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

Jiameng Cheng and Yanke Dai

International Review of Economics & Finance, 2020, vol. 66, issue C, 261-278

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.

JEL-codes: F38 F42 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.iref.2019.12.005

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Handle: RePEc:eee:reveco:v:66:y:2020:i:c:p:261-278