December 23, 2013 6:29 PM

Chinese Bitcoin Ban Driven by Chinese Banking Crisis ?

Recent reports from China indicate there may be more to the Bitcoin ban than meets the eye.  According to the Financial Times (FT)  the Chinese banking system is in crisis which could explain the  Bitcoin ban  in China.   Chinese citizens seem to be  running away from their own banking system in droves and their Government is closing the escape paths — including Bitcoin.  During the run up of bitcoin in November you could watch the CNY currency leaking from China on sites like   and there was a breathtaking  amount of Chinese currency  leaking into BTC.

The over night Repo rate is a good indicator of a liquidity   problem for banks in China — the Chinese Repo rates have been occasionally  spiking during the last twelve months.

The overnight Repo rate is the rate that Chinese banks loan money between themselves overnight to balance the books. When the rates spike like this it is because the banks desperately need cash and they are willing to pay big interest rates to get it.  This is not a positive sign for the Chinese banking system.

To be clear, Bitcoin is not the cause of the current currency crisis, but it was one way that the average Chines Citizen could protect themselves against a major devaluation  or a currency implosion of the CNY.   After all it is easier to slip out of the country with a memory stick than a bag of gold or cash.   But the banking ban is a sure sign of how seriously the POC is taking the banking cash crunch.

In fact, the POC is so worried about the crisis that the  Financial Times  is reporting:“Chinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue when markets reopen on Monday.

In response Chinese censors have warned financial reporters not to “hype” the story of problems in the interbank market, and in some cases have forbidden them from using the Chinese words for “cash crunch” in their stories, according to two people with direct knowledge of the matter who asked not to be named.”

Propaganda like this is meant to reduce panic.  The banking ban with bitcoin exchanges could be more about protecting Chinese banks  than cautious actions to protect the citizens of China from the “nefarious” Bitcoin.


Jonas Borchgrevink @JonasBorch

Founder and Director of Passionate about how technology can empower people to create a more just and sustainable world.