China’s central bank reaffirms crypto ban, flags stablecoin risks following multi-agency meeting

The People's Bank of China (PBoC), the country's central bank, has reaffirmed its stance that digital asset operations are illegal in the country, and flagged particular risks about stablecoin usage, following a multi-agency meeting on Friday. 

"Virtual currencies do not have the same legal status as fiat currencies, lack legal tender status, and should not and cannot be used as currency in the market," the PBoC said in a statement, translated to English. The central bank also said it would "severely crack down on illegal and criminal activities."

The comments follow a meeting in Beijing on Friday which convened representatives from thirteen government agencies amid a "resurfacing" of digital asset speculation activity, according to the statement. The PBOC said its crackdown on virtual currency activity, exemplified by its blanket trading and mining ban in Sep. 2021, has "rectified the chaos in the virtual currency market" and "achieved significant results." The statement marked the PBoC's most forceful public comments on cryptocurrency since the ban.

Stablecoins drew particular scrutiny. The PBoC identified them as failing to meet know-your-customer and anti-money-laundering standards, flagging risks around money laundering, fraudulent fundraising, illegal cross-border transfers, and underground payments, in its statement, calling them a threat to the country's financial security. 

China continues to ban cryptocurrency trading and mining on the mainland while Hong Kong has embraced the industry with licensing regimes for exchanges and stablecoin issuers. The PBoC has simultaneously pushed forward with its digital yuan pilot program, which has seen over 225 million personal wallets opened.

Yet, Beijing has recently cracked down on some digital asset activity in Hong Kong, telling some top brokerages to pause real-world asset tokenization efforts in September and moving to stop some Chinese tech giants from issuing their own stablecoins in the jurisdiction in October, The Block previously reported. 

The former governor of the PboC, Zhou Xiaochuan, also warned of potential pitfalls for stablecoin adoption in a closed-door seminar in July. "Be wary of the risk of stablecoins being overused for asset speculation, as a deviation in direction could trigger fraud and instability in the financial system," Zhou said. Zhou served as governor of People's Bank of China from 2002 to 2018.