China bans cryptocurrency transactions, digital coins tumble world over

BEIJING:

Digital

coins across the world tumbled after the Chinese central bank on Friday declared that all transactions involving cryptocurrencies are illegal. This has been done for the purpose of national security and for the “safety of people’s assets”, the bank said.

Vast amounts of Chinese wealth, including that generated by business community engaged in international dealings, is concentrated in digital coins like Bitcoin and

Tether

. The Biocoin market fell nine per cent from $ 45,000 per unit to $ 40,900 within three hours of the announcement, according to data from CoinMarketCap .

The People’s Bank of China, or the central bank, feels that these coins — which are outside its regulatory ambit — are being used for money laundering. The bank said the offenders would be "investigated for criminal liability in accordance with the law".

Besides the central bank, nine other government agencies, including the powerful

National Development Reform Commission

, have come together to express determination to eliminate the use of digital coins.

At the same time, the government has not asked holders of the cryptocurrencies to return the digital coins to the state. It does not want to unsettle the market because it will cause much of the “national assets” held in digital coins to be lost in erosion, sources pointed out.

The move comes in the midst of a large-scale crackdown on a large number of privately-run Chinese companies, including tech giants and US listed companies. The

Communist Party

feels it is losing control over a wealthy section of stakeholders in the 248 US-listed companies, and they need to be restrained. The People’s Bank of China said as much when it tried to explain the purpose of the ban on cryptocurrencies. It promised to “resolutely clamp down on virtual currency speculation, and related financial activities and misbehaviour in order to safeguard people’s properties and maintain economic, financial and social order”.

The global cryptocurrency market has rapidly grown to a whopping $2 trillion as of April this year (the last figure available), causing alarm among regulators the world over.

China fears a massive global meltdown in this form of currency. It is trying to get a first-mover advantage in the case of a crash, sources said.

Several other regulators, including the

Federal Reserve

in the US, are contemplating measures to restrict the use of cryptocurrencies. US

Treasury

Secretary

Janet Yellen

said last July that the government must move quickly to establish a regulatory framework for such coins.

China has been trying to stop the production of bitcoins in the country, which is the source of nearly up to three-quarters of the world's supply of bitcoins because mining them demands vast quantities of electricity.

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