China is open to idea of a digital currency, as long as it’s ‘efficient and safe’
Central bank governor Zhou says financial system must not be disrupted
After it banned cryptocurrency exchanges and declared all initial coin offerings illegal, China is still open to the idea of a digital currency if it doesn’t disrupt the financial system, central bank governor Zhou Xiaochuan said on Friday.
The government will be happy to accept those that “bring efficiency, low cost and safety” to consumers as long as they “don’t directly conflict with the current financial stability and financial order”, Zhou told reporters on the sidelines of the National People’s Congress in Beijing.
“We don’t want to create products for speculation ... the illusion of getting rich overnight is not a good thing,” the outgoing People’s Bank of China chief said.
“Bitcoin and other similar products have been launched too quickly but not cautiously ... their rapid proliferation may have a big negative impact on consumers,” Zhou said. “These products have an unpredictable effect on ... monetary policy.”
Fearing risks that are beyond its control, Beijing has taken an iron-fisted approach to separate digital currency from the conventional banking system and clamped down on trading in bitcoin and other cryptocurrencies.
After it ordered the closure of all cryptocurrency exchanges and made all initial coin offerings (ICOs) illegal in September, Beijing said in February it would block all domestic and overseas websites related to cryptocurrency trading and ICOs.
Xiao Lei, a Chinese financial analyst, said Zhou’s remarks indicated the regulators were worried about speculation and that it was highly likely they would introduce more regulation in the future.
“It depends on how the market performs and responds. If they [cryptocurrencies] can be used to contribute to the real economy, the regulators would be pleased to see that,” Xiao said.
Meanwhile, the central bank is trying to create a “sovereign digital currency”.
Zhou said the PBOC was developing a digital currency for electronic payment that would be based on existing banknotes and coins, without changing the position of the central bank and commercial banks in the financial system.
That reflected the view of Yao Qian, director of the PBOC’s Digital Currency Research Institute, who wrote in a recent article that the top goal of a government-backed digital currency was providing an alternative to cash.
Zhou said Beijing’s ideal digital currency “must ensure the smooth running of monetary and financial stability policies and at the same time protect consumers”.
The central bank governor, who has been personally involved in China’s sovereign digital currency project, also said Beijing wanted the digital currency to be used only for payments and that it would not be a “virtual asset”.
“For us, the direction of virtual assets requires caution ... from China’s perspective, virtual asset transactions are not in line with our idea that finance must serve real economic growth,” he said.
At present, however, the use of digital currencies for payment is banned. “For now we don’t recognise bitcoin, or any digital currency, as a retail payment method – as banknotes, coins or credit cards,” Zhou said.
While Beijing has repeatedly shown its mistrust of bitcoin and other digital currencies, many Chinese retail investors are still hooked on cryptocurrencies and ICOs. In an ICO, start-ups sell a percentage of the digital tokens to early investors of their blockchain projects, and investors can trade them in the cryptocurrency market.
The price of bitcoin fell to a one-month low of less than US$9,000 on Friday. But a recent survey from consumer product and services comparison website Finder said bitcoin could top US$29,000 by the end of the year, while the value of another popular cryptocurrency, ethereum, may more than triple.