Topic: Uncontrollable cash outflow with crypto. Does it really exist? (Read 523 times)

Okay. In all honesty, that's what I think myself. And from this perspective, bitcoin is a form of capital too. It is not what I challenge or question in itself. But here's the catch. If crypto is a form of capital, we could expect governments to accept this fact somehow. If they don't and don't want to, then it means that they can't crack down on people for "moving" bitcoins or whatever coins out of the country, right? Otherwise, it will be an act of hypocrisy, won't it?


This is called a brain drain, if I'm not mistaken.

Though the dollar is not crossed over the border then also it digitally kills the monetary funds those are available. Whenever you send a dollar to me over the wire transfer then my country will have to print equivalent amount of money within my country to have the perfect balance. While on the other hand your one dollar is less theoretically and your country still needs to print one dollar bill to balance your countries status. This was the money does flow inward and outward and believe the whole system works just fine though the track of all things are not possible all the time. Just think of the millions of exchanges taking place everyday from different countries to single country and vice versa.

all I can understand is that in some countries imposes administrations fee and limitation of money amount to transfer money from a bank in a country to a bank in another country. but you are free from those things by using bitcoin when you fly from a country to another.
I'm not sure I'm right.  

It's still capital outflow.

A factory is capital, it is taken from Japan and relocated to the US.
Japan loses one factory (a mean of creating profitable work) while the US gets one.

Let's go to the next and most radical example ever.

Everyone pics their home, their jewelry, cat, dog, car, Frisbee and Wii and moves them over the border.
Everything is moved from country A to country B.
But still country A with nothing left standing will have all it's fiat money while country B will do the same but with twice the capital.
There was no fiat exchange between the two, yet one has gone kaput the other one thrives.

It's still capital outflow.

I said it too that some part of money doesn't come back to Japan either. So is it capital flight as well according to your reasoning? And what if Japanese car producers relocate their production capacities to USA? How would you count that, as production flight, which is even worse than capital flight? What about Trump going mad over American producers moving to China and leaving unemployment behind them in America?

No, those can't be exports.
I've already said that with the money from the purchase the Americans buy property there (of course in reality they would blow it all in Cancun but ..).
So they can't be exports since no money flows back in the US.
As the same time no money leaves the US no pesos gets printed in Mexico.
So...is it capital flow? 

It should be exports, it seems, though it sounds as funny. If we think along these lines, then we need to consider all exports as sort of capital flight, right? For example, Japan is famous for the quality of their cars, so it is no surprise they are exporting a lot of them. Can it be considered a capital flight if the cars get sold in the USA for the American dollar? Since Japan seems to be running a trade surplus (I don't really know), some dollars should be spent right there, in the US. What do you think?


it seems that you are confusing capital flight with cash outflows. They are not the same.

I can say there is nothing more to add because several replies have been given on this matter which should equally makes it more easier to understand. Several things happen in the economy which is not necessary have to be logical but that does not denies that existence. Let me add one today the whole countries in the world have debts amounting to trillions of dollars but looking at it, you won't see any logic in it because you then ask yourself who are we owing? People in Mars or Jupiter? But it exists. Another case is a country going abroad to borrow and you ask what is the basis, why can't we just print more money? Or will the country send a cargo of their currency to the debtor country? Obviously no. Its not logical but it's practical.

While I won't try to further buttress this, I can say categorically, that capital fight is possible with bitcoin and people are making use of this opportunity whether its sounds logical or not.

Because that is not the only thing that runs the economy.
Yeah US is running a deficit, Russia is still running a year surplus after another year since the crisis and still they have the GDP of Netherlands.

It depends a lot how this deficit is made and by whom.
And of course it involves how much money can you print and if somebody is willing to take that fiat.



First, crack is not capital outflow ..it's imports, although it might sound funny.
Second if you still have problem with this money not going in and out of the country let me give you another example.

Let's say that all Americans take their cars, drive them pass the border sell them in Mexico and with the money theybuy property there.
Is that capital outflow or not?

I phrased it in that way because they're earning profit from it, so that money that will stop circulating in your local economy -- that's capital outflow. Money is flowing out of your country, into another's. You will get nowhere if you play around with the semantics around the word capital.

It's different if you deal with a local individual or business because the profits they earned flow back into your local economy, as opposed to a foreign country's. Is that clear enough?

But how's that? You say that I'm giving fiat to foreign companies for crypto, but what do you mean by this specifically? Is it just a convoluted way to say that I'm simply buying crypto from a foreign company or holder? But if I'm buying it locally from a local exchange or even my fellow citizen, what then? I have yet to see a simple explanation which doesn't involve obscure phrases like "giving fiat to foreign companies for crypto" when (if) all you mean is a simple purchase.

I do not see logic in this case. When you buy 100 bitcoins with dollars or whatever, you do not transfer dollars anywhere. So, the situation after selling bitcoin is no different than before buying them. In other words, for cash outflows the dollar amount in one country must decrease temporarily in another. This is not the case with crypto

Lots of talk about the mechanics, but little about the spirit of the idea.

Even if there's no measurable loss to the country in question, and I'm too thick to figure that out right now, there are plenty of countries that want to curtail the financial freedom of their citizens and quell the idea of being able to transact freely wherever they choose.

And you can bet insiders, who will be orders of magnitude richer so much more of an actual issue when it comes to this, don't have these problems in the slightest.

For those of us lucky enough to live in places that don't practice that in an overtly overbearing manner it seems borderline inconceivable, but it's a very real thing in many a place.

Mining isn't considered a factor in cash outflow as far as I know. That's why China is letting it be for now while clamping down on everything else. It brings money in, if anything.

Money is involved because you're giving fiat to foreign companies for crypto. One often cited factor for China's capital outflows is Chinese companies and households increasing their foreign currency deposits, which isn't a much different case from increasing Bitcoin stashes in this context. You're also not just exchanging your fiat for Bitcoin, you're also paying foreign companies fees, etc. and you're less likely to use it (like foreign currency which people usually just keep in reserve), so your local economy is a little worse off.

I'm using China as an example, by the way, because its fight against capital outflows is well documented and has encroached into Bitcoin and crypto territory.

I don't quite believe in this story. I agree that if we consider bitcoin as a form of capital, then it pretty much cuts it as a capital flight or outflow, but I don't see where money is involved in all this. Also, if someone mined a few bitcoins, paid for the electricity and whatnot, then sold his stash at a foreign exchange, what has changed for the domestic economy apart from some amount of electricity having been consumed, which seems to be a good thing anyway?

Not who you quoted, but this article offers a nifty explanation:

https://www.forbes.com/sites/danikenson/2016/08/23/41-straight-years-of-trade-deficits-yet-america-still-stands-strong/

tldr; Trade deficits are bad, but there are other factors that must be taken into consideration, as evidenced by the United States' growth despite their trade deficits.


As for capital outflows I personally believe it has more to do with money laundering than anything; people are able to funnel their money out of the country freely with crypto after all. I haven't heard of a case involving this specifically, but China seems to believe it exists, as it's one of their primary concerns at the moment.

People purchasing crypto from foreign cryptocurrency exchanges using their fiat may also fall under this umbrella, as they're effectively giving away money that's part of their economy to people from other countries. I realize this case does somewhat look like a trade deficit though.

It is hard to make Bitcoin be a bearing for inflow and outflow of money in a country as it really has real value in itself meaning if you buy it in a country for dollars then the Fiat currency will still stay in that country. Think of Bitcoin as a product being sold by someone locally if you pay via their fiat currency in exchange for Bitcoin, he will receive it and the money he will receive will be counted as profit. As long as you are receiving its value there will be no outflow of Fiat from your country.

Well, as I see it, there are several points of view from we all can see what bitcoin means to banks:
- Transfering money: before bitcoin, in order to make international transfers, both parts needed to have banks accounts, with all their data in it. That usually means, banks have a lot of information on money, and they could speculate with their client's accounts. Besides, an international transfer have high fees, do the bank usually has a nice profit from each transaction.
- Information: as I said, banks use to have information about how many money their clients have. That money isn't even real, for it is basically fiat rather than paper money. What does it mean? Well, the more transactions they have, the more fiat they can speculate with. Simple. And, of course, the more private information about the receiver, even when this one doesn't have an account on their bank, but another one.
What is the problem with Bitcoin? Banks have no more the information about the transactions. Now, they see one client spending his/her money, buying bitcoin, for instance, but they can't know how many money do they have (for the BTC price is always on the move) and to whom they send/buy their money. This is just like buying something online. Now, they can't have their succulents fees anymore! And the information, as said, is gold. So they lose the privacy clients information, and they are no longer able to store another bank client's information. Neither they can speculate with their clients' fiat, for the transactions are no longer using this kind of virtual money, but crypto.
Bank's strength is basically based on speculation: debts speculation, investment speculation, and the money or their clients. I believe this is one of the reasons why they are not so into bitcoin, even when they should. If they lose the value of virtual transactions, they will lose the fiat strength. Of course, we are still far away from something like that to happen, but this is a risk.
Do not forget the political situation of a country is based on their economy. If a country has enough bank power (a way to baptize that), then it will conserve a good position politically, and its words will strongly listen. On the contrary, having a poor economy implies less freedom, for they will be subject to others desitions (look, for instance, the European Central Bank, and all the power they have over Greece, Portugal or Spain). So, at the moment a country decides to accept and use a crypto coin, their economy is dangerously becoming independent of the previous system, and this power is no longer strong enough to force the country to make a new law, for instance.
I believe those are the crucial points, but, I am not an economist, this is just my point of view.

Could you expand more on this? More specifically, why does the country which runs a trade deficit (which imports more than it exports) become increasingly impoverished? I don't get it. For example, the US seems to be importing by far more than it is exporting, covering the trade deficit with printed dollars. However, it is still considered one of the wealthiest countries in the world. Yes, I know that people are saying all the time that the dollar is about to kick the bucket in a short while. But they have been saying the same for nearly 20 years if not longer.

This is the convenience of digital cryptographic currency!

You can use him for cash when you travel abroad!

Of course, this will also be used by some criminals to launder money!

The concept of "uncontrollable cash outflow" as far as I know, describes a trade deficit.

When there's more capital or trade moving across borders in one direction than the other, there is a danger for one side to become increasingly wealthy at the expense of the opposite side which becomes increasingly impoverished.

The media, economic experts, financial gurus and others have repeatedly gone on record saying: "there's absolutely nothing wrong with trade deficits". I would imagine they needed to invent the term "uncontrollable cash outflow" to avoid having the public recognize they were essentially describing a trade deficit to avoid making it too obvious they contradict themselves on a regular basis.

I don't think taxes have anything to do with that. Governments are interested in keeping their trade balance balanced, so to speak. Import tariffs are used to limit imports in order to give local producers an advantage before their foreign competitors. Honestly, I'm not even sure if imports themselves have anything to do with capital flight because it is a bi-directional flow (goods <-> money), that is, not someone trying to move their money abroad.

You're not. The countries are trying to minimize this outflow through online shopping by taxing imported goods, which brings some of the money back, but not all goods are being taxed, so the outflow from countries where the prices/taxes are too high or the quality of goods is low (china) is our reality. That's why some countries are so afraid if this process and trying to ban cryptocurrencies. Other countries, those where the situation is extremely grim (like North Korea) are limiting migration, foreign trade, import, everything.

Am i wrong by saying all online shopping does the same thing?
All overseas purchases result in currency migration.
As I understand it I dont see the big deal, its just focusing on BTC again.

Bitcoin or any other crypto does not cause uncontrollable cash outflow as there are normally trades made across the borders for things like a car or antique pieces. People buy those things with their countries fiat and the other person in another country receives payment in his fiat currency. This does not create any outflow and there might be tax paid by the person who purchases the good. Similarly, when anyone from some country purchases bitcoin from any holder from another country he just needs to transfer money to the holders account and wait for the bitcoin to be received while the holder also pays the transaction fee.

That point I don't particularly question but I still have issues with it. First of all, this is definitely not a cash outflow because no cash leaves the country unless we think of bitcoins as cash, of course. Further, if we think of bitcoins as a form of capital as gold or steel, then there is an issue with governments refusing to accept crypto as a genuine asset. If they don't consider it an asset, then they can't claim capital flight via crypto. As simple as it gets. I guess you can't have it both ways at the same time. Imagine a government cracking down on crack just because it contributes to capital outflow.

There has to be some form of data to support capital flight or capital outflow of cash. From what I understand if it is possible to regulate Bitcoin or cryptocurrency exchanges in a country, then the capital outflow can be traced through those exchanges, that is if people are purchasing Bitcoins in their home country and selling it in foreign exchanges. I'm going to bring in China here because of a report that I've read by Bloomberg about China's exchange rate devaluation since August 2015 and there were significant capital outflows. There's a possibility that it could exist, but this isn't just related to Bitcoins being bought in China and sold on foreign exchanges, but also about investors buying offshore properties and because of mergers and acquisitions in offshore companies. This could be one of the main reasons why China has imposed restrictions for local traders to trade cryptocurrencies on offshore exchanges. A less harsher methodology would be to impose trading limits on foreign exchanges of such cryptocurrencies. People over there are made to report foregin transctions or when providing yuan loans to foreign companies.

There's hence the possibility that many cryptocurrency traders are probably also travelling offshore to trade and make settlements through offshore accounts and this could be where concerns could arouse.

What are you talking about? What huge amounts of dollars can be taken out of a country and how exactly? Care to explain? At best, it can be said that capital in the form of a cryptocurrency "leaves" the country, though cryptocurrencies are extraterrestrial. Dollars or any other fiat remain in the country, not a single dollar gets lost or hurt. But the question is whether bitcoins can actually be considered as capital. If not, then there is neither cash nor capital outflow.

Actually in traditional ways,no one would be able to transfer huge amounts of money for example say USD without authorisation of the respective country's authorities.But with bitcoin,no such act is needed and even very huge amounts of dollars could be easily taken out of a country.

Yes, that's exactly the point which I can't quite understand or accept, though I prefer the example with gold. But it doesn't really matter. There are 2 things which raise red flags for me here. First, bitcoins can't be moved because they are already existing everywhere. You don't have to move them anywhere like steel or gold, though this is a minor issue. But a major issue is that governments are criticizing crypto as a means of speculation, a worthless asset (non-asset), and at the same time they still treat it as a real value carrier or even value itself as in steel or gold. Isn't that an example of an utmost hypocrisy? How the fuck is that possible?

In the series of events - if there are flows in both directions, I don't think you can call it capital flight. For example, in imports / exports, flow of goods happens in one direction while flow of money happens in another direction. Similarly, if it is a loan repayment, the assumption is that it just reverses a loan given at some point of time. In capital flight, transfer of value is unidirectional - like the transfer of bitcoins out of a country.

I understand your confusion. You think that things are not interconnected. But eventually they are. Though it may be indirectly connected and the capital flow may take time to go from one country to another, it does happen. It may be via import/exports, remittances, direct foreign investment, direct purchase in foreign (other than investments), payment of loans etc. These series of events may not be related to bitcoin, you do buy bitcoin with fiat, so again they are all inter-related but are definitely indirect.

You're in country A.
You have two millions fiat and you buy bitcoins with it.
The value of that capital in that country was 2 millions, your fiat and 2 million in btc you're going to buy.
That is 4 millions.

You buy the bitcoins and you get out of the country.
The capital that remains is 2 millions. (-2)

You enter a country where somebody is willing to buy your coins.
Capital at this moment 2 million.
You sell the coins to him, total capital 2 millions fiat and 2 millions in BTC.
Total capital 4 million. (+2)

Capital flight is not just about paper money, assets are also used when fleeing a country.

If the dollars come back to China, then you could say that the bitcoins have been exported. If the dollars don't come back, then it is capital flight. The difference is that in the export case, the value remains balanced. In the capital flight case, it does not.

Consider steel instead. If you buy steel with renminbi in China and sell it for dollars in the US, the amounts of renminbi and dollars don't change in the respective countries, but the value of the steel has moved. The US has both the dollars and the steel, and China has the renminbi but less steel.

There is capital flight, if you buy btc in the US then send them to China and sell them there and keep those funds in China then that's where the capital is being moved. It's fairly clear.

I see no logic in this. When you buy 100 bitcoins with dollars or whatever, you don't transfer dollars anywhere. So the situation after selling bitcoins is not any different with before buying them. In other words, for the cash outflow to happen the amount of dollars in one country should diminish while in the other increase. This is not the case with crypto. And even if you buy bitcoins with renminbi in China and sell them for dollars in the US, the amount of renminbi and dollars doesn't change in the respective countries.

I think it depends on your perspective. This is the main problem that China has with bitcoin. Chinese government wants investment and their yens to stay in their country, and it's even hard to make international transfers there, so with bitcoin, they could do this easily and they don't like that. The simple fact that you are buying bitcoin with yens, is already making their coin weaker, because you could see that as a normal "forex" trade. If you do it in an international level, the money you could be spending in China, is now being spend in another country, so they are losing capital.

Still referring to China, before bitcoin was used, they normally had to get very creative to transfer money abroad. Sometimes they bought art, or expensive goods, they would then transfer them to other countries so that they could sell them there. This was they would have their money available in another country. Bitcoin made this international transfer much easier to do.

I'm not clear on what the confusion is. The value has been transferred out of the country, though I guess it is not real until the money has been spent outside of the country. Would it make more sense if you wrote "someone can buy bitcoins for renminbi in one country and sell them for the same amount of dollars in the other"?

The way its being explained goes beyond basic understanding and that is why you think it does not contribute to capital flight and looking at it from the 1000$ or $2000 dollars we are dealing with, it makes the claim of capital flight sound bogus or unfounded but I will try to paint a scenario if it will aid understanding of what is being said here.

In a country, a business cannot move fund abroad without obtaining clearance from the relevant authority and there is always a certificate and maximum amount allowed to each company. The reason is because as we all know businesses can come to the home country and trade making over 500% profit margin and then move to their own country taking that money from the local economy will distort the supply of money thereby leading to scarcity and these are the reasons people complain that there is no money in the economy also it means there would be less liquidity in banks to create more money.

With bitcoin, you don't need to obtain the certificate of have to face any form of maximum amount to be transferred all that is needed is to purchase as much as possible bitcoin for example I need to move $1 million abroad, I just need to buy 100bitcioins on the average then send without even having to pay necessary fees.

Just imho Bitcoin doesn't create any insane uncontrolled cash flows. Everything happens the same way as it goes with fiat cash. If you are buying 1 BTC in one country and selling in another one then no one gona really care about those bloody 8000$. You could just take your cash from one country to another. While if you are trying to cash out 100 BTC then you will face some questions no matter if you are using crypto or just smuggled those money. Cryptocurrencies doesn't create those "critical mass" of uncontrolled money, everything remains in its own places as it could be without crypto.

In plain terms, this thing beats me. I read it every now and then that bitcoin as well as other cryptocurrencies contribute to capital flight. The logic behind such claims is that someone can buy bitcoins for dollars in one country and sell them for the same amount of dollars in the other. This is the point which I never truly understood. To me, there is no real or virtual transfer of dollars across the border so there is no capital lost at all. No dollar gets lost or transfered.

Am I the only one who has doubts about this claim?