China's central bank has shifted its attention from volatile cryptocurrencies like Bitcoin to stablecoins, warning that the tokens represent a deep threat to monetary sovereignty and financial order.
On 28 November, the Peoples Bank of China (PBOC) held a multi-agency meeting to address a fresh rise in virtual currency activity. China’s top financial, judicial, and cybersecurity bodies reaffirmed that all crypto-related activity is illegal.
The most significant shift is the singling out of stablecoins. Officials warned that they fall short of basic requirements for customer identification and anti-money laundering safeguards. Stablecoins such as Tether (USDT) and Circle’s USDC were specifically mentioned and may be central to upcoming investigations.
Tether makes up the overwhelming majority of traded tokens since the 2021 blanket crypto ban, said Roger Huang, author of Would Mao Hold Bitcoin.
“Traders gravitate toward Tether because its spreads are relatively low and it supports a broad set of trading pairs. When a token isn’t listed on major exchanges like Huobi or Binance, they can simply transfer their Tether to smaller exchanges that do list it.”
Underground Crypto Persists Despite Ban
Numerous reports indicate that cryptocurrency trading activity in mainland China has increased this year. At the meeting, officials discussed stepping up coordination, improving information sharing, strengthening regulatory frameworks, and law enforcement.
Roger Huang said that crypto fundraising currently operates under a “don’t ask, don’t tell” principle. While warnings from the Communist Party create significant waves among institutional investors, they function as a form of “social self-censorship” for everyday people.
He said for many Chinese investors, crypto is a logical alternative to the current housing and stock market.
“China is experiencing a period of deflation. Youth unemployment is extremely high, at roughly 20 percent. Housing prices, especially in major tier one cities, have seen significant declines and traditional options like equities have brought about losses.”
Against the backdrop of discouragement, crypto enthusiasts and crypto investors will look for ways around it, said Bonnie Girard, President of China Channel LLC, a business consultancy firm in China.
She said while China’s crypto warnings are broadly respected, the country’s cultural penchant for gambling influences some people to take the risk anyway.
“Individuals will run a risk and reward calculation for themselves and proceed accordingly,” she said. “Many still choose to bypass restrictions using tools like VPNs even though they are banned.”
Girard believes adherence to the crypto ban will likely tighten “as more people see stories of heavy losses or criminal convictions.”
The End of China’s Crypto Ambiguity
China is eager to quash the idea of private stablecoins as the token gains momentum in Japan, Hong Kong, Singapore, South Korea, and Taiwan.
Professor Eric Lee from UNSW Sydney Business School told Cryptopolitan that in China, digital assets pose a threat in the way they could enable capital flows to evade monitoring and oversight.
“For a government that wants full authority over monetary policy, stablecoins are a structural problem because they give away that control,” he said. “Privately issued stablecoins or cryptocurrencies operate on decentralized blockchains that can’t be policed in the same way as traditional finance.”
Lee said the warning leaves no room for people to feign ignorance.
“These comments serve as a warning for anyone harboring thoughts of experimenting with digital assets,” he said.
Bonnie Girard, President of China Channel LLC, a business consultancy firm, said Chinese policy towards digital assets can be understood from a standpoint of whether it bolsters Communist Party control or not.
“The impact on the Party is paramount,” she said. “Beijing views social and financial stability as essential to preventing challenges to its rule.”
She said an ideological divide explains why stablecoins and cryptocurrencies are seen as domains of the state, while the U.S. sees them as technologies to be supervised rather than suppressed.
China Accelerates CBDC While Squeezing Out Crypto
China is pushing for complete control of its digital monetary system through the digital yuan. In 2020, it rolled out an e-yuan, commonly referred to as e-CNY, that’s already being used for supermarket shopping, state welfare payouts, corporate settlements, and salary payments.
After a decade of research and pilot projects, the e-CNY has advanced to a national level where it now processes trillions of yuan in transactions. The token is intended to replace notes and coins rather than bank deposits. The digital currency is slated to replace the widely popular Alipay and WeChat Pay.
The project is also giving the government unprecedented visibility into how money moves through the world’s second largest economy.
While the geopolitical narrative often casts China and the United States as rivals locked in a contest for monetary power, Lee said Beijing’s motivations may be far more prosaic.
Lee said the gold-backed e-CNY is a practical trade tool helping sustain China’s high export volumes.
“They prefer their global trading partners to use and hold digital CNY for trade because it helps China continue to fuel their trade surplus and boost global demand for their exports to achieve their GDP target,” he said.
Lee believes people overestimate how much China cares about challenging the dominance of USD.