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This paper studies the dynamic relationship between the parallel and official exchange rates of Chinese Yuan (CNY) to U.S. Dollar (USD). Motivated by recent evidence about Bitcoin as a major channel for capital flight from China, we construct a parallel exchange rate implied by Bitcoin prices in the Chinese and U.S. crypto exchanges. While the dual exchange rates are cointegrated, adjustment to long-run equilibrium is non-linear and depends on policy changes and state of the markets. Results from our Markov Switching Vector Error Correction model suggest the parallel exchange rate responds one-to-one in the long-run with respect to an official exchange rate innovation. However, an unexpected change in the parallel rate is countered by an opposite and state-dependent response in the official exchange rate, suggesting active exchange policy interventions by the Chinese monetary authority. [ABSTRACT FROM AUTHOR]