Chinese Official Urges Caution In Crypto Regulation Post-banking Crisis

Key Points:

• A senior Chinese official has called for stronger regulation of digital finance following banking failures linked to US lenders involved in cryptocurrency transactions.
• The official emphasized the need for regulators to respect rules when innovating regulation and verify new technologies before accepting or approving them.
• Chinese officials have long had a hardline approach to the crypto industry, and it is clear that the Chinese government seeks to balance innovation with regulation.

Bloomberg reported that a senior Chinese central bank official has called for stronger regulation of digital finance. The call comes after banking failures linked to US lenders involved in cryptocurrency transactions.

Xuan Changneng, a deputy governor at the People’s Bank of China, emphasized the need for regulators to respect rules when innovating regulation. He also highlighted that authorities must verify and confirm new technologies applying to various financial models and products, rather than simply accepting or approving them.

Xuan didn’t name the US lenders, but the three banks at the center of the ongoing banking crisis there — Silvergate Capital Corp., Signature Bank, and Silicon Valley Bank — were, at least at one point, counted among the US’s most crypto-friendly financial institutions.

Liao Min, a vice finance minister, warned during the same Boao Forum panel of possible fragmentation of digital financial infrastructure going forward. He said China needs to get “deeply” involved in international cooperation and coordination of standard making. Li Bo, a deputy managing director at the International Monetary Fund, added that central banks globally should consider digitizing their reserves as a part of measures to improve cross-border payment efficiency.

Chinese officials have long had a hardline approach to the crypto industry. In 2017, the PBOC declared initial coin offerings illegal and asked all related fundraising activity to be halted immediately, dealing a blow to the then-burgeoning market for digital token sales that regulators deemed a threat to financial stability. It is clear that the Chinese government remains cautious about the industry and seeks to balance innovation with regulation.

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