Wen Xinxiang, Payment Department of the Central Bank: Virtual currency brings 3 major challenges to the payment system

News from the mobile payment network: In recent years, the rapid development of virtual currencies represented by Bitcoin has attracted widespread attention from regulatory agencies in various countries. Generally speaking, virtual currencies can be roughly divided into two types. One is represented by Bitcoin, and the attributes of virtual assets are more prominent, which to a certain extent become a “reservoir” of excess liquidity; the other is based on TEDA coins. The stable currency represented is more of a payment tool. From the perspective of infrastructure, the blockchain is equivalent to a virtual currency payment system and a virtual currency transaction database; a virtual currency exchange is equivalent to a central counterparty, which partially assumes the functions of a market maker.

On September 24, Wen Xinxiang, Director of the Payment and Settlement Department of the People’s Bank of China, stated at the 10th China Payment and Settlement Forum that virtual currency poses three main challenges to the payment system: 

The first is to break away from the closed operation of the payment system and transfer funds between internal “accounts”, which is separated from the account system of commercial banks and payment institutions, and is only linked to legal currency exchange. 

The second is to divert the payment business of banks and payment institutions and weaken the status of clearing organizations.

The third is being used for illegal activities. The anonymity of virtual currency makes it easier to become a trading tool for illegal and criminal acts.

The use of virtual currency to transfer illegal funds across borders is a typical scenario. In the first half of this year, Henan Province detected a case involving the use of virtual currency to transfer gambling funds across borders, involving a total of 5.1 billion yuan. Maintaining such a huge amount of capital chain requires a deep trust mechanism. For this reason, we specially carried out an on-site investigation and found that the case used virtual currency as a medium to transfer huge amounts of gambling funds overseas. “Characteristics, through multiple participating entities and multiple capital flows, a rather complicated capital link has been designed. Among them, there are gangs that specialize in the role of central counterparty (CCP) to connect gambling platforms and the currency circle; there are criminal gangs and the currency circle that provide a mechanism for dealing with RMB and virtual currency, and internally form a “large-retail” double Layer structure. The characteristics of virtual currency’s coin dealing mechanism, transaction trust mechanism, and double-layer structure of the currency circle are very typical in this case, and it is worthy of in-depth study. 

Wen Xinxiang said that the traditional financial system can also rely on traditional methods such as law and supervision to increase anti-monopoly efforts and strengthen personal privacy and information protection when dealing with large financial technology platform companies entering the financial industry. However, in the face of the “renewed” virtual currency and its related “dark web” world, the current focus is mainly on the link between the “virtual currency” and the traditional financial system, and measures such as “discontinued payment” are adopted to monitor, intervene, and prevent , Punishment, also requires legal basis and innovative application of technical means.

The world’s major economies have different attitudes towards virtual currency supervision. 

The United States, the European Union, etc. focus on appropriate supervision. The United States clearly requires that asset-based and securities-based virtual currencies must be registered and follow the separate regulatory model; the European Union released the “Encrypted Asset Market Supervision and EU Digital Financial Strategy” in September last year, trying to unify the virtual currency regulatory framework. Regulators such as the US Securities Regulatory Commission have recently frequently stated their views on virtual currency supervision. In the face of continuous hacker extortion incidents, the U.S. Department of the Treasury announced sanctions against an organization that provides virtual currency services for hackers to collect ransoms. This is the latest regulatory action and a practical battle to use traditional regulatory methods to deal with virtual currency challenges. It remains to be seen how the effect will be and whether the regulatory attitude will change. In the future, there may be a need for innovative supervision methods. 

Russia, Finland, Sweden, Thailand, etc. prohibit Bitcoin as a payment tool. 

China is an earlier country that paid attention to the risks of virtual currencies and took effective measures. The People’s Bank of China, in conjunction with multiple departments, issued documents in 2013 and 2017, clarifying that virtual currency is a virtual commodity. Financial institutions are not allowed to carry out virtual currency-related businesses, and any organization or individual is not allowed to illegally engage in token issuance and financing activities. The hype of virtual currency transactions has gained Containment and effectively block risk transmission. In 2021, the People’s Bank of China will further increase its crackdown on virtual currency transactions.

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