China remains as one of the countries that have continuously maintained an antagonistic stance on cryptocurrencies. However, Hong Kong’s plan to shape itself into a crypto hub reportedly comes with a subtle nod from Beijing’s key officials.
China’s Quiet Support on the Planned Hong Kong Crypto Hub
In September 2021, the People’s Republic of China (PBOC) announced a ban on all cryptocurrency transactions. The move was primarily driven by the government’s concern over financial stability, capital outflow, and potential risks to its monetary policy. However, it appeared to have relaxed its stance in relation to Hong Kong’s newly unveiled plan to host businesses related to crypto.
Although not explicit, PBOC has apparently given its silent blessing on the plans of its special administrative region to become a center for crypto. Among the many indicators of these are the presence of its key officials at some of the latest meetings in relation to the matter.
According to Bloomberg, China’s Liaison Office in Hong Kong has been actively participating in talks regarding the crafting of the new venture’s framework. In addition, none other than the People’s Bank of China governor Yi Gang has delivered some speeches pertaining to the country’s adoption of a central bank-approved digital currency at key events in Hong Kong.
China: Catalyst for the Next Crypto Bull Run
There’s an ongoing narrative right now that China may be the catalyst of the next crypto bull run. This came amid the announcement of Hong Kong officials of their plan for a crypto hub.
Last Monday, the Securities and Futures Commission of Hong Kong disclosed its outline for the project that details how it will allow institutional as well as retail investors to trade cryptos such as Bitcoin and Ethereum in its new framework. However, the Chinese government warned that the autonomy of Hong Kong in the upcoming crypto hub will only be allowed in so far as it will not pose as a detriment to the mainland’s financial stability.
A Quick Look at China’s Crypto Ban
There are several reasons pointed out by Beijing officials in relation to the current crypto ban in China, and these include the following:
1. Financial Stability
The Chinese government sees cryptocurrencies as a potential threat to its financial stability. The high volatility of crypto prices can lead to massive losses for investors, leading to financial instability.
2. Capital Outflow
The Chinese government has strict capital controls in place, which means that money cannot be easily moved out of the country. Cryptocurrencies provide a loophole for Chinese citizens to move their money out of the country, which the government sees as a threat to its capital controls.
3. Money Laundering and Fraud
The decentralized nature of cryptocurrencies makes them difficult to regulate, leading to potential opportunities for money laundering and other fraudulent activities. The Chinese government is concerned about the potential risks of these activities.
4. Monetary Policy
Cryptocurrencies are not subject to the same monetary policy controls as traditional currencies. This lack of control could potentially undermine the government’s ability to manage its monetary policy and control inflation.
5. Environmental Concerns
Another reason for the ban is China’s concern over the energy consumption of crypto mining. Cryptocurrency mining requires a lot of energy, which contributes to greenhouse gas emissions and exacerbates climate change.
Despite these, Lesperance & Associates law firm founder David Lesperance assured that China has not yet banned the possession of crypto. Owners of these digital assets are well-protected by its laws and only crypto exchanges are banned in the giant Asian country.
The relaxed position of China on the affairs of Hong Kong with regard to crypto is a welcome development amid the tightened restrictions imposed by other key markets such as the US. Hopefully, this renewed interest will bring about a more robust activity for the global crypto landscape in the years to come given the power that China wields on a global economic scale.