Governments

China: Counter Declining Economy By Injecting $83 Billion

China: Counter Declining Economy By Injecting $83 Billion

The world economy China faces some of its toughest economic challenges in years. The People’s Bank of China recently injected $83 billion (560 billion yuan) into open markets to counter the declining economy.

China’s Central Bank saves the day

Reuters reported on Wednesday, January 16, that China’s central bank injected $83 billion into the county’s financial system. The bank has never done an intervention this large before. The injection came the day after China’s state planner, central bank and finance ministry all offered reassurances to investors. They signalled more spending and other types of policy support.

China’s policymakers are pledging to step up stimulus measures this year and do more to protect jobs as economic growth cools to 28-year lows.

“The news is clear – the economy needs help,” said Trinh Nguyen, senior economist for emerging Asia at Natixis in Hong Kong.

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The People’s Bank of China (PBOC) said that Wednesday’s injection ensured that there are funds in the financial system. However, the banking system’s liquidity falls rapidly. While injections are common this time of year, the addition was much heftier than usual. It also follows a large cut in banks’ reserve ratios announced this month. It will free up a total of $116 billion for new bank lending.

Unfortunately, the injection has failed to impact the Chinese stocks and money market rates as they closed on Wednesday with little to no change.

Is China on the brink of economic collapse and could bitcoin be the answer?

Experts expect China’s economy to cool further this year as domestic demand weakens and exports are hit by U.S. tariffs. It reinforces Beijing views that they will need to roll out more stimulus measures.  

“A significant Chinese slowdown may already be unfolding,” Harvard University economics professor Kenneth Rogoff said in a recent commentary.

South China Morning Post agrees and sees the trade war with the USA as a component that slashes growth forecasts for 2019. Eight of the 12 provinces in China that have reported growth targets for 2019 have updated them downwards. All targets are either the same or lesser than the ones for 2018.

China is not the only country that struggles. There is an ongoing revolution in France where the yellow vests are in every city, going after the banks. One of the major economies in Europe, Germany, might have issues as well. A British politician said that banks are broke and that Deutsche Bank along with other banks uses a system called fractional banking which is anything else than healthy.  

Moreover, on Jan 2nd, the European Central Bank took control over Italy’s Carige bank. The event occurred following the resignation of the majority of the bank’s board members. In a statement, the ECB notes that the “temporary administrators will safeguard the stability of a bank by closely monitoring its situation.” However, the Italian economy struggles and the event has raised concerns for another banking collapse in the country.

Even the US Government has momentarily shut down its activity. The reality of the shutdown is that certain government institutions aren’t functioning; their employees can’t go to work, and no one is getting paid. While the work is not getting done, backlogs in all sorts of areas are emerging. Wallstreet is one area where this is happening.The economy cannot go up forever, and the question is, will cryptocurrencies become a haven for people when economies enter a recession? When the Turkish Lira collapsed, people fled to bitcoin since it was more stable than their fiat currency.

Image Source: “Flickr”

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