The People’s Bank of China (PBOC) interdicted cyptocurrency trading in the year 2021. The People’s Bank of China (PBOC) has said that cryptocurrencies pose a rising danger to China’s banking markets due to their precarious character and role in promoting financial crime. If want to learn more about crypto, read why Blockchain is surviving while crypto is crashing.
Another theory about why China might want to outlaw virtual currencies is that it’s an effort to curb the country’s capital flight problem.
And over $50 billion of cryptocurrencies is expected to move out of East Asian accounts to locations outside of the region during 2019 and 2020, as reported by the Chainalysis Blockchain analytics platform. Chainalysis experts speculate that most of this net bitcoin flow was capital movement from China, given the country’s disproportionate position in East Asian crypto exchange.
Exchanges of cryptocurrencies and capital regulation:
As one of its stringent capital restrictions, China imposes an annual maximum of $50,000 on acquiring international currencies. That’s why it’s so striking that bitcoin has permitted a massive outflow of funds.
Earlier, the wealthy in China circumvented capital regulations by buying properties abroad, inventing new ways to bill for international commerce, and even pressuring their staff to move money into offshore accounts.
Bitcoin has made it easier for Chinese citizens to buy overseas assets without attracting the attention of the Chinese government. Since Bitcoin and other blockchain-based virtual currencies are decentralized, they make it easier to avoid capital restrictions than a traditional currency transaction that relies on the financial system.
Foreshadowing the eventual tightening of outside investment of Chinese corporations in 2017 were the limitations on crypto exchange in China that year.
Tether (USDT), a stablecoin theoretically tethered to the dollar’s worth, has been cited by Chainalysis as a significant factor in capital outflows from East Asia (USD). As a result of the PBOC’s crackdown on cryptocurrency trading in China in 2017, Tether’s popularity soared that year.
Prosperity for everybody and restrictions on the flow of money:
- Also, as the Chinese economy grows from the COVID-19 epidemic, the PBOC continues to prioritize preventing capital flight as China starts its “shared prosperity” campaign. Li Daokui, a former consultant to the People’s Bank of China, has expressed concern that the rapid economic recovery taking place in the United States could lead to an increase in capital outflows from China, as citizens there might be tempted to invest in American assets as a means of diversifying their wealth.
- The shared prosperity drive also promotes a more statist strategy for economic management in China and a more inward-looking investment plan. Note that the ban on bitcoin transactions came only a month after the launch of the shared prosperity project. The wealthy in China may have been encouraged to accept more outstanding income taxes & engage in the local economy by the imposition of this cryptocurrency prohibition.
- The evidence points to the ban on cryptocurrencies reacting to China’s persistent outflow of funds. The People’s Bank of China (PBOC) likely realized that bitcoin was compounding China’s chronic problem of capital flight because of the massive quantity of capital outflows that had already happened via crypto exchange.
China’s Prevalent Prosperity Programme is meant to discourage the outflow of funds and increase their circulations inside the country. If the wealthy in China could avoid China’s already stringent capital restrictions by trading cryptocurrencies on offshore platforms and buying assets outside of the country, the country’s efforts to redistribute wealth would’ve been severely hampered.
Though politically necessary, enforcing such a blanket prohibition on bitcoin transactions is unlikely to succeed in the long run. The outflow of capital made possible by bitcoin transactions will probably persist. Only time will show how significant this will affect the economy.
Considering all the above factors, you can now tell that the crypto regulations in China are indeed quite strict. And moreover, their regulations have been amended following strict accounts so that people refrain from using cryptocurrencies in the country till the ban is not raised.
The Chinese government has got so strict with the framed rules and regulations that anybody using cryptocurrencies any further or using the digital exchanges from within is ought to suffer the consequences of attaining a criminal offense. Another probable reason behind the ban might be the grudges of the authorities on the virtual economy for losing their power and importance to interfere in the system because it is a decentralized network.