China’s central bank on Friday declared all transactions involving cryptocurrencies illegal, saying that virtual currencies would disrupt the economic and financial order, facilitate criminal activities and jeopardize the safety of people’s assets. Over the past few months, several Chinese provinces had already ordered cryptominers to shut down their operations, citing their strain on the energy supply.
China’s crackdown on cryptocurrency trading and mining comes as digital currencies, including bitcoin, ethereum and dogecoin, have become mainstream investment targets. Few would dispute that, from the perspective of central banks and governments, cryptocurrencies pose a threat to financial stability, and they all want control over the digital currencies to manage risk, volatility and uncertainty.
US Securities and Exchange Commission Chairman Gary Gensler in an interview with the Washington Post on Tuesday said he feared a lack of oversight of trading cryptocurrencies would hurt US investors, while raising doubt over the long-term viability for various private forms of money in the market. Gensler compared cryptocurrencies to the “wildcat banking” era of the mid-19th century, when private banknotes dominated the US economy, generating problems and costs, and necessitating greater regulatory oversight and consumer protections.
The unregulated financial system created by trading cryptocurrencies poses a clear danger for the Chinese government and US authorities. That might not be the case for El Salvador, which on Sept. 7 became the first nation to adopt bitcoin as legal tender, creating the largest testing ground for cryptocurrencies. The move has drawn doubt, curiosity and even excitement inside and outside the Central American country, as people want to know whether a digital currency can transition from a niche asset to an official monetary unit.
In Taiwan, cryptocurrencies are viewed as commodities. The central bank and the Financial Supervisory Commission (FSC) in 2013 issued a joint statement saying that digital currencies, such as bitcoin, are “highly speculative virtual commodities,” and the commission in the same year directed local banks not to accept or exchange bitcoins, or provide any bitcoin-related services at automated teller machines.
In 2018, Taiwan passed amendments to the Money Laundering Control Act (洗錢防制法), which included an article allowing the government to regulate virtual currency platforms and trading businesses as financial institutions. From July 1, new money laundering regulations require cryptocurrency exchanges in Taiwan to conduct proper know-your-customer procedures and report transactions exceeding NT$500,000 to prevent money laundering.
Although cryptocurrency trading has become an alternative method for investors in Taiwan to accumulate capital, the financial industry’s attitude toward virtual currencies remains cautious and conservative. The government has often warned of the volatility of cryptocurrencies, saying they carry risks much higher than equities or gold. Despite the FSC having created a mechanism for security token offerings — which allows companies, and start-ups in particular, to issue virtual tokens and raise funds — such practices are still subject to the Securities and Exchange Act (證券交易法), and the government’s stance is to manage the tokens as a financing tool for firms rather than a means to make money for investors.
Unlike China, Taiwan would not ban cryptocurrency trading and mining, nor would it adopt bitcoin as legal tender. While the number of cryptocurrency platforms and exchanges that provide services related to virtual currencies has grown in Taiwan since 2014, the FSC is likely to continue taking a gradual approach in developing a legal framework for the industry against the relentless volatility and evolution of cryptocurrency markets.
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