The Chinese economy is not working right. The stock and financial markets have never been shakier for a very long time in the world’s second-largest economy and leading supplier of industrial products.
On 7th February 2016, the People’s Bank of China disclosed that the country’s foreign exchange reserve had fallen by a whopping $99.5 billion just in the month of January, to reach the lowest level in more three years.
Much of this money went into propping the Yuan, the Chinese currency, which has remained excessively volatile since the Chinese authorities devalued it in August 2015 in the bid to bring it closer to where market forces would have it. The currency’s value had been artificial up until then.
Everyone, from the Chinese authorities, business people to the global economists, is worried about where the trends of the markets might be leading to.
Some, like George Soros, a businessman with extensive experience in world financial and stock market trends, have stated that we are looking at a global economic crash that is at the level of the 2008 financial crash.
China is coughing, other economies are catching the cold
As a matter of fact, already the impact can be seen outside of China in the form of plummeting oil, metal and other industrial raw material prices.
China has for decades been the leading importer of these commodities as it sought to feed its enormous industrial complexes. Now there is cut in imports from the Asian giant economy resulting in gluts and thus nose-diving of prices in the global markets.
One expected reaction to news of a malfunctioning of any market is traders running for the exit. This is no different for the current Chinese situation. What is different though is the fact that many investors do not have the liberty to want out. They have a lot of obstacles to overcome in order to move their wealth elsewhere.
The Chinese authorities have put measures in place such as capital movement caps, especially for individuals. For instance, one is not allowed to convert more than $50,000 a year from the Yuan to foreign currencies.
And if there is an option that is even harder to consider for all types of investors in China it is Bitcoin.
It is hard to do it any other way; it is harder to do it with Bitcoin
Of course, more than 50% of Bitcoin mining power is based in China, prompting some like Mike Hearn, the Bitcoin core developer who threw in the towel and took a job at R3 a private Blockchain startup, to raise the issue of Bitcoin being in the hands of Chinese as dangerous to the network.
However, while the Chinese authorities have done little to interfere with bitcoin mining operations based within its borders or stop individuals and companies from handling cryptocurrencies, they have made it hard to move between the Bitcoin and fiat currency systems.
In December 2013, the People’s Bank of China issued a directive to commercial banks, and other financial institutions, not to facilitate in anyway transactions that involve bitcoin and other cryptocurrencies.
The reason it gave for this is that Bitcoin and other cryptocurrencies are not real money and do not have any legal status. However, it can’t be hard to see the need to control capital flight as one of the significant informers of its decision.
Therefore, for this particular reason, even if Chinese investors find Bitcoin interesting as a place to keep safe their wealth during this time when the economy is shaky, they simply can’t do it.
About the author
Rupert Hackett is the Community Manager at BuyaBitcoin.com.au. Rupert specialises in the digital currency and digital payment space and is currently studying the world’s first Master’s in digital currencies alongside entrepreneurship. He writes for multiple bitcoin and tech websites and regularly blogs for buyabitcoin.com.au
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