Forex Markets: PBoC Develops Cryptocurrency Similar to Bitcoin
The People’s Bank of China (PBoC) has recently developed a cryptocurrency system similar to today’s popular Bitcoin. The cryptocurrency will be called ChinaCoin and can be traded in ways that are similar to what is commonly seen in online forex broker outlets. There is already a large amount of speculation as to what would be the motivation behind this move. But many analysts have suggested that this is a move meant to divert attention away from US President Donald Trump’s calls for an end to currency manipulation in the world’s most populous country.
Chinese Policy Directions
Some analysts have speculated that the PBoC is thinking that this could help the economy grow, making it easier for the central bank to control all financial records inside the country. There are a couple of risks with this system, though, says Zhou Xuedong, director of the PBoC’s Business Administration unit. The first risk is of money laundering, and this is being viewed as the most important risk of all. The second risk is the safety of customer funds, and the third is a risk of leveraged transactions.
Of course, this is just the prototype and its development still needs a lot of supervision. China’s central bank head, Governor. Zhou Xiaochuan, stated that due to a healthy and growing economy, the PBoC will cut down on generous low-interest loans and decrease the level of risk in the financial system.
With that being said, too many loans in the economy can hurt it and increase inflation, as well as increase commodity prices. That’s why the PBoC will be shifting into a more neutral gear regarding these policies and make domestic firms grow accustomed to limited credit expansion.
China’s corporate loan debt is very high and this is causing the economy lots of trouble in the current context. Experts say there is no quick solution to the problem and it will take time for debts to become manageable in order to make the second largest economy in the world stand on more solid ground.
Zhou Xiaochuan stated that the Chinese Yuan will be stable in 2017, no changes will be necessary and the policy will be neutral. PBoC officials have accepted the debt they are in and the risks for the household in 2017, after long-term expansion through credit loans. This will be a difficult task to pull out and experts have their doubts about China being able to do it. They claim reforms they need are difficult to go pass through legislature.
The PBoC must effectively control their debt levels by pulling back financial support to firms that are not viable and by removing the burden in the industrial capacity. The PBoC’s current rates are 4.35%, and their inflation level is around 3%. Here we can see how credit loans can have a big impact on an economy, and the PBoC is looking for ways to reduce this inflation percentage in the near future.