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China has introduced new foreign exchange (forex) rules requiring domestic banks to enhance monitoring of crypto-related activities, a move aimed at curbing illegal cross-border financial transactions.
According to the South China Morning Post, the new regulations, effective December 31, mandate Chinese banks to identify and flag transactions deemed risky, including those involving cryptocurrencies. This tightening of oversight is expected to significantly restrict residents’ ability to acquire digital assets.
Key Provisions of the New Forex Rules
Under the updated regulations, banks are required to:
- Monitor and report risky forex transactions: These include cross-border gambling, underground banking, and illegal financial activities involving crypto assets.
- Track identities and financial sources: Institutions and individuals engaging in such activities will be closely monitored based on their identity, source of funds, and trading frequency.
A “Draconian” Stance on Crypto
Legal experts predict that these regulations will provide an additional legal basis for penalizing crypto-related transactions. Liu Zhengyao, a lawyer at the ZhiHeng law firm, stated that using the Chinese yuan to purchase crypto and subsequently exchanging it for foreign fiat currencies may now be categorized as cross-border activity, making circumvention of the new rules increasingly difficult.
China has maintained a strict ban on cryptocurrency transactions since 2019, citing environmental concerns related to mining and the need to curb financial risks. Financial institutions are prohibited from engaging in crypto-related activities, including mining and trading.
Contradictions in Policy: China’s Bitcoin Holdings
Despite its anti-crypto policies, China remains a significant player in the global cryptocurrency landscape. The country ranks second worldwide in Bitcoin holdings, with 194,000 BTC (valued at approximately $18 billion at the time of writing). These assets were not acquired through direct purchases but seized from illicit activities.
Future Prospects for Crypto in China
Former Binance CEO Changpeng “CZ” Zhao suggested that China might eventually adopt a Bitcoin reserve strategy. Speaking at the Bitcoin MENA event in Abu Dhabi, Zhao noted that while China’s current regulatory stance remains stringent, the government could rapidly shift its policies if it decides to embrace digital assets strategically.
Conclusion
China’s latest regulatory measures reinforce its strict stance against cryptocurrency activities, further restricting cross-border crypto transactions. However, its substantial Bitcoin holdings underscore the complex relationship between its anti-crypto policies and the global crypto economy. Whether China will reconsider its position on digital assets remains to be seen.
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