A senior People’s Bank of China (PBOC) official has urged regulators to consider cryptocurrency risks and fraud that could lead to bank failures when innovating regulation. The Chinese official highlighted the recent collapse of U.S. banks that provided services to crypto customers as an example. “The regulation philosophy, technology, and capability must be upgraded to ensure financial innovation won’t come at the cost of financial stability,” he stressed.
Chinese Central Banker on Crypto Risks and Bank Failures
Xuan Changneng, a deputy governor at the People’s Bank of China (PBOC), the Chinese central bank, said at the Boao Forum on Friday about the potential dangers of financial innovations, including cryptocurrencies, that could cause banks and lenders to fail. He was quoted by Bloomberg as saying:
Risks and fraud associated with cryptocurrency, including the two American banks who ran into troubles after providing many services for cryptocurrency from taking deposits to settlement, showed that regulators should respect rules when innovating regulation.
Although the Chinese central bank official didn't mention specific banks, two crypto-friendly banks in the U.S. — Signature Bank and Silvergate Bank — newly failed. Signature Bank was seized by the New York State Department of Financial Services while Silvergate Bank underwent voluntary liquidation.
While stating that there must be sufficient room for innovation, the PBOC deputy governor stressed that regulators need to “ verify and confirm the new technologies applying to various financial models and products, preferably than simply accepting or approving them. ”
Furthermore, the central bank official stressed:
The regulation philosophy, technology, and capability must be upgraded to ensure financial innovation won’t come at the cost of financial stability.
At the same forum on Friday, China’s Vice Minister of Finance and Deputy Director of the Office of the Central Commission for Financial and Economic Affairs, Liao Min, emphasized the significance of the Chinese government’s active participation in international cooperation and coordination of standards. He stated that China needs to learn “ deeply ” involved.
(Kevin Helms, Bitcoin.com, 2023)