China intensifies crackdown on virtual currencies

Photo: Reuters

Tencent has permanently shut down numerous influential public accounts engaged in spreading knowledge and information about blockchain and cryptocurrency on its popular social media platform WeChat, in a latest sign of China's heightened clampdown on virtual currencies, which the Chinese government considers as a potential threat to financial security.

The reason why these public accounts are blocked is that they are suspected of violating a provisional regulation, which bans public accounts from hyping information related to initial coin offerings and virtual currencies on the WeChat platform, said Tencent in a statement.

Initial coin offering is a type of fundraising through which companies exchange their newly created cryptocurrencies (called tokens) for payment in an existing currency, normally an established cryptocurrency like Bitcoin. Investors profit when their tokens gain in value at a faster rate than the currency they used to pay for them.

The move comes nearly a year after the Chinese government issued a ban on local transactions of digital currencies and initial coin offerings. Although it is uncertain whether Tencent did it at the behest of the authorities, it could still be a sign of stricter government supervision on cryptocurrencies.

Sources close to the regulators told Caixin, a leading news provider in China, that some WeChat public accounts had been misused as platforms for propagandizing local and overseas trading of virtual currencies and investment projects related to initial coin offerings and blockchain.

The People's Bank of China, the country's central bank, the China Banking and Insurance Regulatory Commission and other government agencies have warned the public to guard against unauthorized operators who illegally raise money from investors under the cloak of blockchain and virtual currency in what they call "Ponzi schemes".

Also recently, Beijing's Chaoyang district issued a notice banning office buildings, hotels and shopping malls from hosting cryptocurrency-related marketing and sales events. The purpose of the ban is to "protect people's property right, maintain the legal tender status of renminbi and prevent risks of money laundering", according to the notice.

As part of the government clampdown on digital money, a multi-agency task force is planning to block access to more than 120 offshore cryptocurrency exchange and initial coin offering platforms, which take aim at the Chinese investors, and ask third-party payment service providers not to process cross-border payments for cryptocurrency transactions and initial coin offerings.

Some experts say that this round of tightened crackdown on virtual currencies could stem from the Chinese government's concern about capital outflow, which might be fueled by the escalating trade war with the United States.

Government-backed digital currency

In fact, China's central bank has been developing a government-endorsed prototype cryptocurrency which features higher security levels than the private digital currencies like Bitcoin, whose issuance, management and exchange is decentralized, since 2016 when public interest in Bitcoin was strong.

The state-backed digital money is hailed by the Chinese government as a currency that is helpful in reducing trading cost and simplifying financial services. But some critics say that it reflects the authorities' intention to safeguard the monopoly position of the yuan, which could give Beijing a chance to challenge the US dollar's global dominance.

An specific timetable for the introduction of the national cryptocurrency is still unknown.
 


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