Authorities get clarification on digital currency

A bank employee presents the e-CNY to a visitor at an exhibition in Shanghai. [Photo/China Daily]

Many agree that the use of unregulated crypto assets in payments is heavy

Officials at China’s central bank and international financial organizations agree that the use of crypto-assets such as unauthorized cryptocurrencies in domestic payment systems will threaten economic stability and disrupt the existing monetary policy framework; but, the central bank’s legal tender digital currencies, such as the Chinese e-CNY, will benefit the system.

Some large central banks such as the People’s Bank of China are speeding up the design and testing of their own digital currencies as monetary authorities around the world agree that cryptocurrencies such as Bitcoin are too volatile because they are not backed by valuable assets.

Sources close to the PBOC told the China Daily on Thursday that financial regulators are considering amendments to the central bank law and promoting regulations on the digital RMB or e-CNY.

One of the main efforts is to improve the protection of personal information and to secure the entire operational system of the e-CNY.

To avoid risky and illegal financial activities while protecting user privacy, e-CNY can transact anonymously if the amount involved is small. For transactions involving large sums that could trigger suspicion, financial regulators would have the right to follow, in order to prevent crimes such as money laundering and the financing of terrorism-related activities.

But more questions need to be investigated to assess potential implications such as the impacts of digital currency on the monetary policy framework and the legal system, sources said.

According to a PBOC white paper on e-CNY research and development, regulation of the digital renminbi should be based on the principle of ensuring its legal tender.

Risk prevention is the “end result”, while the regulation should also support innovative developments.

PBOC officials said they have a cautious attitude towards the digital RMB which is still being tested. They also reiterate that cryptocurrencies such as Bitcoin are primarily speculative instruments, which present potential risks to financial security and social stability.

PBOC Deputy Governor Fan Yifei revealed at a press conference last month that China will proactively participate in shaping digital legal tender standards and rules with its global peers, which requires in-depth international communication and exchanges.

The Financial Action Task Force, a global watchdog that monitors potential money laundering and terrorist financing activities, has proposed a set of standards to regulate virtual assets and related services, aimed at limiting the risks of financial integrity.

“But the application of these standards is not yet consistent from country to country, which can be problematic given the potential for cross-border activities,” said Tobias Adrian, financial adviser and head of the financial services department. money and capital markets at the International Monetary Fund.

Recently, IMF experts expressed concerns similar to those of Chinese officials that the potential risks and costs of cryptocurrencies could outweigh the potential benefits in most cases.

“The most direct cost of widespread adoption of a crypto asset, such as Bitcoin, is for macroeconomic stability,” IMF experts said on an official blog.

A cryptoasset could also present risks to a country’s financial system, balanced budgets, and relationships with foreign countries and correspondent banks, the IMF has warned.

In addition, the “mining” of crypto-assets such as Bitcoin requires a huge amount of electricity to power computer networks, and wide adoption of these crypto-assets will lead to serious ecological problems, according to the IMF’s Adrian.

Chinese financial regulators have called for an end to Bitcoin mining in places like Sichuan Province and Inner Mongolia Autonomous Region.