the PBOC that has employed approximately 1000 researchers. Despite its apparent interest in developing a digital currency, the government has taken a very cautious approach.
In March 2018, citing prudence, the need to avoid excessive speculation, and the country’s desire for the financial sector to serve the “real economy,” Xiaochuan Zhou, the then-head of the PBOC, cautioned that China was in no hurry to develop digital currency. According to Zhou, Chinese regulators do not recognize virtual currencies such as Bitcoin as a tool for retail payments like paper bills, coins, or credit cards, and banking systems are not accepting any existing virtual currencies or providing relevant services.
Beijing clamped down on crypto over concerns about money laundering, the environmental impact of Bitcoin mining and currency outflows. Pan is currently the head of the State Administration of Foreign Exchange, the agency that oversees foreign-exchange rules, as well as a PBOC deputy governor.
While there are signs that some of China’s 1.4 billion people flout the digital-asset prohibition as they hunt for alternatives to struggling investments like property and stocks, mainland crypto activity is far lower than at earlier peaks.
