By Michael Scott
In its recent financial stability report, the People’s Bank of China is devoted to solving issues arising from digital assets regulation and the decentralized finance (DeFi) sector.
The People’s Bank of China (PBoC) iterated the need for collaborative input towards the elusive crypto regulation. The PBoC urged joint efforts among the worldwide authorities to formulate viable crypto rules.
The Chinese Central Bank set aside a section within its annual stability report emphasizing the essence of regulating the industry jointly. The report published on Friday, December 22, illustrated that Cryptocurrencies harbour great potential despite accounting for only 1% of the global financial system. The PBoC noted that crypto suffers limited connection with traditional finance (TradFi).
China Central Bank Recognizing Crypto Potential
A reflection of the PBoC move by local reporter Colin Wu revealed that it was the initial instance that the Chinese Central Bank dedicated a distinct section to crypto. The local journalist hailed the move by the central bank that urged other governments to consider adopting similar business models.
Wu observed that the PBoC request extends to applying similar risk management solutions and supervision to eradicate potential regulatory arbitrage. The report by China’s top bank acknowledged the existence of several risks arising from disjointed regulatory arbitrage.
The PBoC illustrated recent events where the cryptocurrency ecosystem has suffered hacker attacks. The report pointed to the variation in governance mechanisms deployed within the decentralized finance (DeFi), thus leaving those vulnerable to hackers’ exploits and market manipulation.
The PBoC weighed upon the Terra ecosystem implosion in May 2022 and the sudden collapse of the crypto exchange FTX in early November. The report indicated such cases are inevitable, provided the governments address the regulatory fragmentation.
PBoC Urges Elimination of Supervising Arbitrage
Also, PBoC suggested that eliminating the supervision arbitrage would ease early detection before such events turn catastrophic and contagious, as witnessed last year. The initiative adopted by the central bank signals a gradual shift in the stance adopted by China.
Wu indicated that the PBoC request for coordinated action by the global community to regulate the crypto industry arose a few years after the mainland Chinese government imposed a blanket ban on digital cryptocurrency. The ban was extended to prohibit the conversion of fame tokens into fiat currency.
The restrictive stance adopted by China began in 2021 when the PBoC announced measures to prohibit crypto adoption within mainland China territory. The central bank recommended the adoption of stronger inter-departmental coordination towards cracking down on crypto in China.
Various parties have defied the ban, extending to virtually all crypto-related transactions. Today, mainland China is among the leading global crypto mining hubs.
Crypto Executive Project Big Move in China’s Regulation
The move to have a separate section signals that China is likely easing the restrictive action against the crypto industry. Such an outcome aligns with the projections by some crypto industry executives led by Animoca Brands co-founder Yat Siu, who indicated that rapid adoption portrayed by Hong Kong signifies a similar move in mainland China.
Siu projected mainland China to replicate Hong Kong initiatives, given that it has served as an experimentation hub for initiatives later adopted in Beijing. Many crypto executives rule out relations in Hong Kong crypto-friendly initiatives and mainland China’s changing stance. Instead, they project a global push for adopting crypto assets and decentralized finance (DeFi) with enormous benefits unmatched by the traditional finance (TradFi) system.
Hangzhou City Advances Efforts to Boost CBDC Adoption
The city of Hangzhou has 2023 advanced its push for the digital yuan project by airdropping 10 million units of the central bank digital currency (CBDC). The airdrop valued at $1.37 million incentivizes expenditure within the food delivery platforms.
The move by the city signals the likelihood of China adjusting its crypto regulatory stance, given the continued push to stimulate the use of the digital yuan.