The Central Bank of China, together with 12 ministries, has cracked down on virtual money trading speculation and warned about the illegal risks of stablecoins!

As the global Crypto Assets market is surging, especially with the United States accelerating its embrace of this emerging field under the Trump administration, the Eastern giant China has chosen a completely different path. An invisible “high wall” is being continuously reinforced and raised.

Recently, the People's Bank of China (PBOC), leading a coalition of twelve key national ministries and judicial institutions including the Ministry of Public Security, the Central Cyberspace Affairs Commission, the Central Financial Office, the Supreme People's Court, the Supreme People's Procuratorate, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Justice, the State Administration for Market Regulation, the National Financial Regulatory Administration, the China Securities Regulatory Commission, and the State Administration of Foreign Exchange, held a high-level closed-door meeting. The signals released from the meeting are clear and strong: not only will China continue the strict ban on Crypto Assets that has been in place since 2021, but it will also launch a new round of crackdown and blocking of virtual coin trading speculation activities with unprecedented intensity.

The joint action officially named the “Coordinated Mechanism for Combating Speculation in Virtual Currency Transactions” involves a wide range of participating departments and high specifications, clearly indicating the deep concerns of China's top leaders regarding the current situation. The regulatory authorities admit that although the comprehensive ban in 2021 moved large-scale domestic transactions underground, the resurgence of encryption activities is becoming increasingly significant. Over-the-counter trading (OTC), illegal fundraising, online fraud, and the use of Crypto Assets for unregulated cross-border capital transfers are like ghosts in the financial system, posing severe challenges to the country's financial security and risk control once again. This is no longer just a routine regulatory upgrade; it resembles a “financial defensive battle” aimed at safeguarding national financial sovereignty and preventing capital outflows.

Primary Target

In this upgrade crackdown, USD-pegged stablecoins represented by Tether (USDT) have been clearly identified as primary targets. For Chinese regulatory bodies, these digital tokens pegged to fiat currency are like “digital dollar cash” dressed in blockchain technology. They inherently possess the ability to bypass China's strict foreign exchange control system, opening a difficult-to-trace fast track for capital outflow.

Official documents and the spirit of meetings repeatedly emphasize that virtual assets do not have the same legal status as fiat currency and must not be circulated as currency in the market. Any behavior that treats virtual currency as a payment or investment tool is classified as illegal financial activities. The risks of stablecoins are particularly prominent, mainly reflected in the following aspects: Lack of Anonymity and Anti-Money Laundering (AML) Mechanisms: Transactions involving stablecoins often exhibit a high degree of anonymity, and their Know Your Customer (KYC) processes fall far short of the standards set by traditional financial institutions. This makes them a fertile ground for criminal organizations to engage in money laundering, terrorist financing, and fraudulent fundraising. Earlier this year, a money laundering case involving an amount as high as 166 million yuan was adjudicated by a Beijing court, where the defendant used USDT to transfer illegal funds abroad, which serves as the most direct footnote to the risks associated with stablecoins. Impact on the Foreign Exchange Management System: For individuals and businesses seeking asset hedging or engaging in cross-border trade, stablecoins provide a convenient way to circumvent official foreign exchange settlement systems. This “convenience” directly touches upon China's red line in maintaining the stability of its foreign exchange reserves and the order of its financial markets. Systemic Financial Risk: Once stablecoins achieve large-scale circulation within the country, they will substantially undermine the currency status of the yuan, challenging the state's absolute control over the currency issuance and clearing system. This concerns the core issue of monetary sovereignty, an area in which Beijing will never make concessions.

In the face of the challenges posed by stablecoins, Beijing's strategy is not simply to ban the technology itself, but to demonstrate a sophisticated dual-track strategy of “blocking domestically and experimenting in Hong Kong.”

In mainland China, the regulatory authorities have taken a high-pressure approach, coordinating across departments to comprehensively block access from multiple dimensions, including capital flows, online information, and judicial enforcement. At the same time, China is actively promoting the pilot and application of its sovereign digital currency—the digital renminbi (e-CNY), and there are indications that the authorities may be researching the possibility of issuing a renminbi-denominated stablecoin backed by the state and subject to strict regulation. The intention is very clear: to squeeze the living space of the “underground forces” with the “regular army,” bringing digital currency innovation under the controllable framework of the state.

In southern Hong Kong, a different scene is unfolding. As an international financial center, Hong Kong is playing the role of China's “risk-isolation test field” in exploring digital finance. In August this year, Hong Kong officially implemented the “Regulatory Framework for Stablecoin Issuers”, allowing licensed institutions to conduct compliant stablecoin business within a “regulatory sandbox”. This seemingly contradictory layout is, in fact, a well-thought-out strategic design. By cautiously “testing the waters” in Hong Kong, China can both keep pace with the global fintech frontier, allowing the renminbi the opportunity to participate in the construction of the global digital settlement system through offshore markets, and effectively ensure that relevant risks do not flow back into the mainland financial system.

Geopolitical game

Zooming out, behind China's current crackdown is the increasingly intense geopolitical game between China and the United States in the global digital currency field. In the United States, President Trump has repeatedly expressed his vision of making America the “Crypto Assets Capital of the World,” and related legislation (such as the “GENIUS Act”) is gradually providing a clearer legal framework for stablecoins and other Crypto Assets ecosystems. Washington's policy shift is seen as an intention to further consolidate and expand the dominance of the US dollar in global circulation through this emerging channel of Crypto Assets.

Beijing is highly vigilant about this. China's decision-makers believe that if the dollar stablecoin is allowed to run rampant domestically, it is equivalent to handing over part of the power of currency issuance and settlement. Therefore, strengthening the financial firewall and ensuring ultimate control over capital flows and ledger information has become an inevitable choice.

This game has even spread to the field of cybersecurity. The China National Computer Virus Emergency Response Center (CVERC) once published a report explosively accusing U.S. agencies of orchestrating a hacking attack on the “LuBian” mining pool in 2020, claiming that the U.S. side used “national-level hacking tools” to steal 127,000 bitcoins, which were worth a considerable amount at the time. Although the U.S. side denied this, such accusations undoubtedly deepened the mutual distrust and opposition between the two major countries in the field of digital strategy.

Conclusion

In summary, China's current severe crackdown on crypto assets is not an isolated regulatory action, but part of its grand national strategy. The core objective is to clear obstacles for establishing a future digital financial system centered around the Renminbi and tightly controlled. In the short term, regulations against stablecoins will only become tighter, and any crypto activities that attempt to challenge monetary sovereignty and financial stability will face harsher sanctions.

For Chinese investors and Crypto Assets enthusiasts, it is crucial to recognize clearly that the high wall still stands, and in the foreseeable future, it will only become thicker. In the context of an increasingly fragmented global digital financial landscape, China is firmly walking down a path that is completely different from the West—a path that firmly locks technological innovation within the framework of national sovereignty. This competition concerning the future form of currency and global financial order has just begun.