China bans offshore yuan stablecoins and vows strict vetting for tokens backed by onshore assets, signalling a regulatory framework for real-world asset tokenisation.
BEIJING: China has vowed to further tighten its crackdown on virtual currencies. The move includes a ban on the unauthorised offshore issuance of yuan-pegged stablecoins.
Authorities will also strictly vet the offshore issuance of tokens backed by Chinese onshore assets. The directives were outlined in a notice published on the central bank’s website.
The statement largely reiterates Beijing’s existing ban on cryptocurrency. However, some industry observers are encouraged by signs China is setting up a legal framework for the real-world asset tokenisation business.
READ MORE: China stablecoin push – better late than never
“The biggest breakthrough is a clear separation between virtual currencies and RWA,” said Louis Wan, CEO of Unified Labs. “Virtual currencies will still be outlawed, but RWA is being included in the regulatory system.”
Winston Ma, an adjunct professor at NYU School of Law, said the central bank is highlighting that only its own digital yuan is legitimate. He stated it is “not a patchwork of private RMB stablecoins circulating on global crypto exchanges.”
Beijing has long taken a tough stance on virtual currencies. Officials said recent “speculative activities” posed new challenges that warranted additional measures.
“Virtual currencies do not have the same legal status as fiat currencies,” the People’s Bank of China and seven other agencies said in a joint statement. They added that business activities related to virtual currencies are “illegal financial activities.”
Without official approval, domestic entities and their controlled overseas entities are prohibited from issuing virtual currencies overseas. Regulators also banned domestic and foreign entities from issuing offshore stablecoins pegged to the yuan without authorisation.
“Stablecoins pegged to fiat currencies effectively perform some of the functions of fiat currencies in circulation,” they stated. The central bank also warned financial institutions against providing services to virtual currency-related businesses.
Regarding the RWA business, offshore issuance of tokens must be strictly regulated by relevant authorities. This applies to tokens where Chinese goods are being turned into digital assets.
“To some extent, this means China is allowing the issuance of offshore tokens based on onshore assets,” said Alex Zuo of Singapore-based crypto custodian provider Cobo. He noted that such a business was previously in a grey area.
“Next, we need to see if there will be detailed rules for execution, and whether there will be successful cases,” Zuo added.
