Regulators are exploring ways to regulate these digital currencies, and some have flexed their muscles in recent months. Earlier this year, the People’s Bank of China stepped up its efforts to regulate the market, including setting up a task force to carry out inspections and ensure bitcoin exchanges had implemented anti-money laundering systems, and warned several exchanges against violating rules.
Some saw the moves from the PBOC as an attempt to crackdown on bitcoin and part of Beijing’s broader attempts to stem capital outflows. But Lee disagreed.
“It’s not really a crackdown,” he said. “The central bank previously was not very aware of the details of how bitcoin is utilized, how bitcoin is traded.”
He explained that the surge in bitcoin prices coincided with the massive capital outflows from China and the exchange rate changes of the renminbi against the dollar.
“There was a causation and correlation issue. People thought bitcoin was causing it — but after studying it more, I think the central bank has realized that bitcoin is not the cause of the change in exchange rate, nor is it the cause of the capital outflows.”
Even then, some key voices in China are skeptical about the future of cryptocurrencies in the mainland. Earlier this month, reports said an adviser to the PBOC said virtual currencies like bitcoin are assets, but they do not have the attributes needed to be a currency that can meet modern economic development needs.
Lee said central banks need to embrace the fact that bitcoin is a new digital currency that’s being traded actively in China and around the world.
“It’s a new thing the central banks should pay attention to and figure out what the rules and regulations should be.”