*This alert has utilised a translation tool.
China’s target of achieving a ‘no crypto’ world seems more near than ever before. In a move to further the restrictions on the cryptocurrency economy, the People’s Bank of China (“PBOC”) on September 24, 2021, issued a notice (“Notice”) deeming almost all activities, excluding holding, relating to cryptocurrencies as illegal. The Notice reiterates the earlier issued policies on cryptocurrency transactions and suggests a framework for inter-department coordination to ‘maintain a high-pressure crackdown on virtual currencies’. Activities including virtual currency trading, token issuance, virtual currency derivative transactions, and virtual currency exchange are all deemed illegal financial activities. The Chinese government has long associated cryptocurrencies with money laundering and a mechanism of illicit fundraising, ‘endangering people’s property’. The PBOC further adds that Bitcoin and Ethereum have not been provided with legal status and cannot be circulated in the market.
Now, financial management departments, cybersecurity and telecommunications department have been directed to identify a risk prevention system and target mobile applications as well as other online platforms which offer cryptocurrency-related services. These applications would most likely be shut down in the future, following further government directives. Earlier this year in May, the PBOC had also issued a statement on restricting activities relating to cryptocurrency trading and banning all financing in relation to cryptocurrency, including pledging or trust services. The government’s crackdown has been expanding since 2017 when entities engaging in initial coin offerings had been blocked. It is interesting to note that neither the May prohibition nor the Notice has explicitly deemed ‘holding’ of cryptocurrency illegal. However, since cryptocurrency exchange services have been restricted in Chinese markets, it would be extremely difficult for individuals to access wallets or trading services. Earlier, many traders were accessing foreign exchange services to trade in virtual currencies, however, the position now stands to root out all overseas virtual currency exchange services and such entities would not be able to extend their services to Chinese residents, as they are deemed as ‘illegal financial activities’.
China has been extensively testing its Digital Yuan, which has also been provided with legal tender status following the passage of Article 22 of the People’s Bank of China Law. Since China classifies Bitcoin and Ethereum as being issued by non-monetary authorities, that utilises distributed accounts, the introduction of the Digital Yuan may provide the government with the opportunity to trace Chinese resident’s transactions.
Authored by Shivani Agarwal, Founder, and Samaksh Khanna, Co-founder.
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