China has introduced stringent foreign exchange regulations targeting cryptocurrency transactions, further cementing its hardline stance against digital assets. These measures, effective from December 2024, aim to curb risky financial activities, including underground trading and cross-border crypto dealings.

New Rules for “Risky” Transactions

The State Administration of Foreign Exchange now mandates all banks in mainland China to monitor and report transactions deemed risky. These include illegal cross-border financial activities, gambling, and cryptocurrency trades. Banks must identify the parties involved, scrutinise the source of funds, and assess transaction frequencies.

Shanghai-based lawyer Liu Zhengyao highlighted the implications of this crackdown, stating, “The new rules provide a stronger legal basis for punishing cryptocurrency trading.” The move reflects China’s ongoing efforts to deter crypto use and enforce stricter financial oversight.

The Great Crypto Crackdown

China has a long history of suppressing cryptocurrency activities. In 2017, the country banned cryptocurrency exchanges and initial coin offerings (ICOs), forcing many platforms to relocate abroad. This prohibition escalated in 2021 with the closure of major mining operations and restrictions on financial institutions offering crypto-related services.

Despite the crackdown, China remains indirectly connected to the crypto world. Some of its exiled exchanges, like Binance and Huobi, are now global industry leaders. Additionally, the government holds approximately 194,000 Bitcoins, valued at $18 billion, acquired through raids and seizures.

Tracking and Controlling Transactions

Under the new rules, local banks are required to adopt robust risk-control measures. These include monitoring high-frequency transactions, scrutinising foreign currency flows, and restricting services associated with flagged activities.

This layered scrutiny is expected to deter individuals and businesses from using cryptocurrencies for illicit purposes. It also reinforces the government’s commitment to stamping out unofficial cross-border financial transactions.

Paving the Way for the Digital Yuan

While cracking down on cryptocurrencies, China is simultaneously leading the charge in developing central bank digital currencies (CBDCs). The digital yuan has been undergoing extensive pilot testing, with potential plans for widespread implementation.

This dual approach underscores the government’s preference for state-controlled digital money over decentralised cryptocurrencies, which it views as a threat to financial stability and state authority.

China’s unwavering stance against cryptocurrency trading and its evolving regulatory measures suggest a long-term strategy to prioritise financial sovereignty and control. For crypto enthusiasts and businesses, navigating this tightened regulatory environment will remain a significant challenge.