The Chinese government has recently ramped up its efforts to regulate the use of cryptocurrencies in illegal foreign exchange (forex) trading. In a joint statement issued by the Supreme People’s Procuratorate and the State Administration of Foreign Exchange (SAFE) on December 28, authorities called for prosecutors and forex regulators to strengthen supervision in order to combat financial fraud and maintain stability in the forex market.
Of particular concern to Chinese authorities is the misuse of stablecoins, such as Tether (USDT), in unlawful transactions. The statement highlighted several instances where USDT was used as a medium for exchanging yuan with other currencies. Chinese regulators have deemed the conversion of yuan into cryptocurrency for further conversion into foreign currencies, and vice versa, to be illegal. Notably, the crackdown extends beyond direct participants in illegal transactions, with even those providing technical support being considered accomplices.
To demonstrate the seriousness of the issue, Chinese authorities have handed out severe punishments to individuals involved in illicit forex trading using Tether. In one case, a crypto trader in Dubai was sentenced to seven years in jail and fined 2.3 million yuan for exchanging over 22 million UAE dirhams into Chinese yuan using Tether. Similarly, the developer of payment websites involved in transactions exceeding 220 million yuan using Tether between 2018 and 2021 was given a five-year imprisonment sentence and a 200,000 yuan fine.
China’s approach to cryptocurrency has consistently been one of the strictest globally, with trading and mining activities officially banned. However, despite these restrictions, an underground cryptocurrency market in China, particularly in East Asia, continues to thrive. Traders often exploit digital currencies to bypass regulations and to profit from the arbitrage between foreign and local currencies.
Instances of money laundering and illegal forex trading involving cryptocurrencies have further emphasized the urgent need for stringent regulation in this sector. A recent police report from Qingdao in Shandong province revealed a shocking case of money laundering totaling 15.8 billion yuan, all of which involved cryptocurrencies and illegal forex trading.
Interestingly, while the Chinese government maintains a tough stance on cryptocurrency, it has also shown a willingness to explore the potential benefits of blockchain technology. The government’s move to draft a national Web3 development plan indicates a more nuanced approach, seeking to harness the advantages of blockchain while cracking down on its misuse for illegal activities.
The recent directive from the Chinese government serves as a clear message to those engaging in or facilitating illegal forex transactions using cryptocurrencies. The government is firmly committed to safeguarding its financial systems and will not hesitate to take decisive action against any threats to its economic stability and security.
The Chinese government’s intensified efforts to regulate cryptocurrencies in illegal forex trading highlight its determination to combat financial fraud and maintain stability in the forex market. The crackdown on the misuse of stablecoins like Tether sends a strong message to both direct participants and those providing technical support in these illegal transactions. While China’s stance on cryptocurrency remains strict, the government’s exploration of blockchain technology demonstrates a nuanced approach toward digital assets. The prevalence of the underground cryptocurrency market in China and recent incidents of money laundering reinforce the urgent need for robust regulation in this sector. Ultimately, the Chinese government’s priority is to protect its financial systems and ensure economic stability and security.