For the first time to respond to the crackdown on virtual currencies, what did the Deputy Governor of the Central Bank reveal in the latest speech?

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Fan Yifei, deputy governor of the central bank, said that private digital currencies such as Bitcoin are speculative tools that pose potential risks that threaten financial security and social stability.

Written by: Colin Wu

On July 8, 2021 (Thursday) at 10 a.m. on the State Council’s regular policy briefing, the Agence France-Presse reporter asked: I want to ask about the central bank’s maintenance of financial security and stability. Recently, the central bank has interviewed banks and payment institutions about virtual currency speculation, and the relevant departments have also cleaned up and rectified a company. May I ask, what are the next steps of the central bank in this regard? Will these companies that provide services for virtual currency-related activities also take the next step at the national level? Thank you.

Fan Yifei, Deputy Governor of the People’s Bank of China, said thank you for your question. It happens that I am also responsible for this aspect of the work at the Central Bank.

First of all, digital currency issuers can be divided into private digital currencies and central bank digital currencies. The typical representatives of private digital currencies are currencies such as Bitcoin, as well as various so-called “stable currencies” launched. These currencies have become a speculative tool in their own right. When this happens in the market, there are also potential risks that threaten financial security and social stability. At the same time, it has also become a payment tool for some money laundering and illegal economic activities. The so-called “stable currency” of some commercial organizations, especially the global “stable currency”, may bring risks and challenges to the international monetary system, payment and settlement system, etc. We are still quite worried about this issue, so we adopt Some measures have been taken.

Regarding private digital currencies, I think you have also learned some relevant information. For these private digital currencies, whether they exist as monetary credit or not, we are still observing and studying. At the same time, we must vigorously promote central bank digital currency. Central bank digital currency can also be divided into two types. One is wholesale central bank currency, which is mainly issued to institutional entities such as commercial banks and is mostly used for large-value settlements. The other is retail. Central bank currency is mainly issued to the public and can be used for daily transactions. I don’t know if everyone here has used this digital currency. At present, all sectors of the society have basically formed some consensus on the influence of wholesale central bank digital currency. Most studies believe that the wholesale central bank digital currency will not have an impact on the existing financial system. The differences in the understanding of the retail central bank digital currency are relatively large. The debate on whether the retail central bank digital currency will cause financial disintermediation, will weaken the monetary policy, and whether it will intensify bank runs, etc., is more concentrated. We are also highly concerned about these issues. We are currently in the process of piloting. We always pay close attention to the impact of these digital renminbi on the monetary system, monetary policy, and financial stability. We are also working hard to ensure that the digital renminbi system affects these macro aspects through business, technology and policy design. The impact is minimized. We are still confident that this work will continue to expand the scope of the pilot program and increase the scope of the pilot program. We mainly use the whitelist invitation method. As far as I know, the number of whitelisted users has reached 10 million. I hope you can try it out if you have the opportunity. The Beijing Winter Olympics scene is the key area of ​​the next pilot. In this process, everyone here may enjoy such conveniences. If you have any problems in use, you can also report to us, and we will make adjustments in time. If the impact is relatively large, some adjustments will be made. Thank you.

This time, the incumbent central bank leader in charge has taken the initiative to explain the recent strong supervision policy for the first time recently, revealing the following important meanings:

First , the negative vocabulary of virtual currency is no longer used, but it is defined as a private digital currency (a typical representative of a private digital currency is currencies such as Bitcoin, including various so-called “stable currencies”). A new formulation is more in line with international standards. But there is also a vague definition of whether it is an asset or a currency. For example, Zhou Xiaochuan recently called it an encrypted asset.
The response emphasized that “for these private digital currencies, whether they exist as monetary credit or not, we are still observing and studying”, showing a relatively open attitude. Prior to this, Li Bo, the deputy governor of the Central Bank (now transferred to the IMF), expressed similar views, saying, “If it is used as an investment tool, many countries, including China, are also studying how such an investment method should be. A kind of regulatory environment”.
In addition, more information about relatively strong supervision has been released.

Second , respond to the issue of digital currency can be divided into private digital currency and central bank digital currency, to oppose the two, and to emphasize the follow-up promotion of central bank digital currency with more space. In the case of confrontation, the negative and the impact are even stronger.

Third , the response stated that these currencies themselves have become a speculative tool. This situation has occurred in the market, and there are also potential risks that threaten financial security and social stability. At the same time, it has also become a payment tool for some money laundering and illegal economic activities. The so-called “stable currency” of some commercial organizations, especially the global “stable currency”, may bring risks and challenges to the international monetary system, payment and settlement system, etc. We are still quite worried about this issue, so we adopt Some measures have been taken.
Private digital currency is classified as a “speculative tool.” Although this is a neutral term, it must be negative in the current policy context. This is also similar to the expression of the previous central bank governor Zhou Xiaochuan. Zhou Xiaochuan said, “When it comes to the innovation of cryptocurrency, China’s attitude is also to focus on how you serve the real economy in many analyses and discussions. To provide important services to the real economy, then more attention may be given.”

Fourth , this response emphasized stablecoins. Previously, only Bitcoin was mentioned in the Financial Committee meeting. In fact, compared to Bitcoin, stablecoins anchored to the US dollar have more applications in illegal activities such as speculation, payment and even money laundering and gambling. But on the other hand, it seems that the conventional practices have been exhausted, except for the prohibition of institutional participation, public opinion crackdowns, and crackdowns on electronic fraud and money laundering. It remains to be seen whether there will be more stringent measures, such as new regulations and even legislation, to target stable currencies such as USDT.

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