Crypto as a Marketplace for Capital Flight

By Clemens M. Graf von Luckner, Robin Koepke, Silvia Sgherri

June 28, 2024

Preview Citation

Format: Chicago

Clemens M. Graf von Luckner, Robin Koepke, and Silvia Sgherri. Crypto as a Marketplace for Capital Flight, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper shows how cryptocurrency markets can fuel cross-border capital flight by serving as marketplaces that match counterparts with and without (illicit) access to FX. In countries where international transactions are restricted, crypto exchanges effectively allow domestic agents to pay a premium to buy foreign currency. The counterparts to these transactions are agents with access to FX, who sell crypto holdings purchased abroad. A stylized model illustrates that restricted foreign currency amid economic imbalances incentivizes these transactions via persistent crypto premia in local relative to global markets. We analyze relative crypto pricing data in several country case studies, providing empirical support that crypto markets serve as marketplaces for capital flight that already took place, rather than a novel channel for capital flight. We make available a novel dataset on crypto market premia, which we propose as indicators of excess demand for foreign currency and capital control intensity. The dataset will be posted along with this paper and updated periodically.

Subject: Balance of payments, Capital controls, Capital outflows, Currencies, Foreign exchange, Money

Keywords: Capital controls, Capital flows, Capital outflows, Cross-border capital flight, Crypto market, Cryptocurrency market, Currencies, Digital money, Global, IMF working paper 24/133, Trading illicit capital flight

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/133
Stock No:

WPIEA2024133
ISBN:

9798400279348
ISSN:

1018-5941

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