China’s Court Allows Crypto for Debt Settlements: Is China Easing Its Stance on Cryptocurrency?

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By A D

The recent decision by China’s Supreme Court to permit the use of cryptocurriencies for settling debts is a significant development in the country’s stance on crypto.

The Supreme Court of China recently made a lndmark decision to allow the use of cryptocurrency to settle debts, showing hope for a potential shift in China’s position towards crypto. This decision follows China’s ban on crypto trading and mining in recent years, which led to a decline in the country’s share of the global cryptocurrency market.

The ruling clarifies the legal status of cryptocurrencies in China and provides a more concrete framework for their use in commercial transactions. The decree specifically states that “virtual assets” are now legally protected and can be used as a form of payment and settlement, for “mutual exchange, labor service, and other basic relations”, in accordance with law.This includes cryptocurrencies like Bitcoin, Ethereum, and others. The people’s court makes it clear that this should be used as a last resort, and must be agreed upon by both parties.

The Crypto Landscape in China

China’s history with cryptocurrency has been a rocky one. In 2013, the Chinese government banned financial institutions from dealing with Bitcoin, citing its potential use for money laundering and other illegal activities. However, this did not deter Chinese investors from trading in Bitcoin, and the government eventually relaxed its conduct on cryptocurrency.

In 2017, China cracked down on cryptocurrency trading and initial coin offerings(ICOs), which led to notable drop in the value of cryptocurrencies. This, however, was followed with China’s Central Bank announcing the launch of its digital currency, the digital yuan, which would go on to be the world’s first digital currency issued by a major economy.

crypto mining unit in work
Prior to the crypto mining ban, China accounted for 65% of the global bitcoin mining. Image Source

In 2021, China’s stand on cryptocurrency took another turn when it banned all cryptocurrency-related transactions, including mining, trading and holding. A year prior to this, China accounted for about 65% of global Bitcoin mining. Bitcoin mining then shifted, with countries like the United States, Kazakhstan, and Russia gaining more prominence.

Following the announcement of the ban, Bitcoin dropped by over 10%. The ban also saw Chinese crypto exchanges shutting down or moving their operations to other countries. Huobi and OKEx, two of the largest crypto exchanges in China, shut their operations in the country as well. Chinese crypto users turned to P2P and OTC trading.

Despite the Chinese government’s soft ban, the Chinese crypto industry continues to operate quite succesfully. Infact, Chinese users of Binance and FTX found ways to continue trading using virtual private networks (VPN) to bypass China’s internet firewall. This was a no brainer for the Chinese investors considering China’s prevalent internet censorship.

China’s Push for Digital Yuan

The Chinese government has been ramping up its efforts to promote the adoption of its CBDC, the digital yuan, among the public. BNB Paribas, a French multinational bank, recently partnered with the Bank of China to promote the usafe of the digital yuan. The partnership aims to provide BNB Paribas’ corporate clients with access to digital yuan payments, as well as provide advisory services on how to use the digital currency in their businesses.

Starting from May 2023, public servants in the city of Suzhou will receive their salaries in digital yuan. This pilot program will initially cover 20,000 public servants, including employees of the local government, state-owned enterprises, and public institutions.

digital yuan in use in china. china has has a stringent stance n crypto over the years.
From public servants receiving digital yuan salaries to expanding its use in the Belt and Road Initiative, the Chinese government is making strides in the development and adoption of the digital currency. Image Source

China is also looking to expand the use of its digital yuan in the Belt and Road Initiative, a global infrastructure and development project that aims to connect Asia, Europe, and Africa. The digital yuan could reportedly be used to settle cross-border transactions in the initiative. 

While it remains to be seen how the recent court ruling will be implemented and whether it will lead to further regulatory changes, it is clear than Chinese investors are not going to step back. The global crypto industry is growing and evolving at an unprecedented pace, and the need for a balanced environment for the digital economy to stabilise becoming more and more important. As the widespread adoption of cryptocurrency reaches new levels, China’s position on cryptocurrency and how it evolves over the years will sure prove to be a critical development.

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