China’s ban on Bitcoin and other cryptocurrencies may be temporary, to appease international agencies and hardcore communist members ahead of the upcoming Communist Party convention.
China’s big government and banks cannot tolerate Bitcoin. It threatens their very existence, as it was previously written in a piece here.
That’s in the long term, though, when Bitcoin has the potential to replace the yuan in everyday transactions, and as a monetary asset.
At present and in the immediate future, however, the size of the Bitcoin economy is far too small to be a real threat to the Beijing government and the banking system it owns and manages.
That’s why something else must be at play behind the Bitcoin ban. Like an effort by Beijing to demonstrate to international agencies, such as S&P Global, that it is in good control of the financial system and the credit conditions of the country.
If that was their aim, it didn’t work. S&P Global downgraded China one notch last week.
Then there’s the upcoming 19th Communist Party Convention, where the party leadership will be grilled by hardcore members on any innovation that threatens the party’s grip on the economy.
Actually, this isn’t the first time Beijing is going after innovations that threaten that. Back in 2011, a few months before the 18th Communist Party Convention, the party leadership at that time went after a controversial Chinese corporate structure, Variable Interest Entity (VIE).
This structure had allowed Chinese companies to list their shares in US exchanges through “reverse mergers”—a strategy that drew the scrutiny of US regulators, due to a string of accounting irregularities among these companies.