China’s central bank, the People’s Bank of China (PBoC), has once again asserted that digital asset operations are illegal in the country, with particular emphasis on the risks associated with stablecoin usage. The PBoC made the declaration after a multi-agency meeting on Friday, stressing that virtual currencies do not hold the same legal status as fiat currencies and cannot be used as currency in the market.
The central bank’s statement pointed out that digital currencies lack legal tender status, and their use in transactions could lead to significant financial risks. It further emphasized that the PBoC would take stringent measures to crack down on illegal and criminal activities related to virtual currencies.
The meeting, which was attended by representatives from thirteen government agencies, addressed the recent uptick in digital asset speculation, noting that efforts to curb such activities have had a notable effect since the 2021 blanket ban.
Focus on Stablecoin Risks
The PBoC’s statement placed particular scrutiny on stablecoins, identifying them as failing to meet essential know-your-customer (KYC) and anti-money-laundering (AML) standards. The central bank flagged several risks associated with stablecoins, including their potential for facilitating money laundering, fraudulent fundraising, illegal cross-border transfers, and underground payments.
These issues, the PBoC argued, pose a significant threat to the country’s financial security.
Despite China’s ongoing ban on cryptocurrency trading and mining, Hong Kong has taken a different approach by introducing licensing regimes for exchanges and stablecoin issuers.
Nevertheless, Beijing has recently taken steps to curtail some digital asset activities in Hong Kong, instructing top brokerages to pause tokenization efforts and preventing some Chinese tech companies from launching their own stablecoins in the jurisdiction.
The PBoC also referenced the concerns of former governor Zhou Xiaochuan, who, in a closed-door seminar in July, warned of the potential risks of stablecoins being overused for asset speculation. Zhou cautioned that such a trend could lead to fraud and financial instability.
Crackdown on Virtual Currency Market
The PBoC emphasized that its efforts to regulate the virtual currency market, including the comprehensive ban on cryptocurrency trading and mining enacted in September 2021, had been successful in addressing market disorder. The statement highlighted the significant progress made in curbing speculative activities and restoring stability to the digital asset market.
While China remains firm in its stance against digital asset speculation, the country continues to advance its digital yuan initiative, with over 225 million personal wallets now active as part of the pilot program. Despite the crackdown, the Chinese government remains committed to pushing forward with its own state-backed digital currency.