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The People’s Bank of China (PBOC), which regulates the banking sector of the world’s second largest economy, has declared on its website that all cryptocurrency transactions are illegal.
The PBOC’s announcement states that all activities to do with cryptocurrencies, including transactions, ownership and involvement in any promotion or technical support, are banned. It says that cryptocurrencies breed illegal and criminal behaviour, including gambling, fraud and money laundering.
It is possible that China is using this ban as a method of making a clean sweep of the crypto-companies within its borders, according to Gene Grant, chief executive at VRBex, a Texas-based digital assets firm.
“China has already expressed a clear leadership in digital currency and there should be every expectation that it will be the first major country to issue a central bank digital currency for use by the general public,” he said. He thought that it was entirely possible that the Chinese would decide later that they want their central bank digital currency (CBDC) to be a trading asset and to be capable of purchasing other digital assets such as cryptocurrency or other countries' CBDCs.
“What if they want to ensure that the participants in the Chinese infrastructure are only those selected by the government? The banning of the industry would be a great way to ensure there are no challengers to the government or government-sponsored companies when they are ready to move forward,” he suggested.
There is also a chance that the government could be attempting to shift attention away from the looming insolvency of Evergrande, the largest real-estate company in China, Grant suggested.
“In a classic misdirection, the Chinese government is using the opportunity to make some noise by implementing their longer-term objectives while simultaneously distracting the public from what could become a national embarrassment,” he speculated.
The ban has caused the global price of Bitcoin to plummet, along with the prices of many other crypto-currencies. The National Internet Finance Association of China, the China Banking Association and the Payment and Clearing Association of China have issued a joint statement to all their members, warning them not provide customers with crypto-related services.
China is not the only country to have cracked down on cryptocurrencies this year. The Central Bank of the Republic of Turkey (TCMB) enforced a blanket ban on crypto-payments in April. It justified this by saying that cryptocurrencies lacked regulatory supervision, caused volatility in the market, raised the threat of law-breaking because they were anonymous and promoted fraud through stolen wallets and through the irrevocable nature of transactions in them.
