Lawyer's Interpretation of China's "1128" Regulatory Policy: Focus on Regulating Illegal Foreign Exchange Activities Using Stablecoins

BlockBeats News, December 1st, the People's Bank of China, together with more than ten departments, held a coordination meeting on combating the speculation of virtual currency transactions on November 28th (hereinafter referred to as the 1128 Meeting). The meeting emphasized the need to continue to adhere to the relevant provisions of the "Notice on Further Preventing and Dealing with the Risks of Speculation in Virtual Currency Transactions in 2021" (hereinafter referred to as the 9.24 Notice), which adopts a prohibitive policy on the operational business of virtual currency in mainland China and specifically highlighted the need to crack down on the use of virtual currency for money laundering and illegal cross-border fund flows.

In response to this policy, Lawyer Xiao Sa interpreted that overall, the 1128 Meeting is a reiteration of previous policies, and what is truly being regulated this time is the illegal foreign exchange using stablecoins, which seriously disrupts the financial order. As is well known, China has established a relatively strict foreign exchange control system, where generally each person is allowed to exchange foreign currency up to 50,000 US dollars per year. With the gradual expansion of the stablecoin market, the continuous growth of its application scenarios, and the significant increase in the number of exchanges, many demands for cross-border fund flows have been met by stablecoins like USDT and USDC. Furthermore, some have even been able to use stablecoins to facilitate money laundering or disguise criminal proceeds for upstream crimes. Moreover, in judicial practice, there have been bold cases where traders have used USDT and USDC to circumvent United Nations sanctions and assist sanctioned countries in foreign trade.

From a judicial practice perspective, over the past year or two, Chinese judicial authorities have gradually intensified their regulation of exchanges, with many exchanges being convicted and punished for crimes such as illegal business operations, aiding in fraud, money laundering, and disguising criminal proceeds.

In addition, Lawyer Xiao Sa believes that the 1128 Meeting will not affect Hong Kong's open policy towards virtual assets. In the matter of virtual assets, Hong Kong's approach has gradually formed a basic pattern of openness and restriction with mainland China, and the regulatory attitude is clear: It's not that we won't allow financial innovation, but you must innovate in the place I designate.