New in from China! Zhang Weiwu did advise us not to bother looking for action with the Chinese exchanges. They’re living on borrowed time, and the market seems to have accepted this. Not even a leaked government document can inspire any reaction in this climate. Still, Zhang says it’s worth taking a closer look and explains what the document says – and, more importantly, what it doesn’t say.

by Zhang Weiwu

I identify the recently-leaked document as authentic – please spare me the trouble of having to prove why. It’s a working document on PBOC’s micromanagement of Bitcoin. The leaked document is a little outdated, being written when Bitcoin was around its lowest price this year – between $400 and $450. My editor suggests that I should capture my readers’ eyes with fun stories. This translation should serve as a good joke to start with:

As of 30th Nov 2013, Bitcoin peaked at 1015.55USD. With the combined strengthened measurements of the world’s governments towards Bitcoin, like PBOC’s “notice” by 3rd Dec 2013, the hype of Bitcoin speculation deflated.

The document proves that there is a global trend of stricter regulation towards Bitcoin:

As Bitcoin market cap rises, money laundry, speculation, disappearance of exchanges and other risky problems start to reveal. The changes of attitudes towards Bitcoin can be mainly categorized as the following: 1. Some countries who used to accept Bitcoin as a currency start to warn against it, like European Banking Authority issuing warning; 2. Some ‘wait-and-see’ countries are changing attitude, like Korea issuing statement to not to recognize (the legality of) Bitcoin. 3. Some countries joined the rank of ‘total ban’, like forbidding the use of Bitcoin in Russia. So, yes, the document reiterates that ‘The world trend is more control and disavowal of Bitcoin.’

The document provided a management framework for finding and closing bank accounts associated with Bitcoin, and establishes a ‘blacklist’ effort across the banks. Keen readers can find the whole leaked document in Chinese here.

However, you may gain more insight from what is absent in this situation as a whole, rather than what is present in the document itself.

Missing item 1: Attention

Firstly, there has been little reaction about the subject of the leak itself. No one seems bothered enough to read it. In fact, the document was leaked around a week ago; even I wasn’t motivated to write a report about it. The market has mostly priced in the negative information about China – although worse is still expected, the market just doesn’t care that much any more.

Missing item 2: PBOC itself

The term ‘PBOC’ is not mentioned in the document at all. It is, in fact, a working document of the ‘Payment & Clearing Association of China’. If you haven’t heard of PCAC, don’t worry: nobody has. The only information about PCAC available on Google simply establishes the connection. It is not a government agency, although PBOC is responsible for it (don’t get me started on this idiosyncratic Chinese approach to management). Why should banks listen to this organization and respond with an action like sharing blacklists? Answer: the organization has implied authority from PBOC.

In fact, it’s better to start thinking of PCAC as a club where online payment processors pay for a chance to listen to the Lord’s will. The pay only serves to make the club more exclusive: 200 members, for this Chinese coterie. As usual, the identity of the chairman doesn’t matter – it’s usually a figure who occasionally needs to be reminded himself that he’s chairman. The vice chairman grudgingly carries out all the work, hoping one day he might work for this puppet association’s soul organization instead. In case of PCAC, the soul is the Payment and Clearing Department of PBOC. This where the ‘implied authority’ comes from.

Besides functioning as a communication channel of the Lord to his subjects, the organization had done absolutely nothing at all since it was founded in 2011, until it hosted the April 24 meeting on organizing the bitcoin ban. It never closed a single bank account before it was used to co-ordinate the effort on closing bank accounts associated with Bitcoin.

So why the subtlety?

Those who read my previous article about the size issue will know that Bitcoin presents an unusual problem. Bitcoin is too small to deal with – yet it is important to extinguish this fire. Using any formal organization for the purpose will unnecessarily promote the importance of Bitcoin. ‘We have to give this executive function to PCAC just for this one case, because there isn’t a smaller tool we can use’, thinks PBOC.

Missing item 3: transaction volume

The leaked document focuses on the price of Bitcoin. When it makes its points, it uses price as a reference. The global governments’ ban was successful because the price was 450USD. When it rises to 660USD, does that mean the ban was a failure? There was no mention at all about the domestic transaction volume of Bitcoin, fake or otherwise. China’s ban was effective, as shown by the lack of attention to the leaked piece. But PBOC is banning Bitcoin in China, while looking at the global price as a metric of the success of its ban. PBOC may have misjudged the situation this way. I expect a harsher ban on Bitcoin, like the closing of a few major exchanges. But don’t try to guess the timing of the ban. There is a risk that the source of the leak, the CPAC, doesn’t have the level of experience needed to conduct its work, or that the price-focused report doesn’t reflect the Lord’s thinking. The Lord’s mind may be lucid enough to know that the surging price of Bitcoin is not his failure, and correctly respond with inaction. (If PBOC does react to this price rise, I will reward myself with great laughter: such is the kind of Lord we have!)

What is the long term outlook for China? It will come as no surprise that a more serious situation requires bigger tools. PBOC, which speaks through this working document of PCAC, is right about one thing: ‘The defence against the Bitcoin risk is a long-term task, the banks should fully realize the importance and complexity of the task.’

Update: It now happened that the leaked document has gone public. Caixin, an etablished source for financial information, wrote about it. The timing of the publication should give our Lords some reasons to regard their action as successfull – it coincides with a crash. But personally I think the crash has, this time, nothing to do with China.

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The author is a Chinese entrepreneur. He has been doing IT business with German customers in China for 10 years. He believes bitcoin is the greatest invention in this decade, and is actively looking for opportunities and partners to establish new types of business with bitcoin. He can be reached via linkedin

Read more from Zhang:

Chinese Banks don’t know how to act appropriately, because Bitcoin is too tiny

China: If Bitcoin remains small, it will be allowed to live

‘It’s not a survivor’s game. It’s a loser’s game.’

Truth and Rumor