The People's Bank of China, the country's central bank, has declared that all crypto-currency transactions are illegal, thus prohibiting the use of digital coins.
The banks stated, "Virtual currency-related economic activities are illegal financial activities." Cryptocurrencies, such as Bitcoin and Tether, are not fiat currency and cannot be circulated, according to the statement.
China has enacted regulations prohibiting banks from providing crypto-related services, forcing traders to rely on over-the-counter platforms and offshore exchanges. The new prohibition, on the other hand, goes far further, focusing on services provided by offshore exchanges.
The People's Bank of China declared in May that financial services firms and payment services would no longer be allowed to price or conduct business in virtual currencies.
To combat money laundering, China has made cryptocurrency trading illegal since 2019, following similar restrictions in 2013 and 2017.
However, this does not imply that China is fully abandoning cryptocurrency. It's only a matter of gaining control.
The crypto ban comes as the Chinese government prepares to launch the Digital Yuan, its sovereign digital currency, which has been in development for years. The People's Bank of China has been undertaking pilot projects in major cities to build a digital yuan payment system in recent months.
The digital yuan was first proposed in 2014, and it has already distributed $30 million in digital cash.
It's an obvious competitor to unregulated cryptocurrencies. It's also a means for the government to take on WeChat and Alipay, the two private companies that dominate the mobile payments sector.
Even while China's intentions are well ahead of others, China is not the only big economy considering a central bank digital currency.
Around 80 countries are investigating the concept, and five countries have already implemented a digital currency, all of them are in the Caribbean.
D-Euro, a central bank digital currency (CBDC), is currently being developed by a dozen European countries. D-Euro is intended to supplement rather than replace the present monetary system, according to the European Central Bank.
The digital dollar is still being researched in the United States. The House Committee on Financial Services held a hearing in June on the advantages and disadvantages of digital currency.
The digital dollar's detractors point to a number of drawbacks, including a lack of privacy and accessibility. Proponents on the other side of the digital divide argue that the United States must implement it and take a leading role in this or risk being left behind.
When comparing a central bank-issued digital currency against cryptocurrencies, Democratic Senator Elizabeth Warren has argued in support of the digital dollar.
“Legitimate digital public money may assist in the eradication of phony digital private money. Senator Warren stated, "It could assist promote financial inclusiveness, efficiency, and the safety of our financial system."
Meanwhile, the Federal Reserve remains wary about central bank digital currencies' usefulness.
Chris Waller, a member of the Federal Reserve System's Board of Governors, recently suggested that the US government should only engage with a potential digital solution if major market failures occur.
“As of now, I'm not confident that a CBDC would fix any existing problem that isn't being addressed more quickly and efficiently by other initiatives,” Waller said.
However, Robert Kaplan, President of the Dallas Federal Reserve, stated a few months ago that “the Fed must focus on building a digital currency.” According to the Bank for International Settlements, 80 percent of central banks are involved in CBDC activity in some form, with half of them at the experimental or pilot stage.
According to Accenture, by 2024, a fifth of the G-20 countries will have some form of digital currency in circulation.
According to Bank of America Securities, the current stock market recovery may be fleeting, which forecasts a bear market until 2022 and advises investors to focus on cash and commodities.Banks and Finance