November 2, Beijing- As per a report from the People’s daily, Chen Jianqi, Deputy Director and associate professor of the World Economic Research Institute of the Party School of the CPC, pointed out that Bitcoin and cryptocurrency has also enjoyed some degree of development in China but these non-official currencies pose great threat to natiaonal financial security in three aspects.
chenjianqi
Chen Jianqi, the Deputy Director and associate professor of Party School of CPC (credit:People’s Daily)
“We may also notice that Dama are buying Bitcoin instead of stocks, which signals the popularity of financial innovations. It is very important to reflect on the phenomena and cryptocurrency deserve more attention.”
Dama is the nickname for middle-aged women in China. They are usually considered the pushing force behind asset bubbles.
Chen Jianqi said that from last year on, the authority has taken some important measures in the hope of preventing the risk of digital currencies such as bitcoin, including shutdown of trading platform. He also mentioned that it would threaten the country’s financial security if such risk was not contained.
Chen said there were three important impacts from non-official digital currencies.
First of all, non-official digital currency is free from the financial regulatory system. After the emergence of Internet finance and digital currency, the most imminent threat is the blind spot of regulation. Theoretically speaking, one can still trade bitcoin through exchanges in other countries as long as you can access the Internet. Bitcoin cannot be turned off as long as the Internet exists.
Secondly, non-official digital currency is used in illegal business. Transactions of fiats go through bank and settlement system in traditional banking, which leaves traceable records. But bitcoin was not included in the monitoring system so that it could be used to buy drugs, guns and ammunition or even engaged in terrorist activities.
Thirdly, non-official digital currency will lead to disorder of cross-border capital flow. Originally the capital flow is monitored or controlled. Now that the unofficial digital currency comes out, it is very difficult for the government to manage it.
These three issues could lead to even more serious social issues, Professor Chen further explained:
Since Bitcoin is not backed by anyone or entity, if the bubble burst. We have nothing to do with it. If bitcoin is discarded by everyone and become worthless, it would lead to significant price fluctuation of social wealth and assets, causing social instability.
Chen Jianqi pointed out that the above three aspects determine that the unofficial digital currency has a significant difference from the traditional sovereign currency and also determines that there are three impacts on national security:
First, the digital currency itself may trigger relatively large financial systemic risks. No one in the digital currency can intervene. Nobody can guarantee the stability of this currency behind. What to do if there is any trouble in the future? I think there is no way at present. If people are not optimistic about this thing in the future, it may not be worth a penny, which will bring about the entire social wealth or the drastic price fluctuations of financial assets, which will lead to social stability and other issues.
Secondly, it will challenge the sovereign financial and monetary system of all countries in the world. International trade now is now mostly settled through USD and EURO, maybe CNY in the future. However, assuming that Bitcoin becomes a widely-accepted currency and that everybody thinks the currency is better than fiats, then non-official digital currency will replace fiats on a large scale. If this happens, Alipay or other funds are all unofficial digital currency. It will weaken the sovereign state’s control over the financial system and the problem of financial instability may be more prominent.
Thirdly, some illegal organizations like terrorists may build non-sovereign financial systems based on non-official digital currencies. Financial sanctions are very important methods when some countries now impose economic sanctions. However, If there is a substitution of digital currency like bitcoin over fiats, it will be very difficult for the government to monitor it, which may cause terrorist organizations or some countries to bypass the economic and financial sanctions to achieve a new dynamic balance.
http://news.8btc.com/chinese-scholar-bitcoin-threaten-national-financial-security-in-3-aspects
