The move reinforces China’s tough stance, the strongest to date from a major economy against the use of digital currencies.
By guest authors Elaine Yu and Joe Wallace from the Wall Street Journal.
China’s central bank said all cryptocurrency-related transactions are illegal, reinforcing the country’s tough stance against digital rivals to government issued money.
In a statement posted on its website on Friday afternoon, the People’s Bank of China said the latest notice was to further prevent the risks surrounding crypto trading and to maintain national security and social stability.
Cryptocurrencies weakened following the statement. The price of bitcoin fell more than 8%, compared with its level at 5 a.m. ET Thursday, before paring some of those losses. The cryptocurrency fetched just under USD 41,370 per bitcoin, according to CoinDesk. Ether tumbled more than 11 % to trade at about USD 2,795.
Naming bitcoin, ether and tether as examples, the central bank said cryptocurrencies are issued by nonmonetary authorities, use encryption technologies and exist in digital form and shouldn’t be circulated and used in the market as currencies.
It also said it is illegal for overseas exchanges to provide services for residents in China through the internet.
China banned cryptocurrency exchanges from operating within its borders several years ago, but individuals in the country have continued to find ways to trade bitcoin and other digital currencies via over-the-counter or peer-to-peer transactions.
In May this year, a powerful Chinese superregulator pledged to crack down on bitcoin trading and energy-intensive mining, helping to send the price of bitcoin tumbling. Financial regulators in the country have also gotten tougher on banks and payment companies and in June ordered them to take a more active role in weeding out crypto-related transactions.
The statement was dated Sept. 15 but it was only posted onto the central bank’s website at 5 p.m. local time on Friday, September 24, 2021.
The statement called for a comprehensive monitoring system, giving local governments “full play” to monitor their regions and flag early warnings. It vowed to crack down on “illegal financial activities” related to cryptocurrencies, and investigate employees of foreign cryptocurrency exchanges inside China as well as others in the industry who continued to advertise or provide crypto-related services.
“The message was very, very strong today,” said Naeem Aslam, chief market analyst at brokerage AvaTrade. “They are really saying no one can have any association with cryptocurrencies.” At the same time, Mr. Aslam said, “we’ve always known China has been against cryptocurrencies.”
Chinese regulators have worried that cryptocurrencies’ decentralized, anonymous transactions facilitate money laundering and illegal capital flight out of the country. There are signs that its resolve to crack down on cryptocurrencies has grown stronger in recent months.
Its toughening stance against the sector also coincides with Beijing’s push to develop a state-backed digital currency, which would give the government vast new tools to monitor both its economy and its people.
Related Video Cryptocurrency miners in China are turning off their machines after Beijing warned it would tighten its control over the industry. This has created an opportunity for miners elsewhere, as the power behind crypto becomes less dependent on one place. Photo illustration: Sharon Shi
Though China has long frowned on cryptocurrency trading, until earlier this year it tolerated crypto mining, which uses high-powered computers to generate the digital currencies that people invest in and trade. These operations were often powered by cheap electricity in coal-rich regions of Xinjiang and Inner Mongolia, along with the hydropower centers of Sichuan and Yunnan. It cracked down on that sector over the summer, prompting an exodus of miners to countries including the U.S. and Kazakhstan.
Chinese authorities recently said they would thoroughly investigate whether mining farms still operated in high-tech or big-data industrial parks.
Regulators globally are seeking to enforce stricter rules on cryptocurrency markets and companies to protect investors and tame what some see as a Wild West of the financial world.
Securities and Exchange Commission Chair Gary Gensler this week said he doesn’t see much long-term viability for cryptocurrencies, likening the thousands in existence to the 19th-century wildcat banking era that emerged without federal bank regulation.
The Basel Committee for Banking Supervision, a group of global central bankers and regulators, in June proposed new rules that would require banks to set aside a dollar in capital for every dollar of bitcoin they own. The biggest U.S. and European lenders recently pushed back against the plan, saying the rules could make cryptocurrencies riskier by shunting them into unregulated corners of the financial system.
Some crypto companies are looking to work with regulators to bolster their legitimacy among consumers and investors. Switzerland this month cleared the way for more trading of bitcoin and other digital assets in the country by authorising a new digital stock exchange, SIX Digital Exchange.