Why Bitcoin Can Flourish in China

Aiga Gosh is researcher in international law at the China University of Political Science Law. In this article, she briefly examines China’s economic history, its currency controls and the rise of bitcoin in the country.

Chinese flag

China’s monetary policy and currency has largely been in mess for a long time. Only in 1994 did China manage to set a unified, official exchange rate abandoning a dual system, with both a fixed and a market rate existing side-by-side.

It has tightly controlled the flow of capital across its border, which has enabled Chinese authorities to steer the economy and control business.

As The Economist stated back in 2010, China’s approach towards monetary policy has been incremental. In 2009, China put forward reforms allowing those exporting to China to price their goods in yuan, instead of dollars, and deposit the proceeds in offshore corporate accounts, although with low interest rates and mostly in Hong Kong.

Since then, both deposits and the number of firms seeking to tap them, have increased, while offshore and onshore markets remain separated by tight control: companies cannot borrow yuan from the mainland, they must earn it through trade.

Crudely put, yuan flows out of China only if goods or services flow the other way. Offshore yuan does not easily travel back into China either. The currency represents a claim on a country’s underlying assets.

China has also signed currency-swap deals with Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea. Further more, it began allowing certain countries to use the yuan to pay for Chinese imports, and it now lets enterprises based in Shanghai and in four cities in the southern province of Guangdong use it to pay for imports into China.

Have those steps made capital accounts freely convertible? While authorities have been weighing the pros

Originally appeared at: http://www.coindesk.com/why-china-is-the-perfect-place-for-bitcoin/