BEIJING - China has announced its commitment to further strengthen its crackdown on virtual currencies on Friday (Feb 6) by prohibiting unauthorised offshore issuance of yuan-pegged stablecoins.

Authorities will now also rigorously scrutinize offshore issuance of tokens backed by Chinese onshore assets, as stated in a notice published on the central bank's website.

While the announcement largely reiterates Beijing's existing ban on cryptocurrency, there are indications that China is establishing a legal framework for the real-world asset (RWA) tokenisation business.

"The major breakthrough lies in the clear differentiation between virtual currencies and RWA," said Louis Wan, CEO of Unified Labs.

"Virtual currencies will remain prohibited, but the inclusion of RWA in the regulatory system is a significant milestone for China's RWA business," Wan added.

Central Bank Asserts Monopoly on Digital Yuan

Winston Ma, an adjunct professor at NYU School of Law, pointed out that China's central bank is emphasizing that only its own digital yuan is legitimate, dismissing any private RMB (yuan) stablecoins circulating on global crypto exchanges.

Despite China's longstanding firm stance on virtual currencies, officials cited recent "speculative activities" as posing new challenges that necessitated additional measures.

"Virtual currencies do not hold the same legal status as fiat currencies," emphasized the People's Bank of China and seven other agencies in a joint statement, labeling business activities related to virtual currencies as "illegal financial activities".

Entities in China and their overseas counterparts under their control are prohibited from issuing virtual currencies overseas without official approval, as stated by regulators.

Regulators have also forbidden both domestic and foreign entities from issuing offshore stablecoins pegged to the yuan without proper authorization.

"Stablecoins pegged to fiat currencies essentially perform similar functions as fiat currencies in circulation," regulators explained.

Moreover, the central bank cautioned financial institutions against providing banking and clearing services to businesses dealing with virtual currencies.

Regarding the RWA business, which involves converting various Chinese goods into digital assets with minimal oversight, the notice stipulates that offshore token issuance must be tightly regulated by relevant authorities.

"In a way, this indicates China's willingness to permit the issuance of offshore tokens based on onshore assets," noted Alex Zuo, senior vice president of Singapore-based crypto custodian provider Cobo.

Previously, this business operated in a legal gray area.

"The next step is to observe if detailed execution rules will be established, and whether successful cases will emerge," Zuo remarked.

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