Moody’s expects China’s recent decision to step up its ban on domestic cryptocurrency trading to have positive impacts for the stability of its financial system.
On 24 September PBOC said that it had “strictly banned and would resolutely prohibit a range of cryptocurrency-related business activities that are considered illegal financial activity,” in its “Notice on Further Preventing and Disposing of Virtual Currency Trading Speculative Risk” (关于进一步防范和处置虚拟货币交易炒作风险的通知).
A research report from Moody’s says the move will have positive impacts, as it will “support financial stability, strengthen government control of the financial system, and help China to implement emissions reduction policy.”
While the ban on cryptocurrencies means that China and its financial institutions will not be positioned to participate in the global development of monetary and payments innovations, Moody’s points out that cryptocurrencies had triggered increasing concern in China over financial stability.
The transnational character of cryptocurrencies can be used to evade capital controls, while their high volatility and speculative appeal threaten to bring major losses to investors, which could in turn affect the stability of the financial system and social stability.