China has introduced stringent foreign exchange (forex) regulations aimed at curbing cryptocurrency trading and other financial activities deemed risky. The latest move underscores the nation’s ongoing efforts to tighten control over the digital asset industry, aligning with its longstanding anti-crypto stance.

New Forex Rules Target Crypto Transactions

At the close of December, China’s State Administration of Foreign Exchange unveiled new requirements for local banks to identify and report “risky foreign exchange trading behaviours.” These behaviours include underground banking, cross-border gambling, and illegal cryptocurrency-related transactions.

The rules mandate banks to monitor transaction details such as the identity of parties involved, the source of funds, and trading patterns. Additionally, banks are instructed to enforce risk-control measures, effectively restricting services associated with flagged activities.

Liu Zhengyao, a Shanghai-based legal expert, commented that the updated rules establish a stronger legal foundation for penalising crypto trading activities. “China’s regulatory stance on cryptocurrencies is expected to tighten further,” Liu noted in a social media post.

A History of Crypto Crackdowns

China, once a global leader in Bitcoin transactions, has progressively clamped down on the cryptocurrency industry since 2017. That year, authorities banned cryptocurrency exchanges and initial coin offerings (ICOs), forcing many local platforms to cease operations or relocate abroad.

The restrictions escalated in 2021, with a nationwide ban on cryptocurrency mining and a prohibition on financial institutions offering crypto-related services. The government also declared overseas crypto services targeting Chinese residents illegal.

Despite its tough stance, the Chinese government reportedly holds approximately 194,000 Bitcoins, valued at around $18 billion. These assets were obtained through the confiscation of illegal crypto operations over the years.

Banks at the Forefront of Monitoring

Under the new forex rules, local banks are tasked with implementing comprehensive monitoring frameworks. These include tracking the frequency of transactions, scrutinising the legitimacy of funds, and identifying suspicious activities.

By holding banks accountable, the government aims to create multiple layers of oversight to deter illegal financial practices. This enhanced surveillance is seen as part of China’s broader effort to maintain strict control over its financial system and curb capital outflows.

China’s Focus on a Digital Yuan

While clamping down on private cryptocurrencies, China continues to lead in developing its central bank digital currency (CBDC), the digital yuan. The government has been testing the digital currency in pilot programs across various cities, though a full-scale launch date remains uncertain.

The digital yuan represents China’s vision of a state-controlled digital financial ecosystem, offering an alternative to decentralised cryptocurrencies like Bitcoin. Analysts speculate that the promotion of the digital yuan aligns with China’s objective of reducing dependency on foreign financial systems and strengthening its economic sovereignty.

Looking Ahead

China’s intensified measures signal its unwavering commitment to eliminating private cryptocurrency activities while promoting its state-backed digital initiatives. As regulatory scrutiny increases, the global crypto industry is closely watching how these developments influence trading dynamics and digital innovation within the region.

While private cryptocurrencies face growing restrictions, China’s ambitious push for the digital yuan reflects its intent to dominate the future of digital finance. For now, the country remains steadfast in its efforts to control and reshape the financial landscape.