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China’s Monetary Easing May Provide an Unexpected Boost for Bitcoin

Traders Magazine Online News, February 1, 2019

Patrick Tan

China is hardly what one would describe of as the epitome of transparency, especially when it comes to issues of economic data and reporting. But a recent move by the People’s Bank of China (PBoC), the Chinese central bank should be cause for concern in the world’s second largest economy. As global markets fell last week on the back of trade war worries as well as a slowdown in Chinese growth, China’s central bank announced that it would inject US$117 billion into the banking system, allowing commercial banks to cut the share of deposits that they must hold in reserve, in an effort to boost lending and halt what some analysts believe may be a far sharper slowdown in economic growth than reported.

Since last summer, Beijing has adopted a series of fiscal and monetary stimulus measures in an effort to stave off slowing growth. In China, delivering on economic growth is part of the social compact made between the Chinese Communist Party and the people, limited personal freedoms, in exchange for broad economic freedoms and the enjoyment of economic comfort. With growth slowing, that compact is about to be tested for the first time since former Chinese President Deng Xiao Ping instituted economic reform in the 1980s. A factory survey last week showed that China’s manufacturing sector?—?one of the key providers of jobs in the Middle Kingdom?—?is slowing. Just the latest in a string of data indicating that growth continues to slow. Even though it is more than three weeks from the Lunar New Year, factories have already started to send workers home since as early as last November to celebrate the festivities, although there’ll not be much celebration as the economic prospects for workers grows ever more uncertain.

The PBoC announced last Friday, via its website that it would cut the required reserve ration by 1% and would partially offset the cut by not renewing loans to commercial banks through the PBoC’s Medium-term Lending Facility that is scheduled to mature at the end of the first quarter of 2019. The impact of the move would be a cash injection of 800 billion yuan or US$117 billion into the banking system, to increase liquidity, but it’s not a given that the move will trickle down to small and medium Chinese businesses, those most hit by the recent slowdown. On Friday, Chinese Premier Li Keqiang met officials of China’s three largest commercial banks and urged them to boost lending to small, privately held businesses, but they are not compelled to do so.

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