China has a thriving underground forex market where millions of people use these unlicensed forex traders and money changers to convert their foreign currency. This isn’t entirely a secret to the authorities as just about every major city in China has a forex black market that operates under the nose of the authorities.
Beijing has decided that it is time to put an end to this illegal forex market throughout the country.
The Chinese government is focusing on controlling capital outflows in an effort to boost its struggling economy and ensure that the yuan does not go through massive fluctuation in its exchange rate.
It is interesting to see the timing of this announcement as it was made in the lead-up to the ever popular Chinese New Year. This is the biggest festival in China and over 6 million Chinese ended up going overseas to celebrate the New Year. Their overseas travel resulted in a demand for foreign currencies and illegal forex traders were the ones they turned to for their foreign money.
Illegal Forex Traders Will Face Jail Time And Penalties
China has sent out a strong message to the underground forex market after the Supreme People’s Court and the Supreme People’s Procuratorate ruled that illegal forex traders – be it individuals or owners of companies will now be subjected to a fine and could also end up facing jail time. The severity of the punishment and the fine amount will be based on different categories of violation.
If the offenders were found to have a combined transaction volume of $737,000 plus or more than $14,749 in unlicensed profits, it would be considered a ‘severe’ offense and a fine of 5 times the profit and 5 years in prison.
If the offenders were found to have a combined transaction volume of $3.69 million plus or more than $73,745 in unlicensed profits, it would be considered a ‘extremely severe’ offense and a fine of 5 times the profits or seizure of all property. The jail time would be 5 years plus.
The current laws permit Chinese nationals to purchase up to $50,000 in foreign currencies per year. However, there are millions of wealth Chinese nationals who need a lot more foreign currencies and their access to illegal forex traders will now be blocked as the stringent fines and punishment is expected to limit the illegal forex market in the country.