- Chinese law enforcement has disrupted a covert banking network that leveraged cryptocurrencies to execute unauthorized foreign exchange transactions totaling around 2.14 billion yuan ($295.8 million).
- This illicit operation mainly converted the Chinese yuan into the South Korean won, evading the established legal frameworks for currency exchange.
- The busting of this underground bank is part of a broader crackdown by Chinese authorities on crypto-related activities.
Chinese authorities have disrupted a covert crypto banking network involved in unauthorized foreign exchange transactions worth $295.8 million, highlighting the ongoing crackdown on crypto-related activities in the country.
Uncovering The Shadow Crypto Banking Network
In Jilin province, police apprehended six people connected to this operation, underscoring the growing role of digital currencies in bypassing standard financial regulations. According to official statements, this clandestine banking entity utilized cryptocurrencies’ inherent “anonymity and decentralization” to carry out these unlawful transactions. It was reported that the accused managed domestic bank accounts to receive and channel funds and conduct over-the-counter cryptocurrency trades.
Implications for Business and Regulatory Norms
These activities primarily served several business types, including South Korean purchasing agents, cross-border e-commerce entities, and firms engaged in import-export trade. This setup enabled the illegal exchange of currencies between the yuan and the won, violating regulatory norms. Notably, the busting of this underground bank is part of a broader crackdown by Chinese authorities on crypto-related activities. Despite banning cryptocurrencies and related operations like Bitcoin mining, China remains active in policing the sector.
Challenges Facing China’s Digital Currency Initiatives
While China combats illegal crypto operations, it faces challenges in promoting its central bank digital currency (CBDC), the e-CNY, or digital yuan. Despite government efforts to pilot the e-CNY in various cities and reports of billions in transactions, public reception remains tepid. For instance, state employees in some regions are paid partly in digital yuan. Due to the lack of incentives and limited merchant adoption, they frequently convert their holdings back to cash. The digital yuan struggles to compete with well-established digital payment platforms like Alipay and WeChat Pay, which dominate online and offline transactions.
Conclusion
The disruption of this covert crypto banking network underscores the ongoing efforts by Chinese authorities to regulate the crypto sector. Meanwhile, the challenges faced by the digital yuan highlight the need for more compelling use cases and incentives to ensure its widespread adoption.
