Senior officials from China’s central bank have criticized the U.S. banking system for their struggles in servicing cryptocurrencies, while simultaneously calling for stronger regulation of digital finance.
These comments come as the cryptocurrency industry continues to face challenges in the United States, with several banks facing troubles due to their involvement in crypto transactions.
At the Boao Forum for Asia Annual Conference 2023, Xuan Changneng, deputy governor of the People’s Bank of China, emphasized the need for accelerating the improvement of regulatory mechanisms compatible with the digital economy.
He stressed that financial supervision is a basic institutional arrangement to ensure the stable operation of digital finance, and the lack of supervision will exacerbate irrational market behavior.
Xuan Changneng took cryptocurrency as an example, explaining that since the outbreak of the international financial crisis, major developed economies have implemented ultra-loose monetary policies for a long time, causing market players to worry about the depreciation of credit currency assets.
In this context, based on blockchain technology, cryptocurrency emphasizes the attributes of decentralization and rule algorithms, trying to form a countermeasure against credit currency, so it is sought after by many investors in an environment with abundant liquidity.
However, from the point of view of actual operation, cryptocurrencies and those cryptocurrencies created out of thin air have not solved the problem of credit currency.
Xuan Changneng believes that the cryptocurrency field lacks effective supervision, and behaviors such as market manipulation, abuse of market transactions, and misappropriation of customer assets have repeatedly occurred. He believes that cryptocurrencies have many hidden risks because of trading platforms, traders, and other reasons.
Xuan Changneng reminded that the cryptocurrency trading platform involves the exchange with fiat currency, leveraged transaction costs, and other links in the process of trading, which are controlled by the trading platform, the issuer, the dealer, and the market maker. This is a very centralized matter.
Zhou Xiaochuan, vice chairman of the Boao Forum for Asia and former governor of the People’s Bank of China, stated that the definition of digital currency should not be “all-in-one,” and there is no need to worry about “winner takes all.”
Regulators must respect rules when innovating regulation
While there must be sufficient room for innovation, authorities need to “verify and confirm the new technologies applying to various financial models and products, rather than simply accepting or approving them,” he said, adding that the regulation philosophy, technology and capability must be upgraded to ensure financial innovation won’t come at the cost of financial stability.
Chinese officials have long had a hardline approach to the crypto industry. In 2017, the PBOC declared initial coin offerings illegal and asked all related fundraising activity to be halted immediately, dealing a blow to the then-burgeoning market for digital token sales that regulators deemed a threat to financial stability.
At the same Boao Forum panel, Liao Min, a vice finance minister, warned of the possible fragmentation of digital financial infrastructure going forward. He said that China needs to get “deeply” involved in international cooperation and coordination of standard making.
