Recently, China’s foreign exchange regulator made a statement concerning emerging digital markets. Also, it stated that governments should play a greater role in the regulation of digital currencies. Moreover, they could facilitate illegal capital flows and disrupt foreign exchange management.
China has announced that it started actively embracing financial technology. On October 28th, at a forum in Shanghai, the chief accountant of China’s State Administration of Foreign Exchange, Sun Tianqi, made a couple of remarks on the matter. He said that financial technology could promote the development of a country’s financial market. However, it could also bring illegal cross-border financial activities. Thus, this should become a matter of concern to all states, especially emerging markets.
Sun Tianqi called for global regulators to cooperate on countering illegitimate cross-border transactions. Also, he highlighted the risk that the fin-tech innovation poses to foreign exchange control is growing every day. He revealed that the Chinese government had exposed and closed over 2,000 forex trading platforms.
The chief accountant had called for Facebook’s Libra to be classified as a foreign currency and integrated into the framework of China’s foreign exchange management. Governments of emerging digital markets should be aware of Libra, and its possible capital control. For China, digital currency such as Facebook Libra must strictly abide by forex regulations, and must not replace the yuan currency in domestic transactions.
China’s new digital step: National blockchain adoption
Last week, President Xi Jinping said China should hasten the development of blockchain technology. Following that announcement, the People’s Bank of China has called for an acceleration of blockchain applications in digital finance.
Several signs have emerged in recent months that indicated that serious effort is being put in to create a new currency. In addition, local commentators have pointed to the increased tension between nationalized control and scrutiny towards the private sector’s use of digital technologies. Moreover, the Chinese central bank set up a research team in early 2014. Its goal was to explore launching its own digital currency CBDC to cut the costs of circulating traditional paper money.