Chinese Resistance – Ban on the Use of Cryptocurrency

The world’s countries are discussing the risks of cryptocurrency. However, China has taken a radical decision and banned the use of cryptocurrency in the country. This year, El Salvador became the first country to legalize Bitcoin.

On September 24, the Chinese government released two statements about the cryptocurrency industrial network. According to the report, the contribution of cryptocurrency to the Chinese national economy, despite high energy consumption, is low.

The notice states that cryptocurrency is not a legal tender. Consequently, doing business is a crime. Financial institutions and non-bank payment institutions should not provide account opening, transfer and settlement services for cryptocurrency-related business activities.

Cryptocurrency has fallen since China imposed the latest cryptocurrency regulations. According to CoinMarketCap, Bitcoin fell 9 per cent within three hours of its announcement. Some exchanges immediately announced that they would no longer provide services to Chinese customers.

Notably, in May of this year, three Chinese financial self-regulatory authorities warned investors and banned financial institutions and payment companies from providing services related to crypto transactions. This prompted crypto miners to leave China.

The primary goal was to prevent illegal and criminal activities such as fraud, gambling, money laundering and endangering the security of people’s property. Moreover, the ban on energy-intensive mining activities supports China’s carbon neutrality goals. State-backed digital currency — the digital Chinese yuan — is another critical factor influencing recent steps.

Governments worldwide have a common concern that volatile digital currencies pose a threat to financial and monetary systems.

Conclusion

Jon Cunliffe, Deputy Governor of the Bank of England for Financial Stability, says cryptocurrencies could trigger a global financial crisis without tight regulation. Cunliffe noted that the cryptocurrency market today is up to $2.3 trillion. According to Jon, governments and regulators need to be careful.

The risks to financial stability are limited at this stage. Hence the current use of cryptocurrency contributes to financial stability, as most have no intrinsic value. Bitcoin has been a very volatile currency since its inception. It should be noted that prices are sensitive to various external factors and are influenced by regulatory pressure from the Chinese government, pandemics and many other factors.

According to Cunliffe, if the market continues to expand at this pace, the risk of financial stability could increase rapidly. Jon said increasing risk management and security would depend on the government making the system sustainable. Well-designed standards should ensure risk management in the crypto world.

Although many regulators worldwide have already begun to create a public policy framework that will help reduce risks, China’s policies are not shared.