The People’s Bank of China (PBOC) has reasserted its strict ban on cryptocurrencies, explicitly stating that it considers stablecoins illegal. This declaration deals a significant blow to Hong Kong’s recent efforts to position itself as a regulated hub for digital assets and casts a shadow over its new stablecoin framework.

Crypto Stocks Tumble on Renewed Ban

The market reaction was swift. Following the central bank’s announcement on Friday, November 28, Hong Kong-listed stocks related to the crypto industry saw a notable decline as markets opened on Monday morning. The move dashed any hopes for a loosening of Beijing’s stringent anti-crypto policies.

A Clash of Regulatory Visions

While Hong Kong operates under a separate regulatory system, many businesses viewed its new stablecoin regime, launched earlier this year, as a potential bridge to the vast mainland market. Major technology and retail firms, including JD.com and Ant Group, had reportedly lobbied the PBOC to approve yuan-backed stablecoins in the territory.

Despite some initial indicators that Beijing might be open to the idea, the central bank has firmly closed the door. In a widely reported statement, the PBOC affirmed that virtual currencies “do not hold the same legal status as fiat currency and cannot be used as legal tender in the market.”

The Mainland’s Shadow Crypto Economy

China’s struggle to enforce its crypto ban highlights a complex reality. Years after the initial crackdown, the country remains a significant center for Bitcoin mining, and retail interest in digital assets persists. A thriving shadow economy operates through underground trading desks and VPN-routed transactions, often leveraging proximity to Hong Kong’s more flexible market.

This situation creates a strategic dilemma for Hong Kong. As it attempts to build a legitimate and regulated crypto ecosystem, its largest potential market is legally off-limits. However, the undeniable flow of capital and interest from the mainland creates a point of friction with Beijing that now directly challenges the future of its stablecoin goals.