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Screenshot of a breaking news alert e-mail from Q2 2017
The self-determined and often extremely draconian perspective from which China’s governmental authorities view the business activites outside their mandate is complex and ever-evolving.
Today, LeapRate reported that BGC Partners will be able to operate within mainland China’s interbank FX market, to offer FX Options. This represents not only a breakthrough but also a veritable U-turn when considering that Chinese government officials have gone to great lengths to prevent any infiltration by western firms to its shores, until now.
Whether there is any connection to this and China’s concern that it is unable to control the vast interest in virtual currency which its populace has demonstrated recently is a matter of interest.
Today, the Wall Street Journal reported that China’s central bank recently summoned senior executives of the country’s major banks, urging them to cut off all bitcoin-related business and is hardening its already-tough stance on the virtual currency.
According to the report, The People’s Bank of China warned the banks that they need to set up special groups to monitor accounts that might be conducting bitcoin-related trades and said those that failed to observe its tightened restrictions would be subject to public censure, according to bank officials.
The central bank, which initially took a more neutral position on bitcoin, late last year began shifting its stance out of concern that the virtual currency might be used to skirt capital controls or thwart anti-money-laundering regulations. More recently it has called bitcoin a “tool for speculation.”
As a virtual currency which has no central issuer, and is neither generated or controlled by any authority, Bitcoin is a powerful tool for otherwise inhibited Chinese citizens in order that they can circumvent stringent capital control laws as well as the rulings against conducting business with firms in free market nations which are not aligned with China’s communist governmental system.
Last month, BTC China, one of the country’s leading digital currency exchanges, installed China’s first bitcoin ATM in Shanghai and launched an online app allowing individuals to buy and sell bitcoins. The ATM is not connected to any of China’s banks, but instead allows Chinese investors to conduct transactions freely.
Late last year, the People’s Bank of China began to bear down on payments or settlements which were made in Bitcoin, ruling that domestic financial institutions could not conduct any form of settlement or payment relating to Bitcoin. At that time, the People’s Bank of China banned bitcoin-related investments, with Bitcoin’s prices having responded by making a swift recovery, thus restoring investor confidence that even a leviathan such as China’s banking system cannot dent the values of the virtual currency long term.
In this new development, commercial banks should post statements before May 10 notifying clients that using their accounts at the bank to trade bitcoin is prohibited.
Whilst China’s government continues to concern itself with social stability by attempting to ensure Bitcoin’s extinction from its jurisdiction, there could be more than a glimmer of hope for FX firms if China considers allowing retail FX companies to establish in the mainland and provide services to Chinese clients to be a better option than continuing to take a very tough stance which ultimately may result in its population resorting to Bitcoin transactions.
Of course, Bitcoin carries some potentially heart-stopping risks to its investors, with unstable and often unquantifyable values added to the demise of many Bitcoin venues, however for otherwise constrained Chinese investors wishing to conduct business with the outside world, added to Chinese investors’ often open attitude toward risk, it is easy to see how the authorities may be fighting a David and Goliath battle. Should this be the case, retail FX in the Asia Pacific region is about to go from strength to strength.