China has finally expanded its crypto-crackdown outside the mining industry. The People’s Bank of China (PBOC) today declared that all transactions involving virtual currencies—with one major exception that we’ll discuss in a little bit—are illegal.
The PBOC said when it issued new crypto-related rules in June that “virtual currency trading speculation activities disrupt the normal economic and financial order, breed the risk of illegal and criminal activities such as illegal cross-border asset transfer and money laundering, and seriously infringe on the property safety of the people.”
However, much of the Chinese government’s attention went to cryptocurrency mining operations, which have been outlawed in provinces throughout the country. But now it seems the PBOC is finishing what it started three months ago, with the regulator issuing an extensive statement that reads in part:
“Virtual currency does not have the same legal status as legal currency. Virtual currencies such as Bitcoin, Ether, and [Tether] have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed accounts or similar technologies, and exist in digital form. They are not legal and should not and cannot be used as currency in the market.”
It also said that “virtual currency-related business activities are illegal financial activities,” that “the provision of services by overseas virtual currency exchanges to Chinese residents through the Internet is also an illegal financial activity,” and that “there are legal risks involved in virtual currency investment transactions.”
The statement also repeatedly mentions the PBOC’s intention to collaborate with other Chinese regulators and law enforcement agencies to “severely crack down” on illegal activities, financial and otherwise, related to virtual currencies. It also wants to restrict access to online information regarding the use of those currencies.
CoinDesk reported that this is the first PBOC statement to specifically mention Tether, a popular stablecoin whose value is tied to the U.S. Dollar, as well as Bitcoin and Ether. The latter two have seen dramatic price decreases (a 4.2 percent drop in Bitcoin‘s case and a 7.1 percent drop in Ether‘s) following the PBOC’s declaration.
But it’s worth noting that not every virtual currency will be affected by the PBOC’s new restrictions. There is one major exception: the digital yuan known as e-CNY. These new restrictions mean e-CNY won’t have any true competition, whether it’s from cryptocurrencies like Bitcoin or stablecoins like Tether, within China.
The PBOC announced in July that e-CNY had passed more than 70.7 million transactions related to a combined $5.3 billion (34.5 billion yuan) since its debut. That puts China’s efforts well ahead of similar central bank distributed currencies, which many countries have only just started to seriously explore in recent months.
Promoting the state-backed virtual currency hasn’t been the official motivation for cracking down on cryptocurrencies, of course. Instead, China’s leaders have repeatedly said that environmental concerns led them to shut down mining operations and, in the PBOC’s case, that cryptocurrencies undermine the country’s financial structure.
Yet it wouldn’t be a surprise if the PBOC’s new rules are followed by the announcement that e-CNY will soon be available in more regions, or that it suddenly and oh-so-surprisingly became even more popular following this declaration.