Authorities the world over are alarmed by the rapid proliferation of virtual money but it is Beijing that is taking the most extreme regulatory route.
February has so far been a terrible month for bitcoin and other cryptocurrencies.
As if losing more than 60 per cent of its value amid frequent wild drops and recoveries is not enough, the general manager of the Bank for International Settlements – often dubbed as the bank for central banks – has described bitcoin as “a Ponzi scheme and an environmental disaster”, and called for a coordinated cross-border crackdown.
While authorities in the West are fretting about how to regulate such opaque trading, China has already declared total war on cryptocurrencies after witnessing frenzied speculation and growing popularity among investors over initial coin offerings (ICOs) and bitcoin trading.
After failing to snuff out such trading by shutting down domestic exchanges, authorities have blocked all websites related to cryptocurrency and ICO trading – including foreign platforms – to quash the market completely.
Late last month, the People’s Bank of China ordered all financial institutions to stop providing funding to activities tied to cryptocurrencies, thereby tightening the noose.
It is easy to see why such currencies have proved popular among many Chinese and why authorities are alarmed. They offer anonymity and freedom on the mainland where practically every aspect of a financial transaction is monitored and regulated.
Cryptocurrencies such as bitcoin also have been a perfect conduit for capital flight, an abiding concern of mainland financial regulators. Given the heavy reliance of the authorities on capital controls, such currencies are a natural target.
Moreover, President Xi Jinping has made deleveraging and reining in financial risk within the economy a major policy directive.
Nothing is allowed to threaten financial and economic stability to which extreme volatility and sometimes outright fraud involving such currencies pose an obvious threat.
Such cybertrading has been implicated in money laundering. Earlier this month, angry investors alleged fraud and forcibly took the founder of an ICO project to the Beijing municipal financial bureau after its virtual coin tumbled to 0.13 yuan from 0.66 yuan in just two weeks.
The spectre of hordes of financial victims pounding on the doors of regulators is clearly seen by the authorities as a threat to social stability.
All over the world, authorities have moved from urging caution to active regulation against cryptocurrencies. China is leading the world in taking the most extreme regulatory route.
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