Lawyer's Interpretation of Regulatory Policy 1128: Focusing on Regulating Illegal Currency Exchange Using Stablecoins

The People's Bank of China held a coordination meeting on combating virtual currency trading speculation (hereinafter referred to as the 1128 meeting) in conjunction with more than ten departments, emphasizing the need to continue adhering to the relevant provisions of the 2021 "Notice on Further Preventing and Dealing with Risks of Virtual Currency Trading Speculation" (hereinafter referred to as the 9.24 notice). It was reiterated that a prohibitive policy should be adopted for the operational activities of virtual currencies in mainland China, with a particular focus on cracking down on money laundering and illegal capital outflow using virtual currencies.

In response to this policy, lawyer Xiao Za interpreted that, overall, the 1128 meeting is a reiteration of old themes, and what truly needs regulation is the illegal foreign exchange activities using stablecoins, which severely disrupt financial order. This issue is a real problem that regulatory agencies must face. It is well known that China has a relatively strict foreign exchange control system, where, under normal circumstances, each person can exchange no more than $50,000 in foreign currency per year. Now, with the stablecoin market gradually expanding, application scenarios continuously growing, and the number of currency traders increasing, many capital outflow demands have been addressed by stablecoins such as USDT and USDC.

Moreover, there are even cases where stablecoins facilitate money laundering or concealment of criminal proceeds for upstream crimes. Furthermore, in judicial practice, there have been bold foreign trade merchants who used USDT and USDC to circumvent United Nations sanctions, assisting sanctioned countries in foreign trade. From a judicial perspective, in the past year or two, China's judicial authorities have gradually increased their regulation of currency traders, with many being convicted and punished for illegal business operations, aiding and abetting crimes, money laundering, and concealing criminal proceeds. In addition, lawyer Xiao Za believes that the 1128 meeting will not affect Hong Kong's open policy towards virtual assets. Hong Kong and mainland China have gradually formed a basic pattern of openness and restriction regarding virtual assets, with a clear regulatory attitude: it is not that financial innovation is not allowed, but it must occur in the designated places I specify.