Capital Flight and Bitcoin Regulation

11 Pages Posted: 2 Sep 2016

See all articles by Lan Ju

Lan Ju

Peking University - HSBC School of Business

Timothy (Jun) Lu

Peking University HSBC Business School

Zhiyong Tu

Peking University - HSBC School of Business

Date Written: September 2016

Abstract

This paper studies the risk of Bitcoin being used for the purpose of capital flight. We propose a new indicator, the bitcoin‐implied exchange rate discount, to identify empirically capital flight via Bitcoin. Using data from the two largest bitcoin exchanges in the world during our sample period, BTC China and Bitstamp, we find strong evidence of capital flight from the Chinese Renminbi to the US Dollar via Bitcoin before the People's Bank of China, China's central bank, announced its regulatory policy on December 5, 2013, while the evidence displays no trace of capital flight after the announcement. The People's Bank of China's Bitcoin restriction policy successfully halts the illicit capital outflow via Bitcoin, thereby providing valuable policy implications for government regulation on Bitcoin, as well as on other virtual currencies.

Suggested Citation

Ju, Lan and Lu, Timothy (Jun) and Tu, Zhiyong, Capital Flight and Bitcoin Regulation (September 2016). International Review of Finance, Vol. 16, Issue 3, pp. 445-455, 2016, Available at SSRN: https://ssrn.com/abstract=2833625 or http://dx.doi.org/10.1111/irfi.12072

Lan Ju

Peking University - HSBC School of Business

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China

Timothy (Jun) Lu

Peking University HSBC Business School ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China

Zhiyong Tu (Contact Author)

Peking University - HSBC School of Business ( email )

University Town
Nanshan District
Shenzhen, Guang Dong 518055
China

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