Evading Capital Controls via Cryptocurrencies: Evidence from the Blockchain

61 Pages Posted: 8 Nov 2021 Last revised: 10 Sep 2023

See all articles by Maggie Hu

Maggie Hu

The Chinese University of Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate)

Tālis J. Putniņš

University of Technology Sydney (UTS); Digital Finance CRC; Stockholm School of Economics, Riga

Date Written: December 22, 2021

Abstract

To what extent are cryptocurrencies used to evade cross-border capital controls? We develop a new method that exploits blockchain data to identify such activities. We find that capital flight out of China is economically meaningful, accounting for over one-quarter of Chinese Bitcoin exchange volume. Capital flight increases with economic policy uncertainty and results in a Bitcoin price premium against the Chinese Yuan, ruling out alternative explanations such as arbitrage. Individuals engaging in capital flight are less likely to use Bitcoin to trade illegal goods or services, suggesting that capital flight has different motivations to other criminal activities.

Keywords: bitcoin, blockchain, capital flight, cryptocurrency, capital control

JEL Classification: G15, G18

Suggested Citation

Hu, Maggie and Lee, Adrian D. and Putnins, Talis J., Evading Capital Controls via Cryptocurrencies: Evidence from the Blockchain (December 22, 2021). Available at SSRN: https://ssrn.com/abstract=3956933 or http://dx.doi.org/10.2139/ssrn.3956933

Maggie Hu (Contact Author)

The Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

Adrian D. Lee

Deakin University - Department of Finance (Property and Real Estate) ( email )

70 Elgar Road
Melbourne, VIC 3125
Australia

Talis J. Putnins

University of Technology Sydney (UTS) ( email )

PO Box 123
Broadway
Sydney
Australia
+61 2 9514 3088 (Phone)

Digital Finance CRC ( email )

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia
+371 67015841 (Phone)

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