Chinese financial authorities have banned financial institutions and payment companies from offering services related to cryptocurrencies and warned investors against speculative crypto trading. Instead, they are developing a central bank digital currency (CBDC).
Chinese financial officials announced that the country would crack down on financial institutions that operate cryptocurrency businesses or offer related services. The decision follows several announcements that have already come from China. Even now the government’s position is unclear and bans have been introduced and lifted several times.
Chinas “Crypto Ban”
Specifically, a number of activities have been banned. These include registration, settlement and trading of cryptocurrencies. The announcement was made by three organizations authorized by Chinese regulators to oversee their respective industry segments: The National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China.
“Recently, cryptocurrency prices have soared and plummeted, and speculative trading in cryptocurrencies has continued to increase. This seriously violates the security of people’s property and disrupts the normal economic and financial order. Judging by the current legal practice in the country, contracts on virtual currency transactions are not protected by the law.” – Official statement
The guidelines confirm an earlier ban from 2017, now also prohibiting financial institutions from using cryptocurrencies for payments or settlements, developing crypto exchanges and offering such services to customers. The group specifically criticized the massive volatility and believes digital tokens have “no intrinsic value”. In addition, prices are “extremely easy” to manipulate, it said.
Digital Yuan (CBDC)
While China is looking to crack down on decentralized blockchain networks, they are developing their own central bank digital currency (CBDC). Internationally, several central banks are working on projects. However, China’s digital yuan is the most advanced. The CBDC has been in the planning stages since as early as 2014, with the Corona crisis in March 2020 furthering its development.
Meanwhile, the digital yuan is being tested in various major cities. An example is in Shenzhen. Tokens worth US$1.5 million were given away to residents in the process. The aim of the pilot program is to increase the use of the new state-backed digital currency.