China’s foreign exchange regulator has introduced stringent forex regulations that compel banks to intensify scrutiny of risky trades, particularly those involving cryptocurrencies. Reported by the South China Morning Post on December 31, these regulations signify a sustained commitment by China to monitor and potentially curtail crypto-related financial activities.
Under these new directives, banks are mandated to track and report transactions deemed risky, such as cross-border gambling, operations through underground banks, and illicit cross-border financial activities using cryptocurrencies. Banks are also required to monitor these transactions based on various criteria including the identity of the parties involved, the origin of the funds, and the frequency of transactions.
Continued Crackdown on Cryptocurrencies
Liu Zhengyao, a lawyer at ZhiHeng law firm, highlighted that these regulations serve as another tool for the Chinese government to enforce its strict anti-crypto policies. He noted that converting yuan into cryptocurrencies for the purpose of exchanging into foreign currencies could fall under these regulations as illegal cross-border activity. This makes it increasingly challenging for residents to use cryptocurrencies as a means to bypass China’s stringent forex controls.
Despite crypto transactions being banned since 2019, due to concerns over energy use and emissions from mining, as well as financial risks from unregulated trading, China holds a significant amount of Bitcoin. According to the Bitcoin Treasuries tracker by Bitbo, China possesses approximately 194,000 BTC, valued at around $18 billion, ranking it second globally in terms of national Bitcoin reserves. These holdings, however, are not from purchases but from seizures related to criminal activities, reflecting the paradox in China’s crypto stance.
Despite the rigorous regulations, Changpeng “CZ” Zhao, the former CEO of Binance, suggested at the Bitcoin MENA event in Abu Dhabi that China might eventually adopt Bitcoin as part of its reserve strategy. He believes that the Chinese government has the capability to shift policies swiftly if it decides to embrace cryptocurrencies, hinting that such a move could happen “at some point.”
Author’s Opinion
China’s latest forex regulations reflect a deep-rooted skepticism towards cryptocurrencies, underscored by a comprehensive framework designed to monitor and restrict crypto transactions. These regulations are part of China’s broader strategy to control financial risks and prevent capital outflows via digital assets. However, the substantial Bitcoin holdings resulting from criminal seizures highlight a glaring contradiction in the country’s approach to cryptocurrencies.
While publicly denouncing and banning crypto activities, China paradoxically holds a significant cache of Bitcoin, which is seen as a strategic asset globally. This contradiction could pose a dilemma for China as it balances its strict regulatory framework with the potential financial advantages of holding a major digital asset reserve.
This situation reveals the complexities and potential shifts in policy that could emerge as the global landscape of cryptocurrency continues to evolve. Whether China will adjust its stance to leverage its Bitcoin holdings more strategically remains a topic of speculation and intrigue in the crypto community.
