The Chinese foreign exchange regulator has introduced new rules requiring the country’s banks to monitor and flag risky trades involving crypto assets. This move is expected to make it more difficult for residents to buy digital assets in China.
New Regulations to Track Cross-Border Activities
According to a report by the South China Morning Post on December 31, mainland China’s new rules will make it challenging for individuals to engage in cryptocurrency transactions. Under the new regulations, banks are required to monitor and report risky foreign exchange trading activities, including:
- Cross-border gambling: Banks must track and flag transactions that involve cross-border gambling, which includes online betting and other forms of offshore gaming.
- Underground banks: The regulations also require banks to identify and report underground banking operations, which are illegal financial institutions that operate outside the formal banking system.
- Illegal cross-border financial activities involving crypto assets: Banks must monitor and flag transactions that involve cryptocurrency assets, including buying, selling, or trading digital currencies.
Enhanced Due Diligence Measures
The Chinese regulators have also introduced enhanced due diligence measures to track the activities of individuals and institutions involved in foreign exchange transactions. This includes:
- Identity verification: Banks are required to verify the identity of individuals and institutions involved in foreign exchange transactions.
- Source of funds: Regulators require banks to track the source of funds used for foreign exchange transactions, including whether they are derived from legitimate or illicit activities.
- Frequency of trades: Banks must monitor the frequency of trades made by individuals and institutions, which can indicate potential money laundering or other illicit activities.
China’s Anti-Crypto Stance: A Long-Standing Policy
China has maintained a strict anti-crypto stance since 2019, when it banned cryptocurrency transactions. The Chinese government cited concerns over energy consumption from mining and greenhouse gas emissions as the primary reasons for the ban.
In addition to prohibiting crypto transactions, China has also prohibited financial institutions from dealing with digital assets and crypto mining. This move has resulted in a significant decrease in cryptocurrency trading activity within the country.
China’s Bitcoin Holdings: A Contradiction
Despite its strict anti-crypto stance, China ranks second globally in terms of Bitcoin holdings. According to Bitbo’s Bitcoin Treasuries tracker, China has 194,000 BTC, worth approximately $18 billion at the time of writing.
However, it is essential to note that these holdings were acquired through asset seizures linked to illicit activities rather than through legitimate purchases. This highlights the contradictions in China’s approach to cryptocurrency regulation.
Former Binance CEO Predicts China’s Adoption of Bitcoin Reserve Strategy
In an interview at the Bitcoin MENA event in Abu Dhabi, former Binance CEO Changpeng "CZ" Zhao predicted that China could be one of the first countries to adopt a Bitcoin reserve strategy. He noted that the country has the potential to move quickly on policies if it wants to.
Zhao’s comments suggest that despite China’s strict anti-crypto stance, there may be underlying motivations for adopting cryptocurrency-based reserve strategies in the future.
Conclusion
China’s new forex rules requiring banks to monitor and flag risky trades involving crypto assets are a significant development in the country’s ongoing efforts to regulate cryptocurrency transactions. While these regulations aim to curb illicit activities, they also highlight the contradictions in China’s approach to cryptocurrency regulation.
As the global cryptocurrency landscape continues to evolve, it will be essential for regulators, institutions, and individuals to adapt to changing policies and ensure compliance with local laws and regulations.
