Evading Capital Controls via Cryptocurrencies: Evidence from the Blockchain

52 Pages Posted: 8 Nov 2021 Last revised: 27 Dec 2021

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

How pervasive is the use of cryptocurrencies to evade capital controls? We develop a new method that exploits blockchain data to identify cross-border flows that circumvent controls via cryptocurrencies. Applying the method to China, we find that capital flight volume is over one-quarter of Chinese Bitcoin exchange volume. Capital flight from China is positively associated with Chinese economic policy uncertainty and the Bitcoin premium in Chinese Yuan, inconsistent with triangular 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 activity.

Keywords: bitcoin, blockchain, capital flight, cryptocurrency

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

HOME PAGE: http://sites.google.com/site/maggiehuresearch/research

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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