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Is bitcoin a channel of capital inflow? Evidence from carry trade activity

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  • Cheng, Jiameng
  • Dai, Yanke

Abstract

We empirically identify carry trade activities under the disguise of bitcoin transactions on USD and CNY bitcoin exchanges during the post global financial crisis period. Relying on variations of bitcoin exchange pairs and two policy shocks, we find the evidence of inflow capital control evasion. We show that the relative CNY to USD bitcoin price, indicating capital inflow volume, of those with high excessive currency conversion profit respond significantly more negatively to carry trade returns. Moreover, this relationship becomes significantly weaker when China tightens its regulations on bitcoin transactions.

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  • Cheng, Jiameng & Dai, Yanke, 2020. "Is bitcoin a channel of capital inflow? Evidence from carry trade activity," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 261-278.
    • Handle: RePEc:eee:reveco:v:66:y:2020:i:c:p:261-278
    DOI: 10.1016/j.iref.2019.12.005
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    JEL classification:

    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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