Chinese economist calls for review of rigid cryptocurrency ban as digital yuan fails to take off

Huang Yiping, a former adviser to China’s central bank, said Beijing should consider the long-term effects of its cryptocurrency ban
Blockchain-related technologies are ‘very valuable’ to financial systems, but the idea of e-CNY-backed stablecoins remains ‘very sensitive’, he said

Digital currencies

Xinmei Shen

Published: 8:00pm, 30 Jan 2023

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A former adviser to China’s central bank has floated the idea that Beijing should review its draconian cryptocurrency ban, shedding light on an ongoing debate about the role of private digital currencies in China.

While the ban on cryptocurrency trading is practical for China at the moment, the government should consider whether such policies are sustainable in the long run, Huang Yiping, a former member of the monetary policy committee at the People’s Bank of China (PBOC), said in a speech in December. The transcript was published on Saturday.

Beijing initially banned crypto trading out of money laundering concerns, but a permanent “no” to related products could result in missed opportunities in technologies such as blockchain, which are “very valuable” to regulated financial systems, said Huang, now an economics professor at Peking University’s National School of Development.

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Huang made his comments amid a push in China to drive adoption of the digital yuan, or e-CNY. While technically still being trialled in several cities throughout the country, the PBOC started counting it as part of the money supply in December. Still, adoption appears to have slowed along with the economy in the past few years.

During this year’s Lunar New Year holiday, e-CNY transaction volume in the designated pilot cities totalled 180 million yuan (US$26.5 million), state broadcaster CCTV reported on Monday. Last year, official data showed total transactions from December 2019 Through August 2022 totalled 100 billion yuan, an average of more than 700 million yuan per week.

While recently promoting its own central bank digital currency, Beijing’s relationship with decentralised cryptocurrencies has been fraught, with escalating crackdowns for much of the past decade. In September 2021, the government clarified that all cryptocurrency trading in the country was illegal, saying it disrupts economic and financial order and is a breeding ground for criminal activity.

Huang said the possibility of allowing private institutions to issue e-CNY-backed stablecoins remains a “very sensitive” question, but the pros and cons are worth considering.

Some see stablecoins, which are cryptocurrencies pegged to fiat currency, as a possible destabilising force by aiding activities like capital flight. Others see them as a way of lowering cross-border transaction costs. Red Date Technology, the technical architect for China’s state-backed Blockchain-based Service Network (BSN), recently announced that it was collaborating on a network for the clearing and settling of stablecoin transactions.

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Despite an ongoing crackdown, a large community of cryptocurrency investors still exists in China. Mainland users made up 8 per cent of the customer base of FTX, according to a bankruptcy filing from the global cryptocurrency exchange in November.

Cryptocurrency mining activities in China also saw an uptick last year after seemingly plunging to zero in July 2021 following a mining clampdown that pushed related activities underground. From September 2021 to January 2022, traffic from China accounted for about 20 per cent of bitcoin’s total hash rate, according to data from the Cambridge Centre for Alternative Finance (CCAF).

Chinese crypto enthusiasts in recent years also fled to countries considered to have friendlier laws and regulations such as Singapore and the United Arab Emirates. Now many are considering the possibility of returning to Hong Kong, China’s special administrative region that recently unveiled a range of supportive policies for virtual assets, aiming to restore its status as a crypto hub.

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