On December 27th, 2019, a group of government officials in Beijing, China, issued a joint warning against the use of cryptocurrencies. With a new wave of cryptocurrency promotion in China, many entities have begun to use digital assets in a number of ways, which authorities say violate previously issued rules from 2017.
Beijing Officials Warning Against Crypto Activity Explained
Chinese officials based in Beijing are now warning against companies participating in cryptocurrency activity. The authorities have referred back to previous guidance published in 2017, which banned Initial Coin Offerings (ICOs) among other digital asset activity.
Now, the Chinese authorities are claiming that cryptocurrency trading has resurfaced throughout the country. A number of companies have violated the country’s previously issued rules, which it says are still in effect.
The agencies which jointly issued the warning include The Beijing Local Financial Supervision and Administration Bureau, the Business Management Department of the People’s Bank of China, the Beijing Securities Regulatory Bureau, and the Beijing Banking and Insurance Regulatory Bureau.
According to the warning, neither cryptocurrency projects nor platforms are to be promoted. Companies have been told to neither participate in cryptocurrency trading nor provide any services related to cryptocurrencies. Investors have also been instructed to report any violations to the appropriate agency.
China’s Growing Use of Blockchain Technology In 2019
The Chinese government on the other hand has been quite active in the implementation of blockchain technology. The People’s Bank of China (PBoC), China’s national bank, is continuing to develop its own national digital currency — Digital Currency Electronic Payment (DCEP). The digital currency is pegged 1:1 to the RenMinBi (RMB), China’s national currency.
DCEP is expected to launch in early 2020. It remains China’s only legal digital currency. It was both created and sanctioned by the Chinese government, making it significantly different from most stablecoins. Cryptocurrencies, to include Bitcoin, are not deemed legal tender in China.
In December of 2019, the Bank of China — one of the largest state-owned commercial banks in the country — issued $2.8 billion worth of bonds using blockchain technology. The bonds were used as part of small business loans and leveraged China’s own independently built private blockchain.
Yet in addition to tokenized bonds and its own national digital currency, China wants to bring the blockchain to another realm of finance: securities. Weimin Guo, chief scientist at the Bank of China, recently announced China is developing a framework for Security Token Offerings (STOs). Security tokens represent the integration of traditional financial securities with blockchain technology, bringing a number of new benefits to an archaic system — with the feasibility for compliance.
Once DCEP is rolled out and operational, China will allow for STOs in its jurisdiction, according to Guo. At least initially however, they will need to comply with a “strict regulatory sandbox mechanism”.
What do you think about authorities in Beijing issuing a warning against the use of cryptocurrencies in China? We’d like to know what you think in the comments section below.
Image courtesy of the International Science Council.