The State Administration of Foreign Exchange (SAFE) in China has urged lawmakers to enact new regulations governing digital assets in the nation.
At the 2022 Financial Street Forum, Huang Hui, the agency’s deputy director, made the decision. Hui advocated for a broader division of virtual currencies into categories like “illegal payment settlement, illegal securities, or illegal tokens” in her keynote address.
Even though China has outright banned digital assets since last year, Hui asserts that better categorizing the asset class will aid her organization’s monitoring of unauthorized foreign exchange operations. The legality of foreign exchange is a problem for Hui’s agency, which frequently works with regional law enforcement to crack down on shady transactions.
Although the regulatory framework has not yet been developed, “regulatory issues of cryptocurrency, especially the cryptocurrencies linked with U.S. dollar assets like Tether, have a significant payment and settlement nature,” said Hui.
According to the deputy director, the popularity of blockchain and stablecoins have continued to fuel the activities of underground banks in moving capital in and out of the country without the knowledge of regulatory agencies.
To taper its activities, the People’s Bank of China (PBoC) has heightened its attempts at creating a central bank digital currency (CBDC) in the hopes that it steers attention from virtual currencies. The central bank is also exploring its usage in cross-border transactions after participating in a pilot organized by the Bank for International Settlements (BIS).
China’s rocky relationship with digital assets
China did not always have a torrid relationship with virtual currencies, as, during peak adoption cycles, the country accounted for nearly 70% of BTC’s hash rates. Apart from being a hub for miners, China contributed a chunk of global trading volumes, and digital asset exchanges thrived.
Things began to fall apart in the summer of 2021 when the government imposed a blanket ban on digital assets. The move led to the exit of digital asset miners to other friendly jurisdictions like the U.S. and Iran, while exchanges ceased their operations in mainland China.
Despite the negative stance towards the speculative uses of digital assets, Chinese authorities are embracing non-fungible tokens (NFTs) and the metaverse to improve the country’s digital economy. There is widespread speculation that some BTC miners might still be operating in the country, opting to go underground and masking their activities using VPNs and mining pools.
Watch: The BSV Global Blockchain Convention panel, Law & Order: Regulatory Compliance for Blockchain & Digital Assets
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