PBoC's Firm Warning on Virtual Currencies
China’s central bank has reiterated its position that digital assets lack legal standing within the country, issuing one of its most stringent warnings since the 2021 prohibition on trading and mining. Following a meeting that included thirteen government agencies, the People’s Bank of China (PBoC) announced its intention to persist in cracking down on all forms of digital asset activity and highlighted renewed concerns regarding speculative trading.
“Virtual currencies do not have the same legal status as fiat currencies, lack legal tender status, and should not and cannot be used as currency in the market,” the PBoC stated. The bank further indicated that it would “severely crack down on illegal and criminal activities,” signaling that authorities are actively monitoring what they characterized as a “resurfacing” of digital asset speculation. Officials asserted that the nationwide ban implemented in September 2021 had successfully “rectified the chaos in the virtual currency market” and yielded “significant results.” However, they cautioned that new trading methods and cross-border activities continue to emerge through informal channels.
Investor Takeaway
China is not signaling a reversal of its stance on cryptocurrency. Stablecoins and on-chain payments remain prohibited, and regulators are indicating they will pursue any attempts to circumvent these restrictions.
Concerns Surrounding Stablecoins
Stablecoins were the primary focus of criticism in the PBoC’s statement. Officials stated that stablecoins fail to comply with anti-money-laundering and customer-identification regulations, citing concerns about fraudulent fundraising, illegal cross-border transfers, and underground payment systems. The central bank characterized them as a threat to financial security, arguing that their structure and circulation make regulatory enforcement challenging. These concerns echo previous warnings from prominent Chinese policymakers, including former PBoC governor Zhou Xiaochuan, who earlier this year cautioned in a closed-door seminar:
“Be wary of the risk of stablecoins being overused for asset speculation, as a deviation in direction could trigger fraud and instability in the financial system.”
Despite China’s ban on crypto trading and mining within the mainland, the use of stablecoins through offshore platforms has continued. Authorities appear intent on restricting these avenues, particularly when payments or asset transfers bypass capital control regulations.
The Role of Hong Kong
The divergence in regulatory approaches between mainland China and Hong Kong remains a significant development in the region. While Beijing continues to enforce its nationwide ban, Hong Kong has established a licensing framework for exchanges and stablecoin issuers. This model has attracted international firms and is seen as a controlled environment for testing digital asset regulations. However, Beijing has recently increased its oversight of Hong Kong’s more permissive framework. In September, mainland authorities instructed several major brokerages to halt real-world asset tokenization projects. In October, reports indicated that officials moved to prevent some Chinese tech companies from issuing their own stablecoins in the city. The PBoC’s latest remarks suggest that any digital asset activities linked to mainland firms or users, even those conducted through Hong Kong, will face heightened scrutiny.
Investor Takeaway
While Hong Kong’s regulated market remains accessible, mainland oversight is intensifying for areas connected to Chinese institutions, especially concerning tokenization and stablecoins.
The Digital Yuan's Position in China's Strategy
While China maintains a strict separation of private digital assets from its formal financial system, the government is actively expanding its digital yuan initiative. Since its pilot program began, over 225 million personal wallets have been created, and trials now encompass public sector payments, transportation networks, and retail integrations. This distinction is intentional: private cryptocurrencies are restricted, while the state-backed digital currency is promoted as the official alternative for digital payments and programmable money. Friday’s statement reinforces this separation and points to a regulatory strategy where the digital yuan is positioned to fill the void left by the prohibition of private tokens.
Future Outlook
China’s current stance offers little indication of imminent policy changes. Authorities show no signs of relaxing the ban, and stablecoins are now being discussed in terms of security risks rather than consumer or market risks. Any remaining cryptocurrency activities routed through offshore platforms or intermediaries are likely to undergo more rigorous examination. The most immediate consequences will affect firms attempting to operate at the intersection of Hong Kong’s regulatory framework and mainland expectations. Beijing’s directives suggest that even legally licensed activities in Hong Kong may encounter limitations if they involve Chinese users, Chinese companies, or cross-border token flows. As other global jurisdictions explore regulated stablecoin frameworks, China continues to maintain a clear boundary: private digital assets are excluded from the financial system, while the digital yuan advances within it.