China ‘Blanket’ Crypto Ban Paves Way for CBDCs 

Bitcoin Regulation

In China, there has been a continuing crackdown on cryptocurrencies and now, perhaps with some finality, the hammer falls.

We’re referring, of course, to the central bank’s Friday (Sept. 24) announcement that all cryptocurrency-related transactions, including bitcoin, are illegal.

There is not much room for interpretation here, in the sense of back doors, end runs or the ability to sidestep the edict. In other words, the concept of “wiggle room” does not really come into play here.

In its sweeping ban, the People’s Republic of China (PBOC) said that “virtual currency derivative transactions are all illegal financial activities and are strictly prohibited.” As a ripple effect, overseas exchanges will not be allowed to operate within the country.

The announcement follows earlier crackdowns: For example, in May, banking regulators banned financial institutions (FIs), including banks and payments companies, from providing services related to cryptocurrencies, Reuters reported.

Read also: China Bars Banks, Payments Cos from Cryptocurrency Services 

Wide-Reaching Ban 

This time around, it seems to be a blanket ban in scope. And predictably, some of the marquee names in crypto have plummeted. Bitcoin, at this writing, is down about 6%,,while Ethereum is down nearly 10%.

To get a sense of how concerted the effort is now, a total of 10 Chinese agencies, including the central bank, are drawing a bead on what is now definitively “illegal” crypto trading and services.

For the providers – Coinbase among them, and scores of others – a potentially huge market has been effectively shuttered. And there will be no more supply to come, as mining operations will cease – and, per the National Development and Reform Commission, no new mining projects will be allowed to start up. Choke off the supply and the access, and the trading and crypto are effectively gone.

As to the reasons why the bank is clamping down even further: The PBOC has made reference to maintaining “economic, financial and social order.” Bitcoin and its brethren, in other words, present systemic risk in an age where Chinese authorities are already grappling with the threats of debt defaults (a la Evergrande) and maneuvering through a continued reshaping of, and crackdown on, Big Tech firms.

The latest announcement, sweeping in scope, further paves the way for China’s central bank to launch its central bank digital currencies (CBDCs) without any real competition.

As has been noted in this space, Beijing is slated to roll out its digital yuan nationally as the 2022 Winter Olympics are held.  There have been a series of dress rehearsals, as the central bank and other authorities have been trialing the CBDC in retail and domestic settings. Pilot tests in several cities have enabled users to purchase goods and services and pay for utilities and other bills.

Read also: China Seeks Gold Medal for Digital Yuan Rollout Ahead of Winter Olympics