China Steps Up Efforts to Curb Illicit Forex Trading Using Stablecoins

China is intensifying its efforts to combat illegal foreign exchange transactions involving the use of the USDT stablecoin, signaling a renewed focus on its stringent crackdown on cryptocurrency activities.

In a recent development reported by the South China Morning Post, China’s Supreme People’s Procuratorate (SPP) and the State Administration of Foreign Exchange (SAFE) have spotlighted criminal cases that involved USDT, despite no new changes in cryptocurrency regulations being introduced. This move comes amid concerns over the growing use of stablecoins, which are digital currencies pegged to traditional assets like the U.S. dollar or gold.

Chinese authorities have observed an uptick in the use of stablecoins for yuan trading with other currencies, leading to improved coordination among local officials to combat fraudulent foreign exchange operations lawfully.

Highlighting the seriousness of the issue, the prosecutor’s office cited “typical cases of illegal foreign exchange crime,” with two of these cases prominently involving USDT. One case from 2019 detailed a crypto trader in Dubai converting over 22 million UAE dirhams to yuan in China and then reselling USDT for a profit margin exceeding 2%. Another instance reported the exchange of foreign currency worth more than 220 million yuan using USDT over a period from 2018 to 2021.

Despite the official ban on crypto trading and mining in China, the report from the South China Morning Post suggests that the crypto industry continues to thrive in underground markets. Traders are reportedly still leveraging cryptocurrencies for fiat currency exchanges.

Citing the Chinese news agency Xinhua, the report also notes that since 2021, Beijing has successfully cracked down on over 1,100 cases related to illegal foreign exchange dealings, evasion, and fraud, imposing fines totaling around 1.5 billion yuan (approximately $211 million). However, it remains uncertain how many of these cases directly involve the use of cryptocurrencies.