Three state-backed financial groups in China have issued a joint statement warning against the use of cryptocurrencies as payment, citing their volatility as a high risk. They further remind industry players that digital currencies cannot be used in any financial activities in the country.
National Internet Finance Association of China, China Banking Association, and Payment and Clearing Association of China said Tuesday that its members should not be involved in transactions dealing with cryptocurrencies. These included activities encompassing intermediary services that facilitate trading as well as the exchange of fiat money.
The three groups collectively represent local online companies that provide financial services, local banks, and payment companies.
Their joint warning came in a week that had seen Bitcoin’s value dip significantly following Tesla’s Elon Musk announcement his company had halted use of the cryptocurrency over concerns about its impact on the environment.
Without singling out Bitcoin, the three industry groups said cryptocurrencies were not recognised by China’s central bank and had been flagged for their financial risks as well as potential ties to money laundering. They noted that virtual currencies had no real value and prices were easily manipulated.
They should not be circulated as money and contracts involving their use were not protected by law, they said, adding that any party that participated in such investments or transactions would have to bear the consequences and losses. They reminded consumers to be aware of the risks and refrain from taking part in activities involving cryptocurrencies.
China over the years had warned repeatedly about initial coin offerings or digital currencies, describing these as illegal and driven by market speculation that could disrupt “economic and financial order”. Crypto exchanges also were outlawed, though, individuals still were permitted to own cryptocurrencies.
The government also had not clamp down on crypto mining, which was not referenced in the financial groups’ joint statement. Researchers last month cautioned that, unless more stringent regulations were implemented, China’s crypto mining could undermine the world’s sustainability efforts. The report estimated that the country accounted for more than 75% of Bitcoin’s hashing power or calculations, fuelled by China’s proximity to manufacturers of the required hardware and access to cheap power.
And while it had outlawed financial activities involving cryptocurrencies, the Chinese government had created its own alternative that is commonly described as the digital version of the yuan or renminbi (RMB). Called Digital Currency Electronic Payments (DCEP), the digital yuan was developed on blockchain and cryptographic technologies and might later support near-field communication (NFC) capabilities, to allow offline money transfers between two digital wallets that were within proximity.
DCEP could be downloaded on mobile devices using approved apps, which included AliPay, WeChat, and Apple Pay, and its use in trials kicked off last year amidst the global pandemic. Some residents in Shenzhen and Suzhou were given DCEP packets worth of yuan for use. The Chinese government was studying such trials and assessing the addition of new test cities.