China Brings New Forex Rules to Tighten Crypto Trades

The authorities in China have introduced new rules requiring banks to flag risky transactions, including those involving cryptocurrencies. This makes it more difficult to buy and sell Bitcoin and other cryptocurrencies using the yuan.

“Risky” Crypto Transactions

The State Administration of Foreign Exchange's new requirement, introduced at the end of December, mandates banks to monitor and report “risky foreign exchange trading behaviours.” These include underground banks, cross-border gambling, and illegal cross-border financial activities involving cryptocurrencies.

“The new rules will provide another legal basis for punishing cryptocurrency trading,” Liu Zhengyao, a Shanghai-based lawyer from ZhiHeng Law Firm, wrote in a WeChat post. “It can be foreseen that mainland China’s regulatory attitude towards cryptocurrencies will continue to tighten in the future.”

The new rules apply to all local banks in mainland China. Banks must also track activities based on the identity of the involved parties, the source of funds, and trading frequencies. Furthermore, they are required to implement risk-control measures to restrict the provision of certain risky services.

The Great Crypto Crackdown

Once the leading country in Bitcoin transactions, China imposed strict curbs on the industry in 2017, banning all cryptocurrency exchanges and initial coin offerings (ICOs) overnight. The crackdown forced all then-local crypto exchanges to shut their operations in the country and relocate abroad. Some of these exiled exchanges, including Binance, Huobi, and OKX, are among the top names in the industry today.

China’s anti-crypto stance intensified further in 2021 when the country’s communist government ordered the closure of mining operations in regions like Sichuan and Xinjiang. It also barred financial and payment institutions from offering crypto-related services and declared that overseas crypto services provided to Chinese residents are illegal.

However, the Chinese government still holds about 194,000 Bitcoins, worth approximately $18 billion, which it acquired over the years from raids and seizures of illegal operations.

Meanwhile, China is the leading nation in central bank digital currency (CBDC) development. The government introduced the digital yuan and has been testing it for years through pilot programs. However, it remains unclear when the digital yuan will be released on a mass scale.