The turbulent period for Chinese bitcoin and digital currency exchanges continues unabated in the country. Now, the People’s Bank of China (PBoC) made its voice be heard when it comes to asserting control on the exchanges working in the digital currency domain.
The statement asks for a strict control of these ventures and a direct oversight by the state. While this might be constrictive to these ventures, for the most part, the exchanges in questions will probably welcome the clarification. Until now, the companies and startups working in this field have existed in a legislative state of flux.
Now, the state has clearly decided to enforce its influence over the same companies and the entire market, but not in a terminal manner some predicted. This allows room for maneuver for any medium or big size exchange in China, while smaller ones might be left in a tight spot if their revenues drop.
But, in any case, the positioning of PBoC on this issue presents a defining of the national approach towards digital currencies and their relationship with the Yuan. In this regard, China is without any doubt the most relevant market on the plant and any process taking place inside of it can be perceived as a weathervane for the things that will surely come to other countries that employ digital currency, meaning most of them.
PBoC Business Administration Unit
The recent news came from the Bank’s Business Administration Unit and its director, Zhou Xuedong. According to him, the bank should continue the process of keeping close tabs on the bitcoin exchanges working in the country. He also stated that the bank should create a blacklist of those exchanges which violate its directives.
To ensure that the exchanges adhere to this regulation, PBoC could create a legislature that is on a national level. The same legislature should then be used to establish licensing and ask from national exchanges to attain a form of this document that affirms their adherence to the PBoC requirements.
Now, there is a large level of risk that covers both security of customer funds and a potential for money laundering. Final risk includes that of leveraged transactions. All of these are completely valid points as each of the three have presented themselves as big problems in the past for exchanges but also other users.
Being that bitcoin is something that people in China, like all over the world use regularly for purchases, online betting, and many more things, the number of entities, both personal and business-sized, that are at risk is not that small. From this perspective, a level of protection added by the state is desirable for anyone using BTC.
An Observational Period
Instead of demanding the same oversight should be placed upon the exchanges immediately, the PBoC decided that a period of observation should be set. At the same time, the bank will continue to develop bottom-line demands that all exchanges have to fulfill.
But, there is another element of the statement that is a lot more relevant to the entire bitcoin development community. PBoC representative asked for a process of deep research that would come about at the same time with the bank’s prototype of a digital currency issued by the bank. This comes some two months after the bank representatives met with the heads of the biggest Chinese bitcoin exchanges.
The result of the meeting was the end of no-fee transactions and trading in China which was in place previously. Additionally, general AML (Anti-Money Laundering) practices also apply to the digital currency ecosystem, which also took many exchanges by surprise. The PBoC took the matter so seriously that it even stated that all those exchanges which do not comply with the bank would be closed down.
The Mining Issue
While the process of bitcoin trading is very important for the inhabitants of China and those who want to diversify their monetary portfolio often go for BTC, it is the mining that takes place in the land that is so important to everyone on the planet using bitcoin. It is noteworthy that the PBoC actions have in no shape or form impacted the mining industry or the gigantic mining pools operating from that country.
There are clear signs that many in the Chinese government would perceive this as an asset. This is the reality – one of the most controlled nations on the planet when it comes to internet use is the key element in a free and open digital currency. In this regard, other digital ventures like eSports or social networking are in a similar position.
In a strategic sense, the same process could be used as a bargaining chip in any form of global confrontation. While there are no huge and centralized element in the bitcoin network, there is little doubt that anyone who does own BTC would like to see China impact the mining process in any shape or form. At this moment, it does have the same capacity.
With this in mind, there is a big chance that the supervision will not impact the mining this time around. But, at the same time, there is almost no doubt that China’s government already keeps close tabs on the sector, even if covertly.
A Massive Move by China
Finally, there is the last potential of this developing story and it is not related to the present, but the future. With a strong government oversight of its digital currency dealings, China would be in a great position to take upon itself to further boost this sector of its economy.
In fact, if the PBoC comes to a licensing system that is diligently enforced, the same business environment could become second to none when the development and application of blockchain technology is concerned. While places like Dubai develop both their public blockchain tech and the local FinTech environment, even the UAE looks like a minor player compared to China.
In this scenario, it would be the key nation for bitcoin exchange that could dictate this business for a generation to come and leave any potential disruptors like the US with a big difference to make up for. Undoubtedly, the same market position would be a fantastic aid to China’s economy both its terms local companies and foreign ones that would certainly descend upon the country.