The Criminalisation of Cryptocurrency Operation in China: Limits of Private Money Reconsidered

Abstract

This article examines the governance model and the political economic considerations in the criminalisation trend of cryptocurrencies in China since 2017. Cryptocurrencies are completely banned for threats to the central bank and commercial bank-dominated sovereign monetary system and their policy tasks (such as capital control); for financial stability, market integrity and illegal fundraising concerns and for regulatory cost and capability of identifying and supervising different kinds of cryptocurrencies and their operators. The downside of such a criminalisation decision is arguably sacrificing market efficiency and autonomy. Based on the idea that the essence of money is credit, this article then explores the limits of private money operation in China, namely the entry conditions and operational rules on banking and payment institutions. A policy suggestion is that private entities with technological strengths for risk control and infrastructure design should be encouraged to provide banking and payment services. The regulatory rules of commercial banks are applicable to private banks, with bespoke rules applied to nonbank payment institutions. Regulation and supervision of data protection, operational security and digital infrastructure design shall be the focus of legal design in the future.