Bitcoin becomes a new channel to circumvent foreign exchange controls: buying and selling to realize capital flow

     As the central bank further tightens foreign exchange controls, some investors who are worried that the depreciation of the RMB exchange rate will cause their wealth to shrink have turned their attention to Bitcoin.

Because it can be traded on the international market, there are reports that Bitcoin is being viewed by some investors as an "underground highway" for "currency exchange" - by buying and selling Bitcoin on different trading platforms, thereby realizing the circulation of funds.

However, industry insiders said that although this method seems convenient, the risk of Bitcoin price fluctuations cannot be ignored.

Bitcoin's surge in value has given rise to underground currency exchanges

Since the central bank launched the RMB exchange rate reform on August 11 last year , the RMB exchange rate against the US dollar has been falling. Especially since this year, under the influence of the unstable domestic economic situation at the beginning of the year, the increasing expectations of US dollar interest rate hikes in the world, and Brexit, the RMB exchange rate against the US dollar has been falling. In sharp contrast, the price of Bitcoin has been rising.

Bitcoin was born in 2008. It is a digital virtual currency generated through a large amount of calculation based on the model constructed by the designer Satoshi Nakamoto and a specific algorithm. The total number of Bitcoin is 21 million, which is gradually "mined" through computer computing power.

Since August 2015 , Bitcoin has experienced a wave of upward growth. As of November 1 this year , the price of Bitcoin has exceeded 5,000 yuan per coin, which is 3,449 yuan higher than that on October 1 last year .

At the same time, Bitcoin can be easily and freely exchanged into legal currencies of various countries. Therefore, it has been targeted by many investors and has become an underground channel to circumvent the central bank's foreign exchange controls.

According to the central bank's regulations, the annual exchange quota for each person is equivalent to US$50,000. Against the backdrop of the depreciation of the RMB, the central bank has gradually tightened its foreign exchange controls. Not long ago, UnionPay also completely suspended the payment of premiums for Hong Kong savings insurance with UnionPay cards.

However, since Bitcoin is defined as a commodity rather than a currency by most central banks, it can circumvent capital account controls in some countries, including China. It also gives Bitcoin the potential to become a medium of international currency exchange, making it a new tool for some people to circumvent foreign exchange exchange quotas.

“Exchange Coin” business realizes capital outflow

"You are talking about the 'currency exchange' business, right? No problem, it can be done." A few days ago, the customer service of a well-known domestic Bitcoin trading website told reporters with certainty.

This website is one of the three major Bitcoin trading websites in China. According to the official website, its cumulative transaction volume has reached 161.257198 billion .

According to the customer service, Bitcoin can be transferred from China to other countries without going through a trading platform. Users can do it by themselves using their mobile phones or computers. "The underlying technology of Bitcoin is blockchain. As long as you know the other party's blockchain address, you can easily recharge and withdraw cash." The customer service told reporters that investors can open an account on both domestic and overseas Bitcoin trading platforms, and then use the "Exchange Coin" service to recharge and purchase Bitcoin on the domestic platform with RMB funds, transfer it to the overseas platform, and then sell it and withdraw it in US dollars or euros, thereby realizing the outflow of funds.

Compared with traditional bank transfer methods, the transfer of funds through the "Huibi" method has obvious advantages in speed - after the recipient confirms acceptance, it takes 10 minutes at the fastest and 1-2 hours at the slowest . Without the review of regulatory authorities or financial institutions, Bitcoin can cross borders to reach overseas Bitcoin platforms and proceed with the next step of withdrawal. "Recently, the market of Bitcoin itself has been good, and the RMB exchange rate has continued to fall. Among the new investors, there are quite a lot of people who apply for the "Huibi" business." The customer service said.

Bitcoin remittances are volatile and risky

However, in the opinion of experts, this method of realizing capital inflow and outflow through Bitcoin is not reliable.

"Let's not talk about policy risks, the volatility risk of Bitcoin itself alone requires participants to have a certain risk tolerance." Industry insiders said that Bitcoin prices fluctuate greatly, and even if the entire currency exchange process is fast, Bitcoin prices may fluctuate greatly. "For example, you bought it for 4,000 yuan per coin, and it arrived in your account 10 minutes later, but the price is only 3,000 yuan per coin, what would you do?"

On the other hand, some overseas platforms are subject to strict anti-money laundering laws and cannot make large withdrawals at one time, which results in Bitcoin being "locked" or even rejected for withdrawals due to non-compliance with relevant management regulations, which increases the risk of price fluctuations. In addition, the risks of the platform's own operations may also cause investors to suffer immeasurable losses.

  "With the increasing maturity of the Bitcoin trading system in recent years, the capital outflow caused by cross-border Bitcoin transactions has become a new risk point, which should attract the attention of relevant regulatory agencies and be regulated." Xue Hongyan, director of the Internet Finance Research Center of Suning Financial Research Institute, said that as a new thing, most countries do not recognize the so-called "monetary attributes" of Bitcoin, and regulatory agencies in various countries are closely watching its impact on the traditional currency circulation mechanism and regulatory system.

As early as December 2013 , the People's Bank of China and five other ministries and commissions issued a special "Notice on Preventing Bitcoin Risks", defining Bitcoin as a virtual commodity, explicitly denying its monetary attributes, prohibiting financial institutions from participating in Bitcoin-related transactions or providing services for it, and explicitly requiring that "Internet sites that provide Bitcoin registration, trading and other services should effectively fulfill their anti-money laundering obligations", etc. However, the focus of the "Notice" at the time was anti-money laundering.

The reporter learned from several major domestic Bitcoin trading websites that the current platform has different limits on the amount of "currency exchange", with the maximum single transaction being 1,000 coins and the maximum daily exchange being 2,000 coins. At the current Bitcoin price, this means that domestic investors can "export" tens of millions of RMB in one day, thereby realizing the conversion of "RMB funds - Bitcoin - foreign currency funds".

It is reported that the regulatory authorities have noticed the recent phenomenon of purchasing Bitcoin through domestic platforms and then selling it on overseas platforms to obtain foreign exchange. The measures under consideration may include restricting domestic trading platforms from transferring Bitcoin to overseas platforms, or imposing a limit on the amount of Bitcoin transferred to overseas platforms.