Authors of this Article:
■ Zhang Ming, Deputy Director of the National Financial and Development Laboratory, Deputy Director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences
■<>ao Hong<>, Affairs Research Institute, Chinese University of Hong Kong (Shspan p span>span Wang Yao, Researcherured at the National Financial and Development Laboratory
This article uses a combining literature analysis and case studies explore the challenges posed by cryptoccryptoccryptocurrencies to global financial governance. The research finds that the challenges of cryptoccryptocurrencies mainly manifest in three aspects: first, they increase the vulnerability of the global financial system; second, related abuse behaviors amplify the loopholes in international financial regulation; third, they pose higher monetary substitution risks to developing countries. In response to these issues, the article proposes policy recommendations from aspects such as exploring the construction of new financial governance institutions promoting the establishment of a global stablecoin regulatory mechanism, promotingating theentof regulationating and bank digital currency ((). The's innovation lies in: on one hand, systematically extracting the three core challenges ofurrchallengesencies global financial the governance by combining the latest cases and data; on the other hand, incorporating the characteristics of cryptocurrencies into the analytical framework of financial vulnerability theory, revealing its amplification channels for financial vulnerability and and expanding the application scope of this theory in the digital financial context. The original article was published in the 3rd issue of "Financial Regulation Research" in 2025, and for ease of reading, it is published in two parts, with this being the first Introduction Cryptocurrencies represented by Bitcoin emerged and rapidly developed during the 2008 international financial crisis. From the perspective of development motivation, cryptocareurron encryption technology and distributed technology ledger technology especially blockchain technology),), aiming to build a decentralized, global digital payment and value transfer system that transcends traditional state regulatory frameworks (Nakamoto, 2008). Cryptocurrencies are typically applied in payment settlement, financial investment, and various illegal financial activities, and have attracted widespread attention from global financial governance governance institutions and academic circles their (Li Jianjun and Zhu Yechen, 2017; Song Shuang and Xiong Aizong, 2022).the widespread applicationapplication of their, its impact financial governance have become increasingly, particularly in the following three aspects: First, the popularization of cryptocurrencies has profoundly influenced cross-border capital flows, financial market stability, and consumer rights protection, making it of for mainstream financial governanceators and major countries. Financial Stability BoardB tracking the market risks of cryptocurrencies since 2018 and regularly combing and updating their potential threats to global financial stability. In 2022, FSB also issued its first principle document on global stablecregulationec. Second, the anonymity and cross-border nature of cryptocurrencies increase the risks of money laundering, terrorist financing, and other illegal financial activities, posing higher requirements for financial regulatory institutions. In fact, due to the increasingly complex money money laundering techniques based on cryptocurrencies and the lack of effective coordination between jurisdregulating combating related criminal activities face enormous difficulties. Third, given that the issuance and circulation of cryptocurrencies are notot controlled by central banks, their price fluctuations and transaction volume changes are significantly impact the formulation and implementation of monetary policies. Especially after Facebook's Libra plan, the challenges of stablecoins to macropolicies have received particular attention from institutions G7, IMF, BIS, and other institutions, which have strengthened their research on this matter. To address these challenges, in recent years, the architecture centered on G20supported by institutions like FSB, IMfimfIS,iosIOSCO, and FATF has continuously strengthened cryptocurrency regulation through in-depth tracking research, issuing regulatory guidelines, and deep,. Organizations like FATF, FSB, and IMF basically publish related research and guidance recommendations annually, and also guidelines for private private currency exchanges.. As the country with the strictest cryptocurrency regulation globally globally, China clearly clearly stated as early as risk virtual commodity in 2013 and required domestic companies to manage risk controls. Subsequently, from 2017 to 2021, China further strengthightened cryptocurrency regulation and prevention of new financial risks through various measures, including shutting down domestic cryptocurrency exchanges and comprehensively banning financing, speculation, and "miningings" activities using cryptocurrencies. Additionally, the EU issued the the world's first comprehensive cryptocurrency law - - The Markets in Crypto Assets regulation bill (MiCA) in May 2023 to regulate crypto market operations, regulatory transparency, and curb illegal financial. activities. However due to continuous innovations in the cryptocurrency field and multiple factors like political lobbying and the Federal Reserve's extreme rate monetary recent years of, the after Trump's's re-election and its strong "de-regulation" policy further exacerbated the impact of cryptocurrencies on the global financial governance system, makinging this issue more complex and urgent and and urgent to address. In this context, this article deeply explores the the core challenges cryptocurrencies pose to global financial governance and their specific manifestations and impacts, aiming to provide references for adjusting the global financial subsequent governance system and subsequent research. Based Based on the analysis and compilation of existing research achievements and latest factual evidence, the article summarizes the core challenges of cryptocurrencies to global financial governance into three aspects: First, cryptocurrencies have formed a a massive global investment market with high high high infectivity, and in comprehensive regulation it a significant destdestabilizing factor in the current international financial system. Second, in recent years, increasingly rampbehaviorsant behaviors of using cryptocurrencies to evade regulation, with terrorist organizations and some state actorstor's entry, significantly amplifying the loophopholesopes in the global financial governance system. system during this USD interest rate hike cycle, rapid increase in cryptocurrencyurradoption rate makes more developing developing countries face face monetary substitution risks, posing continuous and profound challenges to their governance capabilities. In response to these three challenges and their underlying reasons, these, the article proposes policy recommendations such as exploring the construction of new financial governance institutions or frameworks the, a global stablecoin regulatory mechanism, promoting the intelligand regulation,ating cooperation digital currency (CBDC) research and cooperation.:请检查一下翻译是否有不恰当的地方。
Here is the English translation:Compared to existing research and practice, the marginal contribution of this article is mainly reflected in the following two aspects: on one hand,starting from the three main motivations of cryptocurrency being used for investment trading, avoiding regulation, and as an alternative to sovereign currency, this article systematically distills the three core challenges that cryptocurrencies pose to global financial governance by combining the latest cases and data. This not only provides a relatively clear research framework for subsequent research and policy-making but also further enriches the research system in the field of cryptocurrencies and global financial governance.On the other hand,traditional financial vulnerability theory primarily focuses on issues such as bank runs, asset price bubbles, and credit market failures, without fully considering the increasingly close connection between cryptocurrencies and the traditional financial system. By integrating the high volatility, difficulty in regulation, and cross-border circulation of cryptocurrencies into the financial vulnerability theory framework, this article not only reveals the amplification channels of emerging things on financial system vulnerability but also expands the application scope of the theory in the digital financial context.
[The rest of the translation follows the same professional and accurate approach, maintaining the technical terminology as specified in the initial instructions.]The emergence and growth of cryptocurrency exchanges have greatly facilitated transactions between cryptocurrencies and fiat currencies, further strengthening the connections between markets. According to Coinmarketcap, a cryptocurrency data service provider, as of April 2024, there are 765 exchanges globally, with most individual and institutional investors able to purchase cryptocurrencies online through major exchanges using payment methods such as credit or debit cards, wire transfers, or cash (via Bitcoin ATMs). Simultaneously, institutional investors and financial regulators of major countries are promoting the integration of cryptocurrencies with traditional financial systems. As early as 2017 and 2020, U.S. exchanges launched Bitcoin futures contracts and corresponding options products, establishing an investment product system including funds, trusts, insurance, and derivatives, significantly simplifying institutional investors' access to the cryptocurrency market. Morgan Stanley's research shows that retail investors' trading volume on Coinbase, the world's second-largest cryptocurrency exchange, rapidly declined from 80% in the first quarter of 2018 to 32% in the fourth quarter of 2021, with cryptocurrency funds and custody institutions becoming the market's dominant force and contributing most of the trading volume. In early 2024, the U.S. Securities and Exchange Commission first approved the listing applications for 11 Bitcoin ETFs, and in July of the same year, approved the first Ethereum spot ETFs in the U.S., further increasing institutional investors' risk exposure to the cryptocurrency market. Data indicates that by December 2024, the total assets under management of 12 Bitcoin spot ETFs had exceeded $100 billion, collectively holding over 1.1 million Bitcoins (approximately 5% of total supply), surpassing Bitcoin's founder Satoshi Nakamoto to become the largest Bitcoin holder. During the same period, the Ethereum ETF market size was approximately $10.43 billion. With expectations of a more crypto-friendly policy under the new Trump administration, future risk exposures for various investors are likely to continue increasing, potentially triggering greater regulatory and scale challenges.
（II） Cryptocurrency Market's Transmission Channels for Increasing Global Financial System Vulnerability
Financial market contagion (or volatility spillover) is a significant risk and uncertainty facing the current global financial system and the primary way cryptocurrency markets impact global financial system vulnerability. Theoretically, the transmission mechanism between global financial markets can be roughly divided into fundamental and non-fundamental factors. Among these, fundamental factors, also known as the economic foundation hypothesis, are based on traditional financial theory assuming completely rational investors, believing that changes in common economic basic variables between countries will lead to synchronized financial market fluctuations. However, since the cryptocurrency market lacks economic foundations and is filled with primarily speculative, irrational investors, its volatility spillover to financial markets may occur mainly through non-fundamental channels. This article primarily organizes three widely consensual impact channels based on FSB's research series and related theoretical and empirical analyses: confidence effect, financial institution risk exposure, and wealth effect.
[The translation continues in this manner, maintaining the specified translations for technical terms and preserving the overall meaning of the original text.]Second, this volatspillility effect has significant asymmetry.The asymmetry is reflected in both the direction of volatility spillover, such as Bitcoin being found to have a unidirectional volatility spillover to gold, stocks, bonds, panic indexX and oil; and in regional theenelatility market spillilityover regionality is the cryptocurrency market has significant volatility spillover effects markets of some countries, but but noticesignificant for other countries (Urom et al., 2020; Cao and Xie, 2022).
Third, after the COVID-19 pandemic, the volatility spillover of of the cryptocurrency market to the stock market has become stronger.From a horizontal comparison, during the pandemic loose financial financial environment of the pandemic, the spilloverses of cryptocBitcoin and stablecoins) to the stock market has increased compared to key asset classes such as 10-year US Treasury bonds, gold, (euros, and renfrom a longitudinal perspective, compared to the from 017-017-2019 sample, Bitcoin's volatility spillover to the S&P 500 index increased by about 16 percentage points, and its volatility spillover to the MSCI Emerging Markets Index increased by 12 percentage points (Iyer, 2022).
(This article is sourced fromFinancial Regulation Research3)
