The Chinese foreign exchange regulator has introduced new rules requiring banks to monitor and report risky foreign exchange transactions involving cryptocurrencies.
The new rules mandate banks in China to track and flag activities linked to cross-border gambling, underground banking, and illegal cross-border financial operations involving crypto assets. Banks are also required to identify individuals and institutions involved, assess the sources of funds, and analyze the frequency of transactions. Legal expert Liu Zhengyao stated that these measures would make it harder for residents to use yuan to buy crypto and exchange it for foreign fiat currencies. The regulations further tighten China’s already strict stance on cryptocurrencies, effectively reducing the feasibility of crypto trading within its borders.
The South China Morning Post reported the new rules on Dec. 31, 2024, marking another step in China’s ongoing crackdown on cryptocurrency activities.
The rules apply across mainland China, where cryptocurrency trading has been banned since 2019. Despite the ban, China remains the second-largest holder of Bitcoin globally, with 194,000 BTC acquired through asset seizures tied to illicit activities.
The Chinese government has long opposed cryptocurrency transactions, citing concerns over financial stability, illegal financial activities, and environmental impact from crypto mining. The new rules aim to close loopholes that allow residents to bypass restrictions and engage in crypto-related foreign exchange activities.
By imposing stringent monitoring requirements on banks, the government seeks to deter risky forex activities involving cryptocurrencies. Banks must report suspicious activities to regulatory authorities, and violators may face severe penalties. However, despite its anti-crypto stance, prominent figures like former Binance CEO Changpeng Zhao believe China could eventually adopt a Bitcoin reserve strategy, as the country has shown the ability to quickly pivot on policies when necessary.
The regulations highlight China’s commitment to maintaining strict control over financial activities while continuing to influence global crypto markets through its substantial Bitcoin holdings.
