On Dec. 31, 2024, China’s foreign exchange regulator announced new rules aimed at tightening oversight of cryptocurrency activities. These rules require banks to monitor and report risky trades, including those involving digital assets like Bitcoin. The State Administration of Foreign Exchange (SAFE) stated that banks must identify high-risk transactions based on factors like the identity of individuals or institutions involved, their sources of funds, and the frequency of trades. The goal is to curb illegal financial activities such as underground banking, cross-border gambling, and other illicit crypto transactions.
As part of these measures, financial institutions are expected to implement risk-control procedures and restrict services to entities deemed high-risk. This regulatory move comes as China continues its crackdown on cryptocurrencies, which are seen as a threat to financial stability. According to Liu Zhengyao, a Shanghai-based lawyer, the new rules will provide a legal framework for punishing cryptocurrency trading. He explained that using yuan to buy crypto assets before converting them to foreign currencies would now be classified as cross-border financial activities, making it harder to circumvent the country’s forex rules.
China’s government has long maintained a strict stance against digital assets. Since 2017, it has banned initial coin offerings (ICOs), shut down cryptocurrency exchanges, and prohibited financial institutions from engaging in crypto activities. The government’s actions escalated in 2021 when Bitcoin mining was banned, and all crypto-related businesses were declared illegal. Despite these restrictions, China remains the second-largest holder of Bitcoin globally, owning about 194,000 BTC, valued at approximately $18 billion. These assets were seized through law enforcement actions related to illicit activities, as China has not officially bought Bitcoin.
Although some experts have suggested that China could eventually adopt a Bitcoin reserve strategy, there is no indication that the government will ease its regulations. Legal risks for cryptocurrency traders in China are also growing. In August, the Supreme People’s Court ruled that using cryptocurrencies to convert criminal proceeds violates Chinese criminal law. Additionally, the government has increased oversight of stablecoins like Tether, limiting their use in cross-border transactions.
China’s tough approach toward cryptocurrency starkly contrasts global trends, where digital assets are gaining more acceptance. Despite the potential economic opportunities posed by cryptocurrencies, China remains resolute in its policy to maintain strict control over its financial system and limit the influence of crypto in the country. The latest forex regulations are another step in Beijing’s efforts to restrict cryptocurrency use and protect its financial stability.
