China’s central bank on Friday declared all transactions involving cryptocurrencies such as bitcoin illegal and stepped up a crackdown on illegal mining of them in the country.
Chinese banks have been forbidden from handling cryptocurrencies since 2013, but it still existed at the margins, and the country was one of the world’s largest producers of bitcoin. The crackdown on crypto is part of a broader push by Beijing to ratchet down risk in the country’s economy, specifically the technology sector and in real estate.
“Virtual currency derivative transactions are all illegal financial activities and are strictly prohibited,” the People’s Bank of China said on its website.
Friday’s notice alleges that bitcoin, ethereum and other digital currencies disrupt the financial system and are used in money-laundering and other crimes. Production of cryptocurencies such at bitcoin is done by computers solving increasingly complicated mathematical problems, a task that consumes vast amounts of energy.
China argues that cryptcurrencies cannot be treated as a fiat currency and eliminating them is necessary to reduce risk and, through the crackdown on crypto mining, meet the country’s carbon-reduction goals, Scotiabank economist Derek Holt said in a note to clients.
Bitcoin, the world’s largest cryptocurrency, lost more than seven per cent of its value to just over $41,000 each.
Smaller coins, which typically rise and fall in tandem with bitcoin, also tumbled. Ether fell 10 per cent while XRP a similar amount.
Promoters of cryptocurrencies say they allow anonymity and flexibility, but Chinese regulators worry they might weaken the ruling Communist Party’s control over the financial system and say they might help to conceal criminal activity.
The People’s Bank of China is developing an electronic version of the country’s yuan for cashless transactions that can be tracked and controlled by Beijing.