Forbes Article by: ,

Ever since Davos this year, everyone loves China. This time, it’s the Chinese monetary and securities regulators banning the trading of bitcoin on the mainland, including banning all initial coin offerings, the chief funding mechanism for start-ups using crypto-currencies. China announced one ban last week, a new ban this week.

In case you missed it, bitcoin has been placed in the cross hairs of two of the world’s most powerful central banks, in two countries relevant to the crypto-currency world: the Chinese, and the Russians are now warning against legitimizing in the trading of crytpo-currencies.

On Tuesday, U.K. investment firm, Schroders, agreed with the Chinese without praising them directly. In an op-ed in the Financial Times on Sept. 7, just four days after China banned ICOs and four days before it banned bitcoin exchanges, strategist Huw van Steenis said, “we should expect more central bankers to look to outlaw or crimp their use. This will be most acute in markets which are worried about capital flight and organized crime. This won’t stop speculators and enthusiasts, but will limit their potential to create the powerful network effects which would make them a useful parallel currency.”

The ban could prove to be a massive blow to blockchain and crypto-currency developers in mainland China. Many of them will simply look to other ICO markets to fund their projects, including those in Russia and the United States, industry insiders said.

Since 2009, a lot of private lending has gone from scaredy-cat commercial banks reeling from the housing crisis to private asset managers. Over $600 billion has been raised to fund private debt, according to market data firm Prequin. Policymakers are spending more time analyzing the non-bank sector, or what they call in China: “shadow lending.” Crypto-currency just adds another layer. The growing dependence of banks on large technology firms to run their infrastructure is also giving policymakers pause for thought about who is systemically important, Steenis says.

Central banks don’t want to lose control of money in their country, and want to be able to track it, especially in China and Russia where official corruption is rampant, and organized criminal gains use crypto-currency as another means to commit tax fraud. So when developer issue currencies to fund projects, and tokens to fund transactions between the start-up and its clients, central banks are cut out of the loop. So are states, which cannot tax transactions. The stateless, autonomous nature of bitcoin worries governments. And that makes Schroders think central banks will start to play hardball before this trend runs away from them.

“Central banks also fear their ability to monitor the payment system would fall,” Steens writes. “Given the global fight against terrorism and organized crime, this is an acute concern.” His last point is the most relevant, and speaks to why more central banks will come out against bitcoin, the most popular crypto-currency. “In an extreme scenario, central banks fear they may even lose control of the money supply,” he says.