China Escalates Crypto Crackdown, Flags Stablecoins as Key Risk

China Intensifies Crypto Crackdown with Focus on Stablecoins

China’s central bank has identified stablecoins as a significant risk factor and pledged to reinforce its ongoing crackdown on cryptocurrency trading, a practice it outlawed in 2021. Following a meeting with 12 other governmental agencies, the People’s Bank of China (PBoC) stated on Saturday that “virtual currency speculation has resurfaced” due to various contributing factors, presenting renewed challenges for effective risk management.

According to an official translation of the PBoC's statement, “Virtual currencies do not possess the same legal standing as fiat currencies, lack legal tender status, and should not and cannot be utilized as currency within the market. Business activities related to virtual currency constitute illegal financial activities.”

The PBoC initially banned crypto trading and mining operations in 2021, citing the need to curtail criminal activity and asserting that cryptocurrencies posed a threat to the stability of the financial system.

Bank Expresses Concerns Over Stablecoins

The central bank specifically highlighted stablecoins as a source of particular concern, arguing that these tokens fail to meet necessary legal requirements and are being exploited for involvement in criminal ventures. "Stablecoins are a form of virtual currency and currently cannot effectively meet requirements for customer identification and Anti-Money Laundering, posing a risk of being used for illegal activities such as money laundering, fundraising fraud, and illegal cross-border fund transfers,” the bank stated.

The PBoC has vowed to “persistently crack down on illegal financial activities” associated with cryptocurrency in order to “maintain the stability of the economic and financial order.”

The 13 agencies that participated in the meeting committed to “deepening coordination and cooperation” in tracking down cryptocurrency users by improving information sharing and bolstering monitoring capabilities.

Reuters reported that China held the third-largest share of Bitcoin (BTC) mining globally, reaching a market share of 14% by the end of October.

In August, Chinese financial regulators reportedly directed brokerage firms to cancel planned seminars and cease promoting research related to stablecoins due to apprehensions that they could be leveraged as instruments for fraudulent schemes.

Concurrently, Hong Kong initiated a licensing framework for stablecoin issuers in July. However, several technology companies reportedly suspended plans to introduce stablecoins within the region following interventions from Chinese regulators to halt such offerings.