Key reasons why Cryptocurrency are banned in China
Introduction
China’s ban on cryptocurrencies has evolved over multiple years, with increasingly strict regulations culminating in a comprehensive ban in September 2021. Here are the key reasons behind China’s cryptocurrency prohibition:
Primary Motivations
Capital Flight Prevention
China aims to prevent citizens from bypassing its strict $50,000 annual foreign exchange limit
An estimated $50 billion worth of cryptocurrency left East Asian accounts between 2019-2020, largely attributed to Chinese capital flight
Financial Control
The government seeks to maintain centralized control over its financial system
Cryptocurrencies threaten the traditional role of central banks and governments in controlling money flow
Economic Stability
Concerns about speculative trading and potential market instability
Fear of cryptocurrencies destabilizing China’s currency during economic reforms
Timeline of Key Bans
2013
Initial Restrictions
December: First major crypto restriction banned banks from handling Bitcoin transactions
Bitcoin was classified as a “special virtual commodity” lacking legal currency status
2017
Trading Crackdown
September: Banned ICOs and ordered domestic cryptocurrency exchanges to cease operations
Forced many Chinese exchanges to relocate overseas
2021
Comprehensive Ban
September: Declared all crypto transactions illegal, including:
Both crypto-to-fiat and crypto-to-crypto trading
Marketing and tech support for foreign exchanges
Mining operations through investment restrictions and increased electricity costs
Conclusion
Notably, while trading and transactions are banned, it remains legal for Chinese citizens to hold cryptocurrencies.
