It was big news when China banned cryptocurrency in 2021. They said that crypto is money for illegal resources, and the rise of crypto will affect their financial system.
Not all countries support this. They want to regulate the use of digital money effectively in the future. Many believe crypto can be our future money by seeing its popularity and use. If you are a newbie in the world of trading, you can consider these Quick Step-by-Step Guide For Investing In Bitcoin.
When did China ban cryptocurrency?
The official bank of China, the People’s Bank of China, banned cryptocurrency usage in September 2021. The PBOC listed the crimes using cryptocurrency and the threat to China’s financial system. The potential explanation for banning cryptocurrency can be an effort to stop the outflow of money from China.
Few authorities believe there was a capital flight from China in 2019 and 2020 to East Asian accounts. It is because China has a disproportionate position in East Asia cryptocurrency exchanges. There is a precise figure, but the amount was around $50 billion, which left China in 2019 and 2020.
Exchanges of cryptocurrencies and capital restrictions
China has rigorous control over the purchase of foreign currencies. China spends $50,000 capital annually for the purchase of foreign currencies. So, the capital flight from the country has become an exciting fact.
The wealthy people of China have their way of controlling capital. In the past, rich people laid down their control on capital by trading overseas property and doing international trade invoices. In addition, they used to pressure their staff to transfer money to foreign bank accounts.
And because of cryptocurrencies, citizens can purchase international assets quickly without interference from Chinese authorities. In addition, it gave people more capital control than a traditional currency transaction that relies on the banking system.
There has always been strict control on capital in China, but the official has been concerned about capital flights. Some analysts say there has been a dramatic increase in capital flight since 2009 because of the Chinese government’s establishment of cryptocurrency within China in 2017. The ban in 2017 was not so outlawed as compared to 2021. In 2017 China did not justify capital flight as a reason to ban cryptocurrency.
Its use of a rope to the dollar value is the reason for a significant capital flight out of East Asia. Tether gained popularity because of China’s limitation on cryptocurrency in 2017. It became illegal to swap bitcoin for rope after the 2017 ban, but it was still possible for Chinese traders to buy tethers using overseas bank accounts. Tether is popular in China because it is simple to trade fiat money for users and is steady compared to the US dollar.
Capital controls and widespread prosperity
China has indulged in COVID-19, and soon, the problem of capital flight became a priority for China and its government. So, China launched a standard prosperity campaign. Due to the US’s quicker economic recovery, Chinese citizens may invest in US assets to increase their financial stability.
The standard prosperity campaign focused more on an inward-looking strategy. Users announced the campaign one month before bitcoin transactions were forbidden. China wanted the people to pay more outstanding taxes and spend their money within the country rather than on foreign currency. In addition, the Chinese government wanted to control the circulation of individual wealth and stop capital flight with the help of the shared prosperity program. If users spent their riches overseas, then the wealth redistribution efforts by China would be far more challenging to achieve.
Altogether, it was due to the capital flight that the Chinese government banned the use of cryptocurrency. But the thing is to note that China is not a single country to ban cryptocurrency. Eight countries banned the use of cryptocurrency. The cryptocurrency was outlawed in China, Bangladesh, Iran, Iraq, Qatar, Oman, Morocco, Algeria, and Tunisia. Since 2018, the number of nations and jurisdictions that explicitly or entirely ban cryptocurrency has more than doubled.