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China: Central Bank Issues New Regulatory Document on Cryptocurrency Trading

On September 24, 2021, the People’s Bank of China (PBOC), China’s central bank, issued a regulatory document to control the “speculative risks of cryptocurrency trading” (the term xuni huobi (virtual currencies) is used in Chinese). The document, titled Circular on Further Preventing and Disposing of Speculative Risks in Virtual Currency Trading (PBOC circular), was jointly issued by the PBOC and nine other authorities, including the Supreme People’s Court (SPC), Supreme People’s Procuratorate (SPP), the Ministry of Public Security (MPS), and the State Administration of Foreign Exchange (SAFE), on September 15, 2021. Legal Status of Cryptocurrencies The circular reiterates that cryptocurrencies do not have equal legal status with fiat currencies. Cryptocurrencies such as Bitcoin are not issued by a country’s monetary authority and therefore are not mandatorily accepted legal tender. They therefore cannot and should not be circulated and used in the market as currencies. This definition of the legal status of cryptocurrencies is consistent with the PBOC’s 2017 circular that banned initial coin offerings (ICOs) and imposed restrictions on cryptocurrency trading in the country. The 2017 circular was jointly issued by the PBOC and six other authorities, which did not include the SPC, SPP, MPS, and SAFE. Cryptocurrency Transactions The new PBOC circular declares all cryptocurrency transactions illegal. It makes clear that cryptocurrency conversion, buying and selling cryptocurrencies as a central counterparty, providing matching services for cryptocurrency transactions, ICOs, cryptocurrency derivative transactions, and cryptocurrency translations are all illegal financial activities. Banks and other financial institutions are prohibited from providing any service to cryptocurrency transactions. “If carrying out related illegal financial activities constitutes a crime, criminal responsibilities shall be investigated in accordance with the law,” the circular states. Foreign Exchanges The PBOC circular notably states that overseas cryptocurrency exchanges providing services to Chinese residents through the internet is also illegal. Their employees in China, as well as other companies, organizations, and individuals providing services to these overseas exchanges, will be held liable in accordance with law, as long as they know or should know the exchanges are carrying out cryptocurrency transactions. Legal Risks of Cryptocurrency Investment The circular warns of the legal risks of investing in cryptocurrencies, stating that if companies, organizations, and individuals investing in cryptocurrencies and related derivatives violate public order and good customs, the relevant civil legal actions are invalid and the losses caused thereby will be borne by them. According to the PBOC circular, the authorities that jointly issued the circular will cooperate to establish a working mechanism to deal with the speculative risks of cryptocurrency trading. It outlines the specific measures the central and local authorities will take, including monitoring online and offline cryptocurrency-related activities and “severely cracking down” on criminal offenses involving cryptocurrencies, such as money laundering and cross-border gambling.

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