In the global arena, cryptocurrencies arouse as much emotion as controversy. Recent reports from the Middle Kingdom shed new light on the approach to digital currencies. The People’s Bank of China (PBoC) in its latest financial stability report emphasized the need for regulation of the cryptocurrency market. This call for global cooperation could herald a new era in the world of digital currency.
In its latest financial stability report, the People’s Bank of China (PBoC) dedicated a separate chapter to cryptocurrency assets, emphasizing the need for their regulation through joint efforts of various countries. The publication dated December 22nd indicates that the cryptocurrency market accounts for 1% of the global financial system, and its connections with traditional finance are limited.
According to the report of local industry journalist Colin Wu, this is the first time PBoC has devoted a separate section to crypto assets in its report. The central bank called on governments worldwide to apply the approach of “same business, same risks, same supervision” to avoid regulatory arbitrage.
The report points to a number of potential risks arising from cryptocurrency regulatory arbitrage, referring to vulnerabilities to hacker attacks, market manipulation, and concerns related to DeFi (Decentralized Finance) governance mechanisms. The PBoC specifically mentioned the collapse of the Terra ecosystem and the fall of the FTX exchange in 2022, underscoring the need to manage regulatory fragmentation and eliminate supervision arbitrage.
China’s call for joint regulation of the cryptocurrency industry worldwide comes a few years after the mainland government issued major bans on crypto. In 2021, the PBoC officially announced measures to combat the adoption of cryptocurrencies in mainland China, pushing for stronger inter-departmental coordination in cracking down on crypto activity in the country. Despite the ban covering virtually all crypto transactions and cryptocurrency mining, mainland China has remained a major crypto mining hub.
According to some industry executives like Animoca co-founder Yat Siu, Hong Kong’s rapid adoption of cryptocurrencies could indicate “big moves” in future crypto regulation in mainland China. On the other hand, other local executives believe that China’s stance on cryptocurrencies has nothing to do with crypto-friendly moves in Hong Kong.
China, which until recently seemed to be a bastion of resistance against cryptocurrencies, now appears to be calling for global regulatory cooperation. This policy shift could signify significant changes in the digital currency market, bringing new challenges and opportunities for investors and regulators worldwide.
