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The future of Bitcoin’s “kimchi premium”-FT中文网

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At the end of 2017, many Korean banks’ originally quiet business outlets suddenly became bustling, and the demand for RMB remittance business at the outlets increased sharply. Even some Korean banks that were relatively less involved in RMB exchange business had their business volume increased exponentially. Before the bank opened for business, a large number of individual customers came to the bank’s gate early to wait in line for remittance, and some of the bank branches in the past are unexpectedly hard to find. This anomaly has aroused great attention from financial regulatory authorities, taxation authorities, and banks. On the one hand, relevant agencies urgently deployed manpower to handle business in accordance with regulations, and on the other hand, they quickly launched an investigation mechanism to find out what happened.

The results of the investigation came out very quickly. What surprised many people was that the instigator that caused the crowds in bank outlets was actually a virtual digital currency dominated by Bitcoin.

It turned out that in the field of virtual digital currency transactions (commonly known as “coin circle”), there has always been a term called “Kimchi Premium”, that is, due to the control of cross-border capital flows by the Korean financial regulatory authority, the virtual digital currency in Korea Due to the strong demand for currency but the relatively weak mining capacity, the price of virtual digital currency traded on Korean exchanges is often higher than that of other countries. Take Bitcoin as an example. Its price in South Korea was once more than 50% higher than that in the international market, and the single currency spread was as high as $8,000. The huge price difference has attracted many currency circle traders to flock to participate in the “brick movement”, that is, the currency circle traders buy virtual digital currencies in other markets and then sell them in the Korean market. According to statistics from the Korean Financial Supervisory Service at that time, by the end of 2017, the legal currency exchange amount of Korean virtual digital currency exchange deposits increased by about 64 times compared with the previous year, which can be described as “unprecedented grand occasion.”

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There are many scenarios for “moving bricks”, one of which is as follows: traders first use RMB to buy bitcoins on exchanges outside South Korea, then withdraw the bitcoins to South Korean bitcoin exchanges and sell them, and then receive the money The Korean Won is converted into Renminbi in the offshore market and remitted into China or entered into China to form Renminbi, and finally achieve cross-border Bitcoin transaction arbitrage.

The arbitrage phenomenon of encrypted digital currency cross-border transactions represented by the “Kimchi Premium” also exists in other countries and regions outside South Korea, and it is not a flash in the pan. In fact, around April 2021, some bank branches in South Korea experienced the same experience again in 2017. Almost the same scene at the end of the year.

Because the price difference is too obvious, the trading volume of the Korean virtual digital currency exchange has increased sharply in the short term, causing the exchange rate of the domestic currency to fluctuate, which has aroused the high concern of the Korean regulatory authorities. This concern comes from the harm to the virtual digital currency cross-border arbitrage transaction Financial security concerns also originate from the process of producing virtual digital currencies, which will cause concerns about the inefficient development of economic resources.

From the perspective of financial security, the above scenario is taken as an example. Since the currency of the Korean virtual digital currency exchange is Korean Won, traders must convert the Korean Won from sales to RMB to avoid exchange rate risks in order to achieve arbitrage purposes. This is the most common operation One of the methods is to sell Korean won through financial intermediaries to buy renminbi and remit it back to China. This process inevitably impacts the supply-demand relationship between the RMB and the Korean Won, causing abnormal fluctuations in the onshore and offshore RMB exchange rates, and such changes and fluctuations are occasional and extremely unstable. According to market data, during the period when the “Kimchi Premium” is high, the exchange rate of the Korean Won against the RMB usually fluctuates sharply. In addition, the process of using RMB to buy bitcoins, withdraw bitcoins to enter Korean transactions, and Korean won to exchange RMB for remittance into China is prone to violations of the regulatory systems for cross-border capital flows between China and South Korea, violations of anti-money laundering sensitive management laws and regulations, and illegal use Illegal acts such as capital flow in and out of the markets of China and South Korea are not beneficial to both China and South Korea.

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