As if Zhou Xiaochuan didn’t have enough to worry about, China’s central bank governor now has a bitcoin problem on his hands. In a new report, Goldman Sachs says the yuan is now used in 80 percent of transactions into and out of the cyber currency, topping the dollar, yen and euro. Given that the Communist Party’s highest priority is stability, and the rampant use of bitcoin represents nothing if not the opposite, it’s probably only a matter of time until Beijing tries to crack down.
It wouldn’t be the first time. In December 2013 — at a time when the yuan accounted for about 50 percent of bitcoin transactions — Zhou clamped down hard on the nascent payment system, citing concerns that it was enabling money laundering and undermining capital controls. On Dec. 5, the People’s Bank of China barred financial institutions from handling bitcoin transactions, concluding it isn’t a currency with “real meaning.” A few months later, in March 2014, the PBOC went further, ordering banks and payment companies to close the trading accounts of more than 10 bitcoin exchanges.
But bitcoin traders continue to show up the PBOC. As Goldman Sachs points out, the trading volume inside China has risen markedly — even as bitcoins plunge in value (from about $1,100 in late 2013 to around $300) and lose cachet elsewhere. “Bitcoin,” writes Goldman Sachs analyst James Schneider, “has momentum in China.”
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