[mschuster91]

KYC regulations were in effect way before 9/11, same for currency trading restrictions (made ineffective/impossible with Bitcoin).

Oh, and indeed I forgot another point, the "OMG child porn!" faction...

edit: Oh, of course no amount of KYC regulations prevented big banks from doing business for and with big drug cartels... I wonder whom those regulations were drafted for, anyway. Can't be drug lords or terrorists, so whom else?

[exelius]

Oh, currency trading restrictions are quite possible to effectively restrict unless you're meeting in person and exchanging cash for Bitcoin. If a government explicitly bans Bitcoin (and enforces those laws), there won't be enough liquidity in Bitcoin conversions with that currency to execute trades. Many countries that restrict currency trades also restrict currency exports; so you're not likely to find much of that nation's currency abroad.

This isn't a new problem; FX traders call them restricted currencies. It's actually pretty hard to get large amounts of things like Russian Rubles and Indian Rupees; it's possible to get large amounts of currency if you're a big bank; but you often have to work a deal with the government/central bank that's not going to be in your favor.

[mschuster91]

I'd have imagined the central banks of restricted-currency countries would like to sell $currency in order to increase their stocks of dollars, Euros or gold and make it hard to "cash out".

[exelius]

It depends on whether their currency is inflated or deflated relative to its market value. In a case like China, their currency is artificially deflated, so they will happily trade dollars for yuan all day long (but not the other way around). In a case like Argentina or Zimbabwe, the official exchange rate is something like 10 to $1, but the man on the street will give you 50 to $1.

Basically, with restricted currencies, you can often trade easily one way but not necessarily the other. The idea behind this is to make it easy to bring your money into the country on favorable terms, but hard to take it out (so you have to spend it there and repatriate the money through transfer of goods). In an inflationary system, you often have a capital class in power in a country, and high inflation keeps them in power since they own all the means of production. Unfavorable exchange rates and high prices discourage foreign investment, which can be desirable in corrupt or autocratic regimes. More often than not though, long-term high inflation is unintentional and a sign of bad monetary policy.