What's behind China’s cryptocurrency ban?
来源:World Economic Forum;发表于:2022-02-12;人气指数:408
What's behind China’s
cryptocurrency ban?
https://www.weforum.org/platforms/shaping-the-future-of-financial-and-monetary-systems/articles/what-s-behind-china-s-cryptocurrency-ban
China's cryptocurrency ban came into force in September
2021
Image: REUTERS/Florence Lo/Illustration
31 Jan 2022
Francis Shin
Research Assistant, Europe Center, Atlantic Council
*The People's Bank of China argues that its ban on
cryptocurrencies is to curtail financial crime and prevent economic
instability.
*However, China's cryptocurrency ban comes amid fears
that cryptocurrencies were facilitating capital flight from its markets,
bypassing conventional restrictions.
*China's cryptocurrency ban is part of a new trend in
Chinese economic policy toward greater state intervention, epitomized in the
“common prosperity” campaign.
In late September 2021, the People’s Bank of China
(PBOC) banned all cryptocurrency transactions. The PBOC cited the role of
cryptocurrencies in facilitating financial crime as well as posing a growing
risk to China’s financial system owing to their highly speculative nature.
However, one other possible reason behind the cryptocurrency ban is an attempt
to combat capital flight from China.
According to the Chainalysis Blockchain data platform,
more than $50 billion worth of cryptocurrency left East Asian accounts to areas
outside the region between 2019 and 2020. As China has an outsized presence in
East Asian cryptocurrency exchanges, Chainalysis staff believe that much of
this net outflow of cryptocurrency was actually capital flight from China.
Although Chainalysis does not have a definitive figure for how much capital
fled China between 2019 and 2020, they estimate that it could be as high as $50
billion.
Capital controls and cryptocurrency exchanges
China places an annual limit of $50,000 for the purchase
of foreign currencies as part of its already strict capital controls. As
such, the capital flight facilitated by cryptocurrency is especially notable.
Previously, the rich in China got around capital
controls by purchasing foreign real estate, creative invoicing for
international trade and even coercing their employees to transfer money to
foreign bank accounts. With Bitcoin, residents in China have been able to
acquire foreign assets more easily, free from the scrutiny of Chinese
authorities. Given the decentralized nature of Bitcoin and many other
blockchain-based cryptocurrencies, they can be used to circumvent capital
controls far more easily than a conventional currency exchange that
uses the banking system.
Despite the strict capital controls in place, Chinese
authorities have always been wary of capital flight. The effectiveness of these
capital controls is somewhat debatable, as some commentators argue that
capital flight grew significantly between 2009 and 2018. Meanwhile, in
2017, the PBOC banned the operations of cryptocurrency exchanges within
China. (The 2017 ban did not go so far as to forbid the ownership or mining of
cryptocurrency, which the 2021 ban finally prohibits.) Although China did not
cite capital flight as a reason for its cryptocurrency restrictions in 2017,
Chinese authorities did place additional restrictions on overseas
investments by Chinese companies that same year. In some ways, the 2017
restrictions on cryptocurrency exchanges in China can be seen as the harbinger
of the subsequent tightening of outward investment of Chinese companies that
year.
Chainalysis also notes that much of the capital flight
out of East Asia is facilitated by the stablecoin, Tether (USDT), a
cryptocurrency notionally pegged to the value of the US dollar (USD).
Tether became more popular in 2017 following the PBOC’s restrictions on crypto
exchanges in China. Trading Bitcoin for Tether was already made illegal by the
PBOC’s 2017 prohibition on cryptocurrency exchanges, but it was still possible
for Chinese cryptocurrency traders to acquire Tether from discreet trade with
over-the-counter brokers or through the use of foreign bank accounts. According
to former Grayscale Director of Research Philip Bonello, Tether is
especially popular in China because its value is stable from being
hypothetically pegged to the US Dollar, making it easier to exchange to the
fiat currency of a user's choice.
Currencies included: BTC, DAI, USDC, USDT.
Image: Kaiko
Common prosperity and capital controls
The threat of capital flight remains a priority for the
PBOC as the Chinese economy recovers from the COVID-19 pandemic, especially as
China launches its “common prosperity” campaign. Former PBOC advisor Li
Daokui has warned that the relatively fast economic recovery of the
US could fuel greater capital flight, as Chinese residents may be inclined to
purchase assets in the US for greater financial security.
Moreover, the common prosperity drive emphasizes a
heavier statist approach to managing China’s economy, as well as a more
inward-looking economic strategy. Notably, the outlawing of cryptocurrency
transactions happened only a month after the announcement of the common
prosperity programme. This cryptocurrency ban may have also been brought in to
curtail outward investments and instead encourage the rich in China to accept
higher income taxes and to contribute their wealth domestically.
Altogether, there is strong evidence to suggest that the
cryptocurrency prohibition was a response to the perennial problem of capital
flight from China. Given that a huge amount of capital flight already occurred
through cryptocurrency exchanges, the PBOC will have been aware that
cryptocurrency was exacerbating China’s chronic issue of capital flight.
With the common prosperity programme, China aims to curb
capital flight and encourage the domestic circulation of people’s wealth.
China’s attempts at wealth redistribution would be far more difficult to
accomplish if the rich circumvented China’s already strict capital controls
through offshore cryptocurrency exchanges and acquired overseas assets.
Nevertheless, in spite of the political imperative, such a
strict ban on cryptocurrency transactions will be very difficult to
enforce. Capital flight, enabled by cryptocurrency transactions, is likely to
continue. Time will tell how seriously the eventual economic impact will be.