Virtual currencies pose a real threat

The China Banking Association together with the National Internet Finance Association of China issued a notice on Tuesday forbidding financial companies and payment-service providers from running virtual currency-related businesses. The notice said virtual currencies have no real value support and their prices can be easily manipulated, creating bubbles and false assets leading to business failures.

A virtual currency has many advantages including decentralization and distributed accounting. However, some venture capitalists have hyped up its value to make profits.

A virtual currency is not a legal negotiable instrument, that is, a real currency, even if huge amounts of funds are invested in it. It has no real value support, and should venture capitalists hype up its price and exit, other investors, especially the small ones, will be badly hit. It is necessary to strictly regulate virtual currencies to prevent them from being used as a tool for capital speculation.

Market regulators, too, should guard against virtual currencies. Yet a global consensus on how to regulate them is still lacking. Each country has its own rules. Which leaves loopholes for venture capitalists to exploit and hype up prices.

Among the world's major economies, China has relatively strict regulations. Way back in December 2013, the People's Bank of China, the country's central bank, initiated measures to minimize the risks posed by bitcoin, by barring ministries and payment-service providers from pricing products and services in bitcoins, buying bitcoins, or using bitcoins for paying insurance claims.

Unregulated growth of a virtual currency will deal a huge blow to traditional global currency systems and create systemic risks for the global financial and capital markets. So appropriate measures should be taken to minimize the risks posed by virtual currencies.

If not regulated, virtual currencies can undermine the traditional monetary system. Therefore, sovereign states around the world should come together to prevent virtual currencies from subverting the traditional monetary system.

BEIJING YOUTH DAILY