Chinese authorities have unearthed a colossal $2.2 billion underground forex operation, intricately linked to virtual currency trading platforms. This action highlights China’s stringent approach to controlling financial transactions across its borders.
The Qingdao Branch of the State Administration of Foreign Exchange’s Inspector, Xu Xiao, shed light on the mechanism of the scheme. Underground banks were buying cryptocurrencies domestically, then liquidating them through foreign exchanges to acquire needed foreign currencies. This maneuver effectively sidestepped the nation’s capital regulations, converting yuan into foreign currencies illegally.
Since 2016, China’s foreign exchange rules have been unyielding. All financial entities and individuals must navigate within a “closed” capital account framework, severely restricting the flow of money to prevent capital flight. The country’s stance hardened in 2017 with a ban on cryptocurrency exchanges, escalating to a comprehensive prohibition in 2021.
Recent reports also implicated Binance, a major cryptocurrency exchange, in a controversy where employees allegedly facilitated users in China to bypass strict Know Your Customer (KYC) protocols by misrepresenting their location.
The crackdown is not just a blow to the underground banking system but also serves as a stark reminder of China’s ongoing efforts to maintain financial sovereignty and stability. The government’s vigilance against such sophisticated forms of financial transgressions remains unwavering.
