On 01 September 2021, Gherson’s white-collar crime and regulatory team wrote a blog explaining how China is on the way to introducing a digital yuan and exploring central bank digital currencies (“CBDC”).
Gherson have previously written blogs on China’s “crackdown” on crypto, including through increasing crypto regulation. Indeed, it was also argued that the introduction of CBDCs could provoke tensions to arise and more broadly prompt further regulation and scrutiny in the crypto sector. Gherson have separately argued for a more bespoke regulatory regime for this sector.
China cracks down further on crypto
On Friday 24 September 2021 it was reported that ten powerful Chinese government bodies said that overseas crypto exchanges were barred from providing services to mainland investors. This reportedly caused several crypto-exchanges to cut ties with mainland Chinese customers. The People’s Bank of China is reported to have said that “Virtual currency-related business activities are illegal financial activities” which “seriously endanger the safety of people’s assets”.
Earlier in 2019 China officially banned trading in crypto-currency, however, trading continued through foreign exchanges. Foreign websites providing crypto trading services to Chinese citizens online are now reportedly deemed to be an illegal activity. It is impossible to say whether China’s ban is linked to its introduction of a CBDC however this is a possibility.
Twitter and crypto payments
This news perhaps overshadowed another story, also of potential significance. On 23 September 2021 it was announced that Twitter will allow cryptocurrency to be sent between users. Therefore, Twitter users will be able to send bitcoin directly to other Twitter users through the app and via Strike, a third-party payments application built on the bitcoin lightning network.
The wider implications of this have been described by some as huge, for example in relation to cross-border remittance payments. Indeed, Strike’s Jack Mallers is reported to have said “When you take one of the world’s largest social internet networks and you combine it with the world’s best open monetary networks, Twitter accidently becomes one of the best remitting experiences in the world”. This has also been described as one of the best solutions enabling people to transact with underbanked regions of the world.
More generally, in terms of international settlement, Finextra have recently reported that CBDC and distributed ledger technology outperforms corresponding banking systems.
Overall Crypto Regulation
We have previously argued that the introduction of CBDCs could lead to increased crypto regulation. This could be the case in China (who have gone to the ultimate extreme and barred access to crypto).
How other countries (and specifically other regulators) now respond will be interesting to watch. Some are arguing that this will result in the US relaxing their crypto regulation. However, there are others who say that since China has effectively prevented any development in this space, the US (and other regulators) have now been given carte blanche to impose much stricter regulations. Generally there have certainly been signs of increased regulation; Gherson have also recently blogged about the EU’s proposed steps to increase the AML regulation of this sector and have updated on regulatory steps taking place in the UK.
As regulators crack down on the one hand, and companies such as Twitter enable instant and free global crypto payments to be made between members of their already established network on the other, this is as always a fascinating area to watch as it develops going forward.
How Gherson can assist
Gherson’s white-collar crime and regulatory team has recently started a series on the regulation of crypto, with the aim of advising those who work in the compliance of this sector. In addition, for those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.
Please do not hesitate to contact us for advice, send us an e-mail, or alternatively, follow us on Twitter, Facebook, or LinkedIn to stay-up-to-date.
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
©Gherson 2021