Virtual currencies in Chinese law: from cryptocurrency ban to digital yuan

Abstract

The widespread use of digital financial instruments has increased interest in the legal regulation of digital currencies around the world. China has become a recognized leader in regulating this matter, testing the digital yuan since 2021 and adjusting legal solutions to adapt the new institution based on this experience. Recognizing digital currencies as virtual property, China introduced the concept of legal and illegal digital currencies. Strict restrictions on cryptocurrency circulation have been established, its methods and means of control are constantly being improved, law enforcement efforts are constantly increasing, and law enforcement targets are gradually being extended to key financial intermediaries. But against this background, the research and development of legal regulation of digital yuan circulation continues. Through regional pilot regimes, preparations have been made for the full-scale issuance and cross-border circulation of digital yuan, aiming at the internationalization of digital China. The analysis of the Chinese experience shows that modern states cannot completely avoid addressing the issue of legalization of digital currencies. Attempts to minimize systemic risks to economic and financial stability resulting from the spread of decentralized cryptocurrencies lead to the need to introduce digital currencies of a different quality — centralized banking digital currencies backed by the authority of the state.

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