China’s People’s Bank of China (PBOC) has heightened its crackdown on virtual currencies, officially declaring that all virtual currency-related activities are illegal under national law. This move stems from growing concerns about financial stability and security risks associated with digital currencies.
Why Has China Banned Virtual Currencies?
The recent announcement follows a major coordination meeting led by the PBOC, involving representatives from the Ministry of Public Security, Cyberspace Administration, the Supreme People’s Court, and other top regulatory bodies, such as the China Securities Regulatory Commission.
Officials emphasized that virtual currencies, including Bitcoin and stablecoins, do not hold the same legal status as fiat currency. Consequently, they cannot be used in market transactions. These authorities identified risks such as illegal fundraising, money laundering, fraud, and cross-border capital transfers, all of which pose challenges to economic and financial stability.
Stablecoins Failing to Meet KYC/AML Standards
Stablecoins, considered less volatile digital assets, were a particular focus of the discussion. Regulators highlighted the inability of these coins to meet global KYC (Know Your Customer) and AML (Anti-Money Laundering) standards. Their misuse could enable illegal activities like money laundering and bypassing capital controls.
As part of the enforcement strategy, Chinese officials called for closer inter-agency coordination to monitor capital flows and digital transactions, enhancing their ability to identify and curb speculative or illegal cryptocurrency activities.
The Impact of the Ban and Future Outlook
China’s zero-tolerance approach to virtual currencies signals a firm commitment to financial security. The PBOC’s stance reinforces that all operations connected to virtual assets—be it mining, trading, or offering services—are deemed unlawful within the country. Officials revisited the achievements of their 2021 “Notice on Further Preventing and Handling Risks of Virtual Currency Trading and Speculation,” acknowledging its success at curbing market chaos.
However, speculation surrounding digital currencies has resurged, which has prompted this renewed stringent enforcement. Authorities plan to refine existing regulations to address emerging forms of cryptocurrency-related risks. The directive is aligned with guidance from President Xi Jinping’s roadmap focused on financial stability under “Xi Jinping Thought on Socialism.”
Compliance Solutions for Businesses
Businesses operating globally need to adjust to China’s strict policies on digital currencies. Leveraging compliant tools is critical. For example, Chainalysis, a top blockchain analytics company, offers solutions for cryptocurrency compliance, helping businesses manage risks by adhering to anti-money laundering regulations and monitoring transactions securely.
As China’s policies reshape the crypto ecosystem, stakeholders must remain vigilant and informed about compliance requirements and market trends.
