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China’s crackdown on cryptocurrencies

Date: 21 May 2021 Tags: Miscellaneous

Issue

The Chinese government has banned payment companies and financial institutions from providing cryptocurrency-related services.

 

Background

The Chinese government had previously put a ban in 2017. The new regulations are wider and cover larger services that are banned.

 

Details

  • Account openings, clearing, trading, registration, settlement and insurance are some of the crypto-related services that have been regulated by banks and online payment firms.

  • The old rules have been expanded to prevent acceptance of virtual currencies for making payments or a means of settlement.

  • Financial institutions are forbidden to provide exchange services between Yuan or foreign currencies and cryptocurrencies.

  • There is also a ban on using cryptocurrency for funding products or investment targets. Institutions are also forbidden from issuing crypto-related financial products.

 

Earlier rules

  • Currently, the Chinese government does not recognise cryptocurrency as legal tender. Banking systems do not indulge in issuing services in these forms.

  • To protect investors and reduce financial risks, China had banned Initial Coin Offerings in 2017. Cryptocurrency trading platforms were also banned.

 

Reason for regulation

There is an increase in crypto currency activity in China. The government feels that these currencies will pose a threat to its fiat currency, the Yuan.

 

Impact

It would be difficult for individuals to buy cryptocurrency in China. It would also affect business of cryptocurrency miners.