China Tightens Crypto Oversight with New Foreign Exchange Rules

China has introduced stricter regulations targeting foreign exchange activities linked to cryptocurrencies, signaling a deepened effort to curb crypto-related risks.

The State Administration of Foreign Exchange has instructed banks to closely monitor and report suspicious transactions, focusing on activities such as cross-border gambling, underground financial networks, and unauthorized crypto dealings. These measures require financial institutions to identify involved parties, verify the sources of funds, and analyze trading patterns for irregularities.

Legal analysts interpret these new rules as an extension of China’s ongoing crackdown on cryptocurrency. Liu Zhengyao, a lawyer at ZhiHeng law firm, emphasized that the regulations bolster the government’s control over crypto-related activities, reinforcing its broader regulatory framework.

A Complex Stance on Crypto

China’s latest measures underline its cautious yet multifaceted approach to the cryptocurrency sector. Historically, the government has imposed stringent restrictions on activities like Bitcoin trading and mining, citing risks to financial stability.

However, recent developments suggest a more nuanced view. The People’s Bank of China (PBOC), in its 2024 Financial Stability Report, acknowledged Hong Kong’s leadership in crypto regulation and stressed the need for robust oversight of digital assets. The report highlights the importance of aligning domestic policies with global regulatory efforts.

Chinese courts have also recognized cryptocurrencies as legal personal property, though their use is restricted to ownership and classification as commodities—not as payment methods or speculative investments.

Despite recognizing the sector’s potential, Chinese regulators remain wary. They continue to caution against the risks associated with expanding cryptocurrency use in payment systems and retail investments, emphasizing the need to protect financial stability.