China Restricts Gold Importation, Increasing Bitcoin Demand
On December 1, China restricted gold imports to prevent any more capital leaving the country.
Last week, Cointelegraph reported that the Indian government had planned to ban the importation of gold and impose heavy taxes on gold investors. On Dec. 1, China also restricted the importation of gold in order to prevent capital leaving the country.
Over the past few months, the Chinese central bank and government have imposed heavy financial regulations for capital controls, cracking down on Wealth Management Products (WMPs), foreign investment and the transfer of money.
The latest strategy implemented to prevent the devaluation of yuan is the restriction of the importation of gold. The government aims to achieve this through the disapproval of licenses and requests by banks and major financial institutions to import gold from international sellers.
Restriction of gold importation
Prior to a report by the Financial Times and local Chinese media networks, the Chinese central bank maintained a policy on the restriction of the exportation of gold. The inability of Chinese investors and traders to monetize the precious metal significantly devalued gold in the Chinese market.
In the upcoming weeks, China plans to strictly regulate the importation of gold to avoid the Chinese yuan from leaving the country. With the yuan falling 5.8 percent against the dollar already this year, the Chinese central bank and authorities are in a desperate struggle to recover the value of the yuan.
In 2014, the People’s Bank of China authorized the Shanghai Gold Exchange to establish an international board to open the local Chinese gold market to foreign investors. A year later, the Shanghai Gold Exchange launched daily gold auctions, allowing investors to purchase large sums of gold with ease.
Impact of gold restriction on Bitcoin
In most regions, gold is the go-to safe haven asset for investors, traders and companies. Particularly in countries like China that have heavy regulations on foreign investments, gold is a relatively safe asset which presents substantially low volatility rate and high global exchange rates.
Although the current restrictions on gold importation could potentially lead to a surge in demand for gold, current regulations on gold exportation refrain investors and traders from monetizing gold for foreign reserve currencies. Thus, it is highly likely that the newly proposed regulations on gold will convince investors, companies and traders to seek out other safe haven assets with high liquidity and solid global exchange rates.
China has a large over-the-counter market for Bitcoin, primarily due to the large population of Bitcoin miners. Since the direct trading of Bitcoin between two parties in the absence of a moderator or a third party institution is exempted from money transmission regulations, Bitcoin could be seen as a viable method of investment and wealth protection for most companies and investors in China.