With ICOs emerging every day, the financing tool also attracts regulatory attention. In China, PBOC will take the lead of the newly-established National Financial Stability Committee. The sheer number of money raised by ICO poses great challenge to the regulators. Sheng Songchengis a member of the Eleventh National People’s Congress, the Director of the Investigation and Statistics Department of the People’s Bank of China. In a recent interview, he reiterated that bitcoin is not a currency and ICO must be regulated appropriately.

“Bitcoin is not qualified to be money, it is a string of code generated by complex algorithms. It is different from gold and itself does not have value as its natural attributes, which is the biggest characteristic of all virtual currency. Whether Bitcoin has value or can be a medium of exchange depends entirely on people’s trust. But virtual currency has technical value and is an asset, which cannot be denied, “

he told reporters.

At the same time, the deflation nature of virtual currency will inhibit economic development.

“Bitcoin will reach its supply cap of 21 million in 2140. The limited number of virtual currency makes it difficult to become a medium of exchange with modern economic development. If it becomes a functional currency, it will inevitably lead to deflation and curb economic development. The money supply should be appropriate to the economy development”

he said.

Earlier this year, he wrote an article explaining 6 reasons for digital currency backed by central bank:

1. Private digital currency will divert and replace part of the use of fiat money.

2. Fluctuation of private digital currency is a threat to financial stability.

3. Private digital money supply is relatively fixed, which is difficult to adapt to the needs of modern economic development.

4. Private digital currency lacks the central regulation mechanism, which makes it difficult to satisfy the needs of stabilizing modern monetary system.

5. Private digital money poses challenges to anti-money laundering, counter-terrorism financing and capital controls.

6. Private digital money increases the difficulty of protecting consumer rights.

He was also asked to comment on the ICO phenomena:

“ICO has been around for only a few years, Including blockchain technology. Many things will be eliminated out of natural selection. In the future, the implementation of blockchain and ICO relies on the test of time and market. We may implement appropriate regulation, but we must also prevent tight regulation that strangle the innovation.”

Sheng Songcheng said that:

“Virtual currency prices fluctuate too much, 10% to 30% movement are very common. If it is a currency of a nation, the country’s entire economy may be collapsed. Also financing with virtual currency of such high volatility is also risky. “

He also suggested that risk disclosure to ICO investors need to be strengthened. Currently ICO’s major problem is that there is no information disclosure standards and procedures, which leaves loopholes for problematic platform and incentive speculative investment. At the same time, some ICO projects posted exaggerated promotion at its early stage but failed to deliver continuous information disclosure after ICO is closed. It’s necessary to implement information disclosure and adequate regulation on ICO projects.