Central banks are cracking down on crypto
South Korea, China, the United States, Australia, India, Germany, the UK and others share differing views.
A number of the world’s central banks, and the governments responsible for them, have called for tighter regulation of cryptocurrencies in order to prevent misuse, deter anonymous trading and boost transparency.
Below we list some of the key nations which have been adapting to the complexities of digital currencies. While some remain critical and repellent to this new wave of financial innovation, others seem more embracing.
In the last few weeks, South Korean financial authorities have been mulling the legalities of a cryptocurrency trading ban, while executing inspections on commercial banks offering trading accounts to digital exchanges.
However, during a public press conference this week South Korean President’s executive office spokesperson Jeong Ki-joon said that any proposed crypto market ban would be “discussed and changed”, CCN reports.
“…the government will support and even finance blockchain technology development,” Jeong Ki-joon said.
Late last month CCN revealed four comprehensive cryptocurrency regulatory frameworks that the South Korean government is expected to implement by January 20, 2018. These strategies were designed to help curb volatility and enhance consumer protections. See them below.
- Prevent unaccredited investors from dealing with losses through highly volatile cryptocurrencies.
- Prevent regulated exchanges from operating as speculative platforms for unaccredited investors.
- Ensure underaged investors and foreigners cannot open trading accounts on cryptocurrency exchanges.
- Temporarily suspend institutional investors and retail investors from investing in cryptocurrencies.
These were conceived by a cryptocurrency task force, formed by the Ministry of Justice, Ministry of Strategy and Finance, Fair Trade Commission, Financial Services Commission and Financial Supervisory Commission.
China is one of the largest cryptocurrency mining hubs on the planet. Despite the overwhelming interest in virtual currencies, local regulators have limited mining operations, shut down trading exchanges and imposed a domestic ban on initial coin offerings (ICOs). Nonetheless, cryptocurrency dealings continue to persist.
Following discussions with internet regulators and other supervisory bodies last week, the People’s Bank of China (PBOC) vice governor Pan Gongsheng allegedly sent a memo calling for increased government pressure.
Reuters reports that the memo said national and local authorities should “ban venues that provide centralized trading of virtual currencies” and “ban individuals or institutions that provide market-making activities…”
These include guarantees or settlement services for currency trades, including digital “wallet” providers.
The memo also suggested carrying out investigations against services that help people move funds abroad.
“Pseudo-financial innovations that have no relationship with the economy should not be supported,” he said.
While a number of countries and central banks are considering the implications of creating and issuing official cryptocurrencies, the United States Federal Reserve said it’s “unlikely” to introduce its own digital currency.
Last week, Secretary of the US Department of the Treasury Steven Mnuchin said the US was “very focused” on examining cryptocurrencies, establishing a working group with all financial regulators to ensure compliance.
“In the United States, and people may not realize this, under our laws if you have a wallet to own bitcoins, that company has the same obligation as a bank to know your customer,” Mnuchin told The Economic Club.
“We have rules for money laundering, for all different types of things, we can track those activities. The rest of the world doesn’t have that. One of the things we will be working very closely with the G20 on is making sure that this doesn’t become the Swiss numbered bank accounts.”
In a speech delivered at a Yale roundtable event examining the future of finance and capital markets in March last year, Federal Reserve Board of Governors member Jerome Powell asserted that there were policy issues and technical challenges to be analyzed before any central bank considers adopting a digital currency.
Powell suggested digital currency would also be a target for global criminal activities, including money laundering. Central banks could face trade-offs between strengthening security and enabling illegal activity.
This week, Bank Indonesia warned that virtual currencies, including bitcoin, are no longer recognized as a legitimate form of payment in the southeast Asian nation and are forbidden for use in financial transactions.
In a recent statement posted on the bank’s website, Bank Indonesia advised all payment system operators – principals, switching operators, clearing operators, final settlement operators, issuers, acquirers, payment gateway operators, electronic wallet operators, money transfer operators and financial technology operators –
to cease selling, buying or trading in digital currencies, as it is conflicts with Bank Indonesia regulations.
Bank Indonesia said it must maintain financial system stability and consumer protections and that digital currencies have no official administrator, therefore ownership is “highly risky and loaded with speculations”.
At an event in Frankfurt this week, Germany’s Deutsche Bundesbank board member Joachim Wuermeling said “effective regulation” of cryptocurrencies could only be achieved through vast international cooperation.
During a speech delivered in December, Reserve Bank of Australia governor Philip Lowe said cryptocurrencies were “not very effective” as means of payment, suffering high transaction costs and excessive amounts of energy needed to mine them. He likened the rise of these currencies to a “speculative mania” phenomenon.
“When thought of purely as a payment instrument, it seems more likely to be attractive to those who want to make transactions in the black or illegal economy, rather than everyday transactions,” Lowe said.
The United Kingdom’s Financial Conduct Authority (FCA) warned consumers in November regarding contracts for differences (CFDs), including financial spread bets, with cryptocurrencies as the underlying investment.
“These products are extremely high-risk, speculative products,” the FCA said in its statement.
Over the years, the Reserve Bank of India has cautioned “users, holders and traders” of virtual currencies regarding the potential economic, financial, operational, legal and security related risks associated.
In September 2017, the Central Bank of the Russian Federation said cryptocurrencies were issued by anonymous entities. As a result of their anonymous nature, “citizens and legal entities may be involved in illegal activities, including legalization (laundering) of proceeds from crime and financing of terrorism.”