China defends cryptocurrency crackdown as fight against capital flight

Chinese regulators say they are on the right track in deciding to rein in digital currencies, according to central bank deputy governor Pan Gongsheng.

“If we didn’t shut bitcoin exchanges and crack down on initial coin offerings a few months ago, and if more than 80 percent of the world’s bitcoin transactions and financing activities were still taking place in China, which was the case back in January, what would it be like today? It’s scary to think about,” said the banker as quoted by Chinese business daily Yicai.

China, once the world’s largest bitcoin trading market, clamped down on cryptocurrency exchanges earlier this year. Beijing suspects the trade in cryptocurrencies is being used by Chinese citizens to move cash abroad. In September, the country’s regulator banned bitcoin trading and initial coin offerings (ICOs).

The ban forced all bitcoin exchanges and cryptocurrency trading platforms to immediately stop registering new users and announce plans to stop virtual currency transaction services. As a result, the world’s oldest bitcoin exchange, Shanghai-based BTCC, shut its operations.

The measure dragged down the price of bitcoin with the world’s leading cryptocurrency losing nearly 25 percent of its value in ten days. Since then bitcoin has gone through a bull run, which reached another record high above $11,800 on Sunday. The bitcoin token has surged more than 10-fold in value this year.

Chinese exchange and wallet services had to move activities overseas with local investors reportedly turning to peer-to-peer marketplaces to continue active trading of digital currencies. The Chinese government is reportedly working on developing its own sovereign digital currency despite all the restrictive measures.