China has ramped up its efforts to regulate the use of cryptocurrencies in illegal foreign exchange (forex) trading, specifically targeting the misuse of stablecoins like Tether (USDT). The initiative is part of the country’s broader strategy to combat financial fraud and maintain stability in its forex market. Recent cases of using USDT as a medium for exchanging yuan with other currencies have prompted the Chinese authorities to take decisive action. This article delves into the crackdown on illegal forex activities in China and the government’s approach to managing digital assets.
On December 28, the Supreme People’s Procuratorate and the State Administration of Foreign Exchange (SAFE) issued a joint statement, urging prosecutors and forex regulators to strengthen their supervision. The statement emphasized the need for local branches to collaborate closely in punishing and lawfully handling cases related to fraudulent forex activities. It specifically highlighted the conversion of yuan into cryptocurrency for further conversion into foreign currencies, and vice versa, as illegal.
The crackdown targets not only the direct participants in illegal transactions but also those providing technical support. Even website developers and maintainers involved in facilitating these transactions will be considered accomplices. This expanded scope of regulation demonstrates the Chinese government’s commitment to stamping out any unlawful activities associated with crypto and forex trading.
Notable Cases
The severity of the crackdown is exemplified through notable cases. In 2019, a crypto trader in Dubai was sentenced to seven years in jail and fined millions of yuan for illicitly exchanging UAE dirhams into Chinese yuan using Tether. Another case involved transactions exceeding millions of yuan using Tether between 2018 and 2021, leading to imprisonment and fines for the developer of the payment websites. These cases serve as a warning to individuals and entities involved in illegal forex transactions using cryptocurrencies.
China’s Stance on Cryptocurrency
China has been among the strictest countries globally when it comes to cryptocurrency regulations. Trading and mining activities have been officially banned, reflecting the government’s concerns regarding the potential risks associated with digital assets. However, despite the ban, the underground cryptocurrency market in China remains significant, particularly in East Asia. Traders often use digital currencies to circumvent regulations and profit from arbitrage between foreign and local currencies.
Addressing the Need for Stringent Regulation
Recent police reports from Qingdao in Shandong province have exposed a significant money laundering case involving cryptocurrencies and illegal forex trading, amounting to billions of yuan. These incidents underscore the urgent need for stringent regulation in the sector to protect investors and the integrity of the financial system.
Despite the strict stance on cryptocurrency, the Chinese government’s move to draft a national Web3 development plan indicates a more nuanced approach. This signals a willingness to explore the potential benefits of blockchain technology while cracking down on its misuse for illegal activities. The government recognizes the importance of leveraging technological advancements while keeping the financial systems secure.
The Chinese government’s intensified crackdown on illegal forex trading involving cryptocurrencies, particularly stablecoins like Tether, demonstrates its determination to safeguard the country’s financial stability and security. The broadened scope of the crackdown, encompassing not only direct participants but also those providing technical support, sends a clear message to individuals and entities engaging in unlawful activities. As China continues to develop its national Web3 plan, it aims to strike a balance between regulation and innovation, harnessing the potential benefits of blockchain technology while ensuring the integrity of its financial systems.
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