29 Jul 2021 · 2 min read

Ex-Bank of China Chief Issues DeFi Warning

The former head of the commercial banking giant the state-owned Bank of China has sent out a warning about decentralized finance (DeFi) and cryptocurencies.

Source: Adobe/concept w

Per the 21st Century Business Herald, via East Money, Li Lihui, who was appointed President of the Bank of China in 2004, stated that “decentralized finance has provided a challenge to the traditional model of centralized finance.” He added that DeFi is “separate” from “the current financial system,” out of the “supervision” of its regulators – and that it “should receive a lot of attention and vigilance.”

Li, a member of the Chinese Communist Party since 1975, holds no small amount of influence in Beijing, where he currently heads the blockchain research unit at the influential China Internet Finance Association.

Speaking at a recent tech forum, he explained that when it came to DeFi “attention should be paid to the extent to which it will replace traditional finance.”

He asked rhetorically:

“Will cryptocurrencies enter the popular transaction and payment spaces?”

He also conceded that “globally speaking,” DeFi would become a “hot issue” for financial regulators in the future.”

But Li did not rule out the option of attempting to harness the sector’s benefits, conceding:

“DeFi may also become a growth area for international financial competition in the future. We should devote ourselves to establishing a global digital financial advantage.”

The China Internet Finance Association executive added that DeFi is now showing “signs of scaling and globalization,” with the Chinese financial sector “still to actively respond to the challenge.”

He suggested that a three-pronged approach could help China deliver a powerful response, namely:

  • Building the digital yuan into “the world’s best central bank digital currency (CBDC).” Li said this measure would be “conducive to maintaining China’s financial security in the era of the digital economy and would safeguard China’s monetary sovereignty as a “response to the impact of powerful [non-Chinese] digital currencies and “the impact of cryptocurrencies on the existing monetary system and financial system.”
  • More regulation, in the form of the “construction” of a Chinese “security barrier for digital finance.”
  • Regulatory innovation, particularly on the technical front – as part of a bid to “reduce regulatory costs.”

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