What Increased Cap Outflow in China Means for Bitcoin. newsbtc At the end of last month, we learnt that Chinese capital outflows during 2015 totaled $676 billion net. The data marks only the third net capital outflow since the turn of the millennium, and by far the biggest, with the other two coming in at less than $140 million net (2012,2014). The outflow comes against a backdrop of wider economic weakness in China and emerging markets, and quantifiably highlights China’s slowdown over the last twelve months. What impact, if any, might this have on public perception, adoption and – in turn – price, of bitcoin? Let’s take a look.
First, what’s capital outflow? If a nation has net capital outflow, it means more money is leaving the economy that coming in. The outgoing capital generally represents international investment being withdrawn, and as such, is associated with bearish economic sentiment. In addition, and because most of the outflow involves buying the domestic currency of whoever is withdrawing the capital, and concurrent selling of the yuan to fund the purchase, capital outflow is associated with a currency devaluation.
In an attempt to quash (or at least slow) the outflow, the Chinese government suspended foreign exchange transactions at the end of last year, under the assumption that stopping banks exchanging yuan would stem its weakening and bottleneck outflow.
This is where bitcoin comes in to it. In order to try and circumnavigate these governmental capital control policies, individuals and businesses are turning to creative alternatives to traditional fiat transfer. One of the more well known creative methods is to overbill for invoices on Chinese transactions. Another is to write previous capital inflow off as an error, and in turn, make it eligible for corrective outflow. Another, is turning to cryptocurrency. Through the pseudo-anonymous cross border […]
