China Cracks Down Harder on Cryptocurrency With New Ban

China intensified its crackdown on cryptocurrency on Friday, declaring all financial transactions involving cryptocurrencies illegal and issuing a nationwide ban on cryptocurrency mining, the power-hungry process in which vast computer networks compete for newly created crypto tokens.

Bitcoin, the world’s largest cryptocurrency, dropped as much as 7 percent, to around $41,100, on the news, but recovered somewhat as the day went on.

The clampdown in China comes as the country’s central bank has been testing its own digital currency, the electronic Chinese yuan. A notice posted by the central bank explicitly called out Bitcoin and Ether, the two most popular cryptocurrencies, for being issued by “non-monetary authorities.”

George Selgin, an economist and senior fellow at the Cato Institute, said that creating a central bank digital currency and making crypto transactions illegal were part of the Chinese government’s broader effort to channel citizens away from popular private financial services providers, such as AliPay and WeChat. A state-controlled digital currency would allow the government to collect data and keep tabs on citizens’ everyday transactions and would make it easier for the government to control access to an individual’s funds, among other concerns.

“This is really about establishing a state monopoly in payments,” he said. “The most obvious implication is that the state will have more opportunities to monitor citizens’ economic activity.”

In a joint statement by 11 Chinese government entities, the authorities vowed to work closely to punish “illegal” crypto mining activities to help prevent the “hidden risks caused by the blind and disorderly development” of the industry and to help the country achieve its carbon reduction goals.