What a Bitcoin is really worth in India and China

bitcoingoldsilver01 Jan 2014 / MarketWatch – The Bitcoin saga took an unpleasant turn this December when China’s central bank banned financial institutions from dealing in the virtual currency. Bitcoin was enjoying a surge of popularity in the country; by the end of November, Chinese exchanges were responsible for almost two-thirds of worldwide traffic. The central bank’s decision sent the currency tumbling.

Last week, Indian regulators joined the fray. Preferring ominous warnings to outright prohibition, the Reserve Bank of India issued a public advisory on the dangers of Bitcoin. The meaning was clear enough. India’s largest exchange was promptly shut down, and its operator raided by local authorities.

Why the crackdown? The People’s Bank of China explained that Bitcoin isn’t a currency “in the real meaning of the word,” and cited the risk of money laundering. India’s central bank objected to Bitcoin’s volatility and its lack of “backing assets.”

The larger problem, though, may be Bitcoin’s mobility. Virtual currencies are borderless. They can be acquired in one country and exchanged immediately in another. Since they’re not “real” money, they can get around foreign-exchange laws. And since they’re not backed by assets, there’s no easy way for governments to control them.

Consider that Chinese citizens are forbidden from taking more than $50,000 out of their country in any given year. This policy yields strange results, such as the fact that, in 2012, 17 million Chinese made the pilgrimage to Macau. It wasn’t gambling that attracted them but rather gambling chips, which can be converted to foreign currency and then sent abroad. Capital flight has remained a problem for China in 2013, with the country’s new premier leading a campaign against corruption and the Fed’s taper creating weakness throughout the developing world. For wealthy Chinese, Bitcoin was a way of avoiding the expense — and the raised eyebrows — of a trip to Macau….. Read more


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