China's New Forex Rules Target Cross-Border Crypto Trading

China's new foreign exchange (FX) rules strengthen curbs on cross-border cryptocurrency trading in order to combat unlawful financial activity. These laws are yet another step in the country's continued efforts to impose its anti-crypto policy.

The Chinese foreign exchange regulator now compels banks to monitor and warn of potentially dangerous currency transactions, including those using cryptocurrencies. This includes cross-border gambling, underground banking, and other illegal financial transactions. Banks must now track the identities of individuals and institutions, as well as their funding sources and trade frequency.

According to a December 31 story by the South China Morning Post, new laws will make it more difficult for residents to own digital assets. According to Liu Zhengyao, a lawyer at ZhiHeng law firm, the regulations strengthen the legal basis for punishing crypto-related actions. He also pointed out that utilizing the yuan to buy cryptocurrency before converting it to foreign fiat currencies is now considered cross-border activity, making it practically difficult to avoid the limitations.

China has banned cryptocurrency trades since 2019. The government's main objectives were to reduce energy usage from cryptocurrency mining and to control greenhouse gas emissions. Financial institutions are also barred from conducting transactions involving digital assets or crypto-mining operations.

Despite its stringent policies, China remains the world's second-largest Bitcoin holder. According to Bitbo's Bitcoin Treasuries tracker, the government has roughly 194,000 BTC worth $18 billion. These holdings were acquired through asset seizures tied to illegal operations, as China's ban prohibits it from actively purchasing Bitcoin.

Number of countries holding Bitcoin. Source: BitcoinTreasuries.NET by Bitbo

Former Binance CEO Changpeng “CZ” Zhao claimed that China may someday adopt a Bitcoin reserve policy. Zhao stated at the Bitcoin MENA event in Abu Dhabi that if China chose to embrace Bitcoin, it may quickly adopt policies.

Final Thoughts:

China's new FX regulations highlight its commitment to regulating cross-border financial operations and curbing the usage of digital assets. These policies reflect the government's overarching purpose of ensuring financial stability and control. As the global cryptocurrency market evolves, the impact of China's policies on international markets and the future of cryptocurrencies will be crucial to monitor.