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 stated that a prohibitive policy should be adopted for the operational business of virtual currencies in mainland China, with a particular focus on combating 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 really needs to be regulated is the illegal foreign exchange transactions 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 generally, each person can exchange no more than 50,000 US dollars per year. Now, with the gradual expansion of the stablecoin market, the continuous growth of application scenarios, and the significant increase in the number of cryptocurrency merchants, many capital outflow demands have been addressed by stablecoins such as USDT and USDC.

Moreover, there are instances where stablecoins can 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 regulatory efforts against cryptocurrency merchants, 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 areas.