Cryptocurrency in China: Light-Touch Regulation in Demand

Abstract

On January 20, 2016, Governor of the People’s Bank of China (“PBoC”) Zhou Xiaochuan announced that China would issue its own digital currency “as soon as possible.” A notice declaring this decision was issued on the official website of the PBoC shortly afterwards. Digital currency can help the central bank reduce costs and risks of counterfeits in issuing cash, accelerate the speed in money transfers and afford individual user anonymity and privacy. Digital currency is by no means an invention by the PBoC. There have been various types of digital currencies introduced by private actors, and there have been a broad range of applications of those digital currencies in various contexts. However, a major distinction between the digital currency proposed by the PBoC and existing ones is that a central bank is now interested in becoming the issuer. All the existing digital currencies are created by private entities and not backed by any sovereign government; therefore, they are not freely circulated as a fiat currency. So, what motivates central bankers to implement the digital currency idea now rather than at an earlier time? What is the technology breakthrough that rekindles the idea of a digitization world? This Note tries to explain the transformative value of a decentralized, encrypted, publicly distributed and protocol-based network — cryptocurrency — that has garnered attention from central bankers to investors. It has the potential to function as a mechanism to move value across the Internet. Taking the classic cryptocurrency Bitcoin as an example, this Note calls for regulators in China to act proactively in a non-intrusive and timely manner in the area of cryptocurrency, in order to secure an ordered and stable social environment while ensure a healthy development of the revolutionary technology and maximize the potential of cryptocurrency to benefit the society as a whole.