China bans cryptocurrency transactions, causing the price of Bitcoin and other cryptocurrencies to fall following the news. With the new ban, China reinforces its crusade against cryptocurrencies that has been in action for more than 8 years.
In a statement issued on Friday afternoon, the Central Bank of China explained that the ban on all cryptocurrency transactions was made to prevent the risk derived from the high volatility of cryptos, which according to the banking institution, could dynamite national security and social stability.
Following this decision, the price of Bitcoin fell by 8% and Ether fell by 11%. Both cryptocurrencies traded around $41,370 and $2,796, respectively.
The Chinese Central Bank explained that both cryptocurrencies were not issued by a monetary authority and that they use encryption technologies, which exist in digital form, so they should not circulate in the coin market.
The Central Bank of China also decreed that it will be illegal for foreign companies to provide services for buying or selling cryptocurrencies over the Internet.
China began its crusade against cryptocurrencies years ago when it banned cryptocurrency exchanges in the country—but citizens found ways to continue making user-to-user exchanges by other means.
In March, China began a crusade against bitcoin miners within its borders. By June, most of the Bitcoin mining centers had been deactivated and a good portion of these Bitcoin miners have been relocating to the United States.
Chinese regulators have feared for years that because of their decentralized and anonymous nature, cryptocurrency transactions facilitate money laundering, as well as facilitating the outflow of capital from the country.
Cryptocurrencies undoubtedly pose a challenge for a government as obsessed with controlling its financial system as Xi Jinping’s regime, which not only has the support of the Central Bank of China (which has no independence whatsoever), but also dominates the four main commercial banks in China, and has heavily intervened in nascent financial companies such as Ant Group.
China bans cryptocurrencies to favor the use of the Digital Yuan
Despite the crusade against cryptocurrencies, China is working hard on the adoption of a Digital Yuan or Digital Currency Electronic Payment System, as acknowledged by the Central Bank of China. The first pilots of the Digital Yuan started in April 2020 and have already spread in major cities such as Shanghai, Chengdu and Beijing.
The main difference between the Digital Yuan and cryptocurrencies is that the former does not use blockchain technology, so transactions are still supervised and approved by a central authority, and not through thousands of decentralized computers in the world, guaranteeing the anonymity of the transaction, as is the case with cryptocurrencies.
The Digital Yuan experiment has caused concern in the West, to the point that The Wall Street Journal called it “a point of anxiety for Washington” because with the new digital currency, (which seeks to completely replace cash payments) the Chinese government will have greater control over the use of money of its citizens and private companies.
In the medium term, the Yuan could undermine the power of the dollar, and countries currently sanctioned by the United States such as Iran, North Korea or Afghanistan could conduct business with China without having to go through the crosshairs of Western banks.