The Chinese government does not appear to be ready to relax its hard line stance against either cryptocurrency or gambling. In fact, they seem to have stepped up efforts to combat both.
The People's Bank of China recently had 77 individuals arrested and charged with laundering money through online gambling sites.
Meanwhile, lawmakers are working on new rules prohibiting the development of any digital tokens tied to China's official currency, the Renminbi. The rules are an attempt to prevent privately developed tokens from competing with China's future central bank digital currency (CBDC).
Laundering money through gambling
News reports say that three online gambling operations were shut down in Huizhou city, along with the previously mentioned arrests.1 The group has been accused of laundering some US $18 million through a scheme that involved purchasing Tether with Renminbi and then using that Tether to fund gambling accounts.
If the Chinese government's allegations are true, they underscore the reality that gambling can be used as a tool to launder money. Of course, this is not new to anyone who has even a fundamental knowledge of gambling in the modern era. Money laundering via casinos did not start with online gambling. Money laundering of all sorts is a practice as old as humanity itself.
Nonetheless, laundering through gambling operations is simple in principle but rather sophisticated in practice. According to news reports, the Chinese ring purchased cryptocurrency with funds generated through illicit activities. The cryptocurrency was deposited in gambling accounts and then spent as though average gamblers were playing their favorite casino games. It was then returned to the launderers as clean cryptocurrency to be converted back into fiat.
It is not clear if the gambling sites shut down by the Chinese government were owned by the same criminal entities laundering the money. They could have been. However, they wouldn't have had to be. The criminals could have worked out a deal with the gambling operators to launder the funds in exchange for a cut of the action.
Why they chose Tether
It is somewhat interesting that the launderers chose to purchase Tether. Why not Bitcoin or Litecoin? Why not Monero, especially since it has been touted as the only true anonymous cryptocurrency? We can only guess, but we suspect their choice of Tether was a decision based solely on volatility.
Tether is also known as the US Dollar Token (USDT) because it is pegged too, and backed by, US dollars at a one-to-one ratio. There is little to no volatility associated with its price. As such, it is a completely safe cryptocurrency for laundering funds without risking their value.
More curious is the fact that the online gambling sites involved in the scheme accepted Tether payments. This is unusual, to say the least. It also suggests that the gambling sites were owned by the launderers themselves.
Outlawing Renminbi tokens
While the People's Bank of China was working with other government agencies to infiltrate and stop the money laundering ring, its policymakers were also working on a new banking law designed to bolster the country's digital currency.2 The new law recognizes Renminbi in a digital format that will eventually become legal tender in China.
The People's Bank of China was originally planning to release a digital currency in late 2019. The release was pushed back to spring for some unknown reason, but then coronavirus interrupted the plans. Now the People's Bank of China is saying sometime in 2021, or perhaps in 2022. At any rate, no one in China is concealing the fact that a digital currency is in the works.
Among the many things they are attempting to avoid with the new banking law is the development of private tokens tied to Renminbi as stablecoins. In other words, they do not want the Chinese version of Tether. They are also hoping to avoid any association between their own digital currency and private tokens like Facebook's Libra.
Libra, if it ever launches, will be a stablecoin backed by a variety of assets - mostly fiat currencies. Among those fiats listed by Facebook are the US dollar and British sterling. China's Renminbi is not on that list. However, nothing would stop Facebook from adding Renminbi to its basket at some point in the future. China absolutely does not want this.
When all is said and done, Chinese authorities want their citizens spending Renminbi and nothing else. They do not want US dollars in China. They do not want Tether, Bitcoin, Libra, or anything other than their own digital currency.
Allowing other digital currencies in China means allowing competition with the country's Central Bank. That will not work. Interestingly enough though, the People's Bank of China's attitude toward crypto is not unique. It is also not limited to China.
There is a reason that European countries like Germany and France are pushing so hard for the EU to develop its own central bank digital currency in advance of Libra's launch. They do not want the competition either. They feel it is necessary to prohibit digital currencies as much as possible so that people must still rely on fiat - in any form - rather than privately developed alternatives.
Digital currencies and financial freedom
It is difficult to discuss something like this without talking about the financial freedom afforded by cryptocurrencies. Indeed, financial freedom was one of the foundational platforms on which Bitcoin was built so many years ago. Take away financial freedom and you no longer have a level playing field among consumers of all classes.
As things currently stand, the world's central banks also control the world's finances. They control how much cash is in the system at any given time. They control how easy it is to borrow money, and how much it cost to do so. Central banks even work with their government enablers to manipulate national economies as they see fit.
Cryptocurrencies are the antithesis to central banking because they are not controlled by a single government authority. Even something like Tether is not as tightly controlled as a central bank fiat. That lack of centralization, what those in the cryptocurrency community call decentralization, is key to creating a level playing field.
Imagine two merchants deciding to do business with cryptocurrency. For example, you might have an online gambling site and a gaming platform that develops and licenses games. The two can work together to build a very strong business. Payments between them are made in cryptocurrency, thereby shutting out fiat altogether.
Regardless of the growth either company experiences, the value of the tokens between them would not change. Thus, one company would not have a distinct advantage over the other in terms of the value of its monetary assets. That is the way crypto is supposed to work.
It is understood that true financial parity is impossible in the real world. There will always be those who are better off than others. Those same individuals will have an advantage because of their wealth. But in terms of the value of money itself, parity is achievable through decentralization. You accomplish it by removing the artificial influences attributed to national government and central banks.
It won't get any easier in China
Regardless of what happens in the rest of the world, online gambling and cryptocurrency businesses will continue to be targeted by the Chinese government. It is not going to get any easier to operate there. However, it does not seem likely that the Chinese government will ever eliminate either one completely.
The fact remains that Chinese consumers enjoy gambling. They have been doing it as long as anyone else. There is no evidence to suggest they will stop gambling due to crackdowns. They will just find other ways to do it. The same is true in the cryptocurrency world. Crypto is here to stay whether government officials like it or not.
It could be that China's only real objections to cryptocurrency and gambling are related to money leaving the country. They are not necessarily averse to digital currencies, for example. They just do not want digital currencies competing with Renminbi. They also do not want currency leaving China.
We published a blog post not too long ago discussing China's crackdown on overseas gambling junkets. Government officials threatened to prosecute companies recruiting wealthy Chinese tourists for gambling junkets that take them to the Philippines, Macau, Europe, and the U.S. They do not want gamblers leaving China and taking their money with them.
Digital currencies getting closer
Online gambling's morality aside, one thing China's actions make clear is that digital currencies are getting closer. Each day that passes brings us one day closer to a world that no longer uses printed money to operate. Everything is going to be digital in the near future.
China has made no bones about the fact that it is developing a digital Renminbi. Half a world away, the Bahamas has already released a digital version of its fiat. The Sand Dollar, as it is known, is now being circulated in select Bahamian communities. At the same time, the government is planning to slowly withdraw printed bills and minted coins from circulation. The digital Sand Dollar will be the only legal tender of the Bahamian government at some point in the future.
Cryptocurrency and gambling are both facts of life. How governments respond to them will determine their course moving forward. But they are not going away.