The Chinese government often adopts a wait-and-see approach to activities that are largely unregulated until the magnitude of the activity becomes clear. In the case of cryptocurrency, the wait and watch policy of the Chinese government has been observed once again. Initially, China has taken the hardest measures against cryptocurrencies such as Bitcoins and Ethereum. The People’s Bank of China (PBOC) which is the central regulatory authority that regulates financial institutions and drafts the monetary policy of the country had imposed a ban on initial coin offerings (ICO), a cryptocurrency-based fundraising process, and termed it illegal in China in September 2017.
Officials now intend to block domestic access to online platforms and mobile apps that offer exchange-like services for cryptocurrencies. More recently, the government began shutting off the power faucet for bitcoin mining pools, or large server farms that perform cryptocurrency processing. Bitcoin and its peers can still be traded, but only in over-the-counter markets, a slower process that some analysts say increases credit risk. According to a blog published in the Finance Magnates, the virtual currency industry is not dead in China. Michael Foster, co-founder of decentralised exchange Local Ethereum, told Finance Magnates that “China’s over-the-counter market for cryptocurrency is currently booming.” China is one of its biggest sources of traders, and “tens of millions of Yuan worth of ether” have been traded on the exchange in 2018.
China is Developing its Own Digital Currency-
The Chinese government has realized that the impact of virtual currency cannot be ignored for too long. Instead of eradicating bitcoin trading in China altogether, the Chinese government may be attempting to exert greater control over this burgeoning technology and introducing its own national cryptocurrency. PBOC is 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. The Chinese Communist Party’s Thirteenth Five-Year Plan (2016–2020) underscores the attention that the government pays to the future of the digital realm in facilitating financial transactions. As such, the plan features an entire section dedicated to digital economy issues such as 5G technology, big data and the Internet of Things (IOT).
Deputy Governor of the PBoC Fan Yifei said “Efforts were made (by the PBoC to strengthen the management … steadily promoted the development of the central bank’s digital currency,” and then later in the speech when naming objectives for the coming year he called for the bank to “solidly promote the R&D of the central bank’s digital currency,” Fan praised the ongoing progress on central bank digital currency research and development and highlighted that one of the three priorities for 2018 will be ensuring the integrity of Chinese yuan.
Bloomberg reported that the PBoC was developing its own national cryptocurrency as far back as February 2017. Former People’s Bank of China governor Zhou Xiaochuan revealed in a media briefing on March 9 that the new digital currency would be tentatively named “digital currency electronic payment,” or DCEP, and would be released in 2019. Not much is known about the proposed state-controlled Chinese digital currency, except for that, it is likely to operate along the lines of Basecoin, a new digital currency that’s yet to go public.