The Chinese central bank reiterated its stance on cryptocurrencies on Friday, issuing a memorandum prohibiting cryptocurrency transactions and making it illegal for currency exchanges to provide services to people in China. “Commercial activities related to virtual currency are illegal financial activities,” the People’s Bank of China said in a statement posted on its website on Friday afternoon. Beijing blames cryptocurrencies for “disrupting the economic and financial order” and facilitating “illegal and criminal activities” such as gambling, fraud, pyramid schemes, money laundering and theft.
The notice explicitly mentions bitcoin, Ether, and TEDA, noting that they “do not have the same legal status as legal tender.” “They are not legal and should not and cannot be used as currency in the market,” the notice reads before listing all activities related to cryptocurrencies that are now prohibited. These include managing virtual currency exchange businesses, buying and selling virtual currencies as a central counterparty, providing information brokerage and pricing services for virtual currency transactions, financing the issuance of tokens or transactions of derivatives in virtual currencies.
Chinese government entities have long opposed cryptocurrencies, and in May, three state-backed financial groups issued a joint statement warning against using cryptocurrencies as a means of payment, citing their volatility as a high risk.
Beijing strengthens its legislation
The largest Chinese banking institutions have asked their clients to refrain from engaging in transactions involving cryptocurrencies. Cryptocurrencies have been banned for many years in China, but citizens can access them through other means. China has also spent years working on its own digital currency.
As a reminder, Chinese Vice Premier Liu He said in May that the country should also take a firmer stance on cryptocurrencies. The leader’s statement led to the closure of several cryptocurrency mining operators. Researchers recently estimated that China is responsible for more than 75% of bitcoin’s hashing power or calculations, thanks to China’s access to cheap hardware and energy. The Wall Street Journal notes that mining is backed by hydroelectric plants in Sichuan and Yunnan, as well as coal in Xinjiang and Inner Mongolia.
Beijing’s decision reduced the price of bitcoin by 4% and that of Ethereum by more than 7% on Friday, according to CoinDesk.