China will beef up its regulatory oversight of the digital economy, as new technologies, especially new forms of finance, should not be blindly accepted and recognised, a deputy governor of the central bank said on Friday.
Digital currencies and newly invented cryptocurrencies, rather than solving problems in finance, can in fact create new challenges, Xuan Changneng, a deputy governor of the People’s Bank of China, said at the annual Boao Forum in Hainan province. He did not spell out steps that will be taken to boost oversight. “The digital economy has changed the format of financial services, but it has not changed the financial model itself,” Xuan said. Cyclical swings in the sector, micro credit risks and liquidity risk mismatches “still exist”, he said.
In recent years, Chinese regulators have increased scrutiny over the fintech sector as part of a broader campaign to fend off financial risks. Since late 2020, authorities have stepped up restrictions on the financial arms of online platform businesses after years of rapid expansion, saying a balance between financial innovation and security needed to be struck.
Later in 2021, China’s regulators banned crypto trading and mining amid concerns that cryptocurrency speculation could disrupt the country’s economic and financial order, one of Beijing’s top priorities. “Cryptocurrencies lend themselves to risks relating to fraud and unlawful transactions,” Xuan said, adding that the United States had “failed” at regulating cryptocurrencies.
On Thursday, U.S. Treasury Secretary Janet Yellen said the Biden administration is continuing to study the potential for systemic risks from digital assets, an effort that began before the collapse of cryptocurrency exchange FTX. China itself has launched its own digital renminbi, or yuan, but it is little used.
Early this month, China said it would set up a new regulatory body consolidating oversight of the financial services industry, which analysts said was aimed at closing loopholes with multiple agencies monitoring different aspects of the $57 trillion financial sector. The National Financial Regulatory Administration will absorb the China Banking and Insurance Regulatory Commission’s responsibilities and take over some supervisory functions from the central bank and the securities regulator.
“The quality of regulatory oversight over the digital economy will be improved,” Xuan said. “In this era, the demands on financial regulators are higher.”