Chinese Central Bank Touches on Crypto Assets for First Time
On November 2, China’s central bank released its China Financial Stability Report 2018. For the first time ever, the PBoC mentioned ICOs and crypto assets in the report.
In the report, the central bank defined cryptocurrencies as private financial assets and recognized their fundamental value based on technologies such as cryptography and distributed ledger technology. In the 2017 financial stability report, the central bank asserted Bitcoin as a specific virtual commodity.
The report also reiterated the central bank's earlier view that crypto assets do not have some properties or the legal status of fiat currencies:
Cryptocurrencies are private financial assets whose value is mainly based on cryptography and distributed ledger technology. Cryptocurrencies are not issued by a monetary authority and are not legally enforceable, thus they do not have the same legal status as fiat currencies. Taking Bitcoin as an example, the process whereby it is generated is based on a rewards mechanism for maintaining blockchain nodes. The development of blockchain technology has involved similar technologies such as ETH, XRP and Litecoin. An ICO typically refers to a form of fundraising activity where development teams for blockchain projects gain preexisting cryptocurrencies such as BTH and ETH from investors by issuing their own digital tokens in an offering similar to an initial public offering.
The PBoC’s criticism of cryptocurrencies in the report mainly focused on the negative impact on development of the real economy.
Due to the lack of regulation and supervision, cryptocurrency speculation is rampant. There are inherent problems such as disorderly development, which can easily be taken advantage of by illegal activities, harming investors’ legitimate rights and interests, which is not healthy for the development of the real economy.
The report demonstrated that the PBoC has a comprehensive understanding of the cryptocurrency market. While calling for strengthened regulation and oversight, the report also underlined the risks crypto investors would need to be prepared to face.
The next step, the report mentioned, is to continue researching and monitoring, focus on business improvement, strengthen investor protection and education, and promote international cooperation.