PBOC details crypto prohibition plans

Recently, ten of China’s government departments including the People’s Bank of China issued a “Notice on Further Preventing and Disposing of the Risks of Hype in Virtual Currency Transactions”. Below is an announcement (Google-translated) on the details in response to journalist questions from a PBOC representative.

In recent years, bitcoin and other virtual currency transaction hype activities have prevailed, disrupting economic and financial order, breeding money laundering, illegal fund-raising, fraud, pyramid schemes and other illegal and criminal activities, seriously endangering the safety of people’s property.

In accordance with the decision and deployment of the Party Central Committee and the State Council, the People’s Bank of China, in conjunction with relevant departments, has introduced a series of policies and measures to clarify that virtual currencies do not have legal tender status, prohibit financial institutions from developing and participating in virtual currency-related businesses, and clean up and ban domestic virtual currency transactions and token issuance financing.

China’s regulatory policies on virtual currencies are clear and consistent. The notice once again emphasizes that virtual currencies that are issued by non-monetary authorities, use encryption technology, distributed accounts or similar technologies, and exist in digital form, such as bitcoin, ether, etc., including so-called stablecoins such as [Tether], are not the same legal status as legal tender and cannot be circulated in the market as currency.

The notice clearly stated that virtual currency exchange, virtual currency trading as a central counterparty, provision of matching services for virtual currency transactions, token issuance financing, and virtual currency derivative transactions are all illegal financial activities and are strictly prohibited. Virtual currency exchanges that provide services to Chinese residents through the internet are also illegal financial activities.

The first (step) is to establish a normalized working mechanism of departmental coordination and central-regional linkage. At the central level, ten departments including the People’s Bank of China, the Central Cyberspace Administration of China, and the Ministry of Public Security have established a coordination mechanism to coordinate and promote the implementation of work as a whole; at the local level, the provincial people’s governments implement the responsibility for territorial risk handling, and ban and crack down on the illegality of virtual currencies in their jurisdictions in accordance with the law.

The second is to strengthen the monitoring and early warning of the risk of speculation in virtual currency transactions. The People’s Bank of China and the Central Cyberspace Administration of China have improved the functions of virtual currency monitoring technology platforms to improve the accuracy and efficiency of identifying and discovering virtual currency transaction hype activities.

Financial institutions and non-bank payment institutions have strengthened their monitoring of virtual currency transaction funds. All departments and regions strengthen the effective connection of online monitoring, offline research and arrangement, and fund monitoring, and establish information sharing and cross-validation mechanisms.

The third is to build a multi-dimensional, multi-level virtual currency transaction speculation risk prevention and disposal system. Financial management departments, cybersecurity and information departments, telecommunications departments, public security departments, and market supervision departments work closely together to cut off payment channels, dispose of relevant websites and mobile applications in accordance with the law, strengthen the registration and advertising management of relevant market entities, and crack down on relevant illegal financial activities in accordance with the law.

Comprehensive measures are implemented in such aspects as illegal and criminal activities, and relevant industry associations have strengthened member management and policy publicity to prevent and deal with the risks of virtual currency transaction speculation in an all-round way.

Source (Chinese)

In a statement about the PBOC action, Ganesh Viswanath Natraj, assistant professor of Finance at Warwick Business School, said: “China’s ban on all cryptocurrency trading activity will have some short-term impact on currency valuation, but long-term implications are likely to be muted. For example, while retail traders in China may no longer be able to access online exchange platforms that are now illegal, crypto funds may be able to move management of their funds offshore. This ban will result in the migration of crypto investment opportunities to other hubs in Asia, such as Singapore’s launch of the DBS digital currency exchange earlier this month.

“The motives for the crypto ban are also not clear cut. Strategically, the People’s Bank of China’s pilot project of issuing a digital currency will face threats of competition from the private cryptocurrency market. By forcing a ban, it is ensuring significant adoption of the central bank’s digital currency.

“Another potential motive lies in traceability. A ban on private cryptocurrencies and issuance of a public digital currency will make it easier for the government to trace payments and clamp down on illicit activity.”

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