Monetary Sovereignty in Practice

Over the past few years, China’s position on cryptocurrencies has been widely understood: trading and exchange activity are prohibited, mining is restricted, and crypto does not enjoy legal status.

On 6 February 2026, the People’s Bank of China, together with other state authorities, issued Notice No. 42–2026, addressing cryptocurrencies (referred to as “virtual currencies” in the document) and real-world asset tokenisation (RWA).

This week, we will dive into the details and discuss how the CSRC addresses enforcement mechanics, extraterritorial reach, and infrastructure-as-an-enabler.

⸻

Crypto remains outside the legal perimeter

The core message remains unchanged: cryptocurrencies do not have legal tender status in the PRC, largely reaffirming the 2021 prohibitions. They cannot function as money in the market. Activities involving exchange, trading, intermediation, token issuance, or crypto-linked financial products are treated as illegal financial activity and may attract criminal liability.

The new notice goes further in defining responsibilities across agencies and reinforces that foreign organisations and individuals assisting them from within China can face legal consequences if they provide crypto or RWA-related services to Chinese residents.

This clarifies an important point: offshore structuring does not remove domestic risk.

⸻

Stablecoins receive special attention

The notice states that fiat-referenced stablecoins effectively perform certain functions of legal tender during circulation. As a result, no Chinese or foreign entity may issue RMB-pegged stablecoins abroad without authorisation.

This is significant for two reasons.

First, it implicitly recognises stablecoins as monetary instruments, not merely digital assets. Second, it reinforces that monetary sovereignty remains central to policy design.

Mainland China’s approach remains restrictive in comparison to Hong Kong’s supervised licensing framework. Stablecoins are acknowledged as functionally important but they are not permitted to operate outside approved structures.

⸻

RWA: theoretically possible, practically restricted

The notice also addresses real-world asset tokenisation (RWA). In principle, RWA issuance is not absolutely prohibited. In practice, it may only occur with sectoral regulatory approval and within designated financial infrastructure.

Absent that approval, RWA activity may be treated as unlawful securities issuance, illegal fundraising, or unauthorised financial operations.

This distinction matters. The policy stance is not that tokenisation is inherently illegitimate. The stance is that tokenisation outside state-approved frameworks is unacceptable.

⸻

Infrastructure suppression as policy tool

Surrounding infrastructure is one of the most important aspects of the document. It is prohibited to:

 • use crypto-related terminology in registered company names or business scopes

 • provide internet services supporting crypto activity (platform hosting, marketing, traffic services)

 • open a bank or payment accounts for crypto-related activity

 • settle, clear, pledge, insure, or issue crypto-linked financial products

This is a comprehensive approach. Rather than targeting individual traders alone, the policy constrains the financial, technological, and commercial rails that enable activity. In other words, enforcement moves upstream.

⸻

Extraterritorial reach and overseas subsidiaries

The notice also requires overseas branches and subsidiaries of Chinese financial institutions to comply with these prohibitions and maintain appropriate AML/KYC controls when operating abroad.

At the same time, it allows for accountability of individuals within China who assist foreign entities in serving PRC residents.

This creates a layered compliance challenge for multinational institutions. Activities lawful in one jurisdiction may still create exposure if they involve PRC residents or PRC-based facilitation.

⸻

What this means in practice

For compliance and risk professionals, three points stand out.

First, regulatory divergence within China remains pronounced. Mainland policy remains prohibitive, while Hong Kong continues to operate a licensing-based framework for virtual asset activity. Cross-border structuring between the two must be approached carefully.

Second, infrastructure providers such as banks, payment firms, IT service companies, and marketing platforms face increased scrutiny. Exposure is no longer limited to direct trading platforms.

Third, enforcement logic is systemic rather than episodic. The objective appears to be preventing ecosystem formation rather than reacting to isolated violations.

⸻

A closing perspective

Notice 42–2026 does not introduce a new philosophy. Cryptocurrency activity in mainland China remains outside the recognised financial order. Tokenisation and stablecoins may be acknowledged as technological phenomena, but only within structures defined and supervised by the state.

For international institutions, the message is straightforward: jurisdiction still matters, infrastructure still matters, and policy consistency across group entities is no longer optional.

As always, if this development intersects with your organisation’s cross-border strategy or compliance framework, I’m happy to compare notes.

Thanks for reading,

Alexey