China's Cryptocurrency Ban Comes as Government Rolls Out Digital Yuan

Cryptocurrency transactions are now 'prohibited,' while the digital yuan can be earmarked only for specific purposes.
By Fong Tak Ho
2021.09.28
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China's Cryptocurrency Ban Comes as Government Rolls Out Digital Yuan Cryptocurrency is shown against a background of Chinese national flags in a file photo.
Reuters

The ruling Chinese Communist Party (CCP) has intensified a ban on cryptocurrency transactions and mining, in a move commentators said could be intended to protect the government's digital yuan.

Accusing Bitcoin and other cryptocurrencies of breeding money-laundering, illegal fund-raising, fraud and pyramid schemes, the People's Bank of China said in a statement on its official website on Sept. 24 that cryptocurrencies have no legal tender status, banning financial institutions from participating in such transactions.

"Cryptocurrency exchanges and trading [and the provision of related services] are all illegal financial activities and are strictly prohibited," it said.

It said it was also illegal for overseas cryptocurrency exchanges to provide services to Chinese residents online.

"Ten departments including the People’s Bank of China, the Cyberspace Administration of China, and the Ministry of Public Security will coordinate this work, while provincial governments will be responsible for cracking down on illegal cryptocurrency-related activities at the local level," it said.

Analysts say China also sees cryptocurrencies as a threat to its sovereign digital-yuan, which is at an advanced pilot stage, Reuters reported.

China has been rolling out trial projects in recent months to develop a digital yuan payments system challenging the current digital payments duopoly of privately owned WeChat and Alipay.

Pilot projects have been launched in Beijing, Shenzhen, Suzhou, Shanghai, and Xi'an, among other places, while six major state-owned banks and more than a dozen smaller banks have launched a digital yuan wallet.

Chinese economist He Jiangbing said the digital yuan is both currency and payments system.

"Alipay and WeChat are just third-party applications, but the digital yuan is a currency in its own right," He told RFA.

Limited to domestic economy

A current affairs commentator who gave only the pseudonym Wan said the applications of the currency are still limited to the domestic Chinese economy at this stage.

"China’s digital renminbi doesn't have much international recognition, and it is not even linked to international cryptocurrency standards," Wan said. "It is simply a tool designed for internal circulation that allows all digital renminbi users to consume in designated areas."

Wan said the CCP appears to be moving ever closer to a state-controlled economy with state-owned monopolies in key areas, with the government able to limit which transactions the digital yuan can be used for.

"Far from preventing monopolies, they are themselves a monopoly," Wan said. "We are talking about [market] dominance."

"For example, let's say somebody's home is demolished, and compensation is only paid in digital yuan," he said. "That money could only be used to buy a home and decorate it, but not for anything unrelated to the home."

"This is the biggest drawback of the digital yuan," he said.

Chinese cryptocurrency exchange Huobi Global said on Sunday it had stopped taking new mainland customers and would end contracts with Chinese clients, taking care to safeguard their assets.

Translated and edited by Luisetta Mudie.

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