Virtual currencies in the crosshairs of authorities

China's central bank and nine other government departments jointly announced a crackdown on illegal services and trading of virtual currencies on Friday.

The People's Bank of China said it is illegal for overseas virtual currency exchanges to provide services to residents in the country via the internet. Local staff working for overseas exchanges who offer marketing, settlement and technical services related to virtual currencies will be prosecuted according to relevant laws.

Chinese authorities said they were cracking down on speculative trading of virtual currencies because illegal activities were recently increasing in number, causing a potential threat to economic and financial stability. Such activities may also stimulate other illegal activities such as gambling, illegal fundraising, fraud, pyramid schemes and money laundering, according to a statement released on the central bank's website.

Financial regulators clarified that virtual currencies－such as Bitcoin and Ether－which are not issued by the nation's monetary authority, and other forms of "stablecoins", are illegal and they are not fiat currencies, so they cannot be circulated in the market, the statement said.

Any "mining" activities creating virtual currencies should be banned in China, and local governments are not allowed to provide financial support to new mining projects, the National Development and Reform Commission along with other government departments said on Friday.

It is prohibited to invest in new mining projects of virtual currencies, and for existing projects, they should cease such activities in due course, making sure the withdrawal process is smooth and orderly, the commission said.

Local governments, financial institutions and nonbank payment institutions should not provide financial support for new virtual currency mining projects "in any form". For government-led industrial parks, it is unlawful to introduce new virtual currency mining projects, the commission added.