December 31, 2024, China’s currency regulator announced new rules geared toward tightening supervision of cryptocurrency activities. These rules require banks to monitor and report dangerous transactions, including transactions involving digital assets corresponding to Bitcoin. State Administration of Monetary Affairs (SAFE) he stated that banks must discover high-risk transactions based on aspects corresponding to the identity of the people or institutions involved, the sources of their funds and the frequency of transactions. The aim is to curb illegal financial activities corresponding to underground banking, cross-border gambling and other illegal crypto transactions.
As a part of these activities, financial institutions are expected to implement risk control procedures and limit services to entities deemed to be high risk. This regulatory move comes as China continues its crackdown on cryptocurrencies, that are seen as a threat to financial stability. According to Liu Zhengyao, a lawyer from Shanghai, the new regulations will provide a legal framework for punishing cryptocurrency trading. He explained that using yuan to purchase crypto assets before converting them to foreign currency will now be classified as cross-border financial activities, making it harder to circumvent the country’s foreign exchange regulations.
China’s government has long maintained a strict stance on digital assets. Since 2017, it has banned initial coin offerings (ICOs), closed cryptocurrency exchanges, and banned financial institutions from engaging in crypto activities. The government’s actions intensified in 2021, when Bitcoin mining was banned and all cryptocurrency-related businesses were declared illegal. Despite these restrictions, China stays the world’s second-largest holder of Bitcoin, holding roughly 194,000 BTC value roughly $18 billion. These assets were seized in consequence of law enforcement actions related to illegal activity because China has not officially purchased Bitcoin.
While some experts suggest that China could eventually adopt a Bitcoin reserves strategy, there is no indication that the federal government will ease its regulations. Legal risks for cryptocurrency traders in China are also growing. In August, the Supreme People’s Court ruled that using cryptocurrencies to convert criminal proceeds violated China’s criminal law. Additionally, the federal government has increased oversight of stablecoins corresponding to Tether, restricting their use in cross-border transactions.
China’s tough approach to cryptocurrency stands in stark contrast to global trends, where digital assets are gaining greater acceptance. Despite the potential economic opportunities presented by cryptocurrencies, China stays resolute in its policy of maintaining tight control over its economic system and limiting the influence of cryptocurrencies within the country. The latest Forex regulations are one other step in Beijing’s efforts to restrict using cryptocurrencies and protect its financial stability.
