Central Bank Chief Condemns Speculative Cryptocurrencies

The People's Bank of China (PBOC) must take a prudent approach to new technologies such as blockchain and digital currencies, Governor Zhou Xiaochuan said on Friday, denouncing the speculative nature of cryptocurrencies and the risks they pose to retail investors.

The rapid growth in cryptocurrencies such as Bitcoin can have a negative influence on consumers and an unpredictable effect on financial stability and monetary policy, Zhou said at a briefing in Beijing on the sidelines of the National People's Congress. New technologies should not have an adverse impact on the existing financial order and should only be introduced widely after they have been carefully studied and evaluated, he said.

“We are not in favor of products that offer opportunities for speculation and give people the illusion they can get rich overnight,” Zhou said. “When the testing of an application has not been widely accepted, the central bank must remain prudent.”

Cryptocurrencies took off in China in late 2013 and the country dominated the global market as investors and speculators piled in hoping to make a quick profit. Data from CryptoCompare show that 95% to 99% of all Bitcoin trading was done in the Chinese currency, although that dropped to 10% to 15% after exchanges introduced transaction fees in January 2017.

The price of one Bitcoin surged nearly 20-fold in 2017, reaching a record high of $19,343 in mid-December according to data from Coindesk. But it has since slumped and is now trading at just over $8,800.

The Chinese authorities became increasingly concerned about the use of cryptocurrencies for speculation and money laundering and started a crackdown last year. In September fundraising through cryptocurrencies, known as initial coin offerings, was banned. Shortly after, exchanges on the mainland were told to close.

The authorities will take a “dynamic” approach to regulating new technologies based on their stage of development, Zhou said at Friday's briefing.

“There is no set regulatory policy as we are all still trying to learn. In studying this issue, we are coordinating closely with market participants, and listening to the general public including the media,” Zhou said.

So far, digital currencies have brought a lot of risk and volatility primarily because the focus has been on their use as virtual assets rather than as a method for retail payments, Zhou said, emphasizing that financial services and digital currencies should serve the real economy by means of increasing efficiency and reducing costs.

But the central bank has taken a positive stance on blockchain technology and digital currencies and last year set up a Digital Currency Research Institute to conduct research and development into the issuance of digital currencies. Zhou said the aim is to develop payment methods that are convenient, fast, and cheap, while also taking into account security and user privacy.

“A digital currency can be based on the blockchain, on distributed ledger technology, or be built on existing electronic payment technology,” Zhou said, adding that one day physical currencies may not even exist.

Contact reporter Liu Xiao (liuxiao@caixin.com)