Chinese Innovation In E-Money And Virtual Currency Systems And Incentive Effects Of Domestic Regulations

• Main Author: Trappe, Roswitha Alexandra
• Other Authors: YSI Asia Convening 2019
• Format: Conference or Workshop Item
• Language: English
• Published: H. : ĐHKT 2020
• Subjects: Innovation; Currency Systems; China; E-Money; Virtual currency systems (VCS)
• Online Access: http://repository.vnu.edu.vn/handle/VNU_123/70572
• Institution: Vietnam National University, Hanoi

E-Money and virtual currency systems (VCS) have been in active use years before Satoshi Nakamoto published his ground-breaking Bitcoin paper, with exceptional popularity in China. As traditional financial institutions and the central bank struggled to keep up with the rapid development of online services and new payment channels in the late 1990s, private firms such as Tencent and Baidu were quick to fill the void in order to facilitate transactions for online purchases with their own VCS Q Coin and Baidu Coin, respectively, which paved the way for e-money systems WeChat Pay and Alipay. Meanwhile, online games such as World of Warcraft saw a sizeable black market emerge on which its game-specific virtual assets were exchanged globally, often "mined" on large scales in low-wage countries such as China as considerable secondary industries emerged. Only a few years later, cryptocurrencies such as Bitcoin saw millions of private investors pour private savings into Initial Coin Offerings, with up to 80% of all cryptocurrency trades cleared against the Renminbi and an estimated 58% of all mining pools located in China at its peak in 2017. In each of these distinct cases, Chinese regulatory intervention was uncompromising, though only after an initial laissez-faire approach. This paper seeks to provide a novel taxonomy of VCS, examine the past utilisation of different VCS types on the Chinese market, and investigate whether the impact of relevant policies in the space have been instrumental in steering innovative enterprise. It will utilise a largely qualitative approach, with which the model from Knut Blind’s much-cited “The Impact of Regulation on Innovation” will be analysed. Findings reflect that Chinese innovation in both e-money and VCS largely filled vacuums which existing payment and settlement systems could not fill, while regulation has proven to aid and in fact embrace large-scale adoption of novel technologies so long as state control over currency flows is not threatened and industries are fully regulated.