China central bank orders banks to cut off all digital currency OTC merchants

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China’s central bank has issued a statement ordering commercial banks to cut off all digital currency-related activities, including over-the-counter digital currency trading merchants. The People’s Bank of China has recently summoned the country’s leading banks and payment providers as part of the fresh crackdown amid the bank’s efforts to step up its CBDC pursuit, with the latest being the addition of over 3,000 ATMs in Beijing to the digital yuan ecosystem.

China has cracked down on digital currencies for years now, but the local traders have always found a way to go around the restrictions. Their most popular strategy is the use of over-the-counter (OTC) platforms powered by exchanges such as Huobi and OKEx. Once the trades are matched on the OTC platform, they then make the payments via bank transfers or payment platforms like AliPay.

The PBoC is seeking to curb this rising market. In its statement on Monday, the apex bank revealed that it had summoned banks such as the Industrial and Commercial Bank of China and the Agricultural Bank of China to a meeting to discuss the issue. The meeting also included mobile payments services including AliPay.

OTC trading, which the bank views as speculative, had severely disrupted China’s financial system, it said. In addition, this kind of trading creates the risk of illegal capital outflow from the country as well as money laundering. As it has done several times since 2017, the PBoC reiterated its stance that no bank in China should service digital currency-related clients.

Immediately after the meeting, the banks, and AliPay, issued similar notices to their clients. They warned them that if found to be engaged in digital currency activity, it would be grounds for termination of the account as well as reporting to the relevant authorities.

The latest crackdown comes at a time when the PBoC has kicked up its digital yuan activities a notch. According to local reports, late last week, the Industrial and Commercial Bank of China (ICBC) activated 3,000 ATM machines in Beijing to facilitate the conversion of the digital yuan into cash, and vice versa.

In addition, the Agricultural Bank of China has activated 10 of its own ATMs in Beijing with the feature.

Matteo Giovanni, a financial professional at ICBC, which is the largest bank in the world, opined, “An increased number of Beijing-based bank branches adopting dedicated ATM machines and qualified to convert China’s digital yuan to fiat currency is going to dramatically increase the circulation of digital RMB. Therefore, the adoption of sovereign virtual currency won’t be any more a matter of luck for local residents, but subject to the individual willingness to become an early adopter of what represents the future of money.”