Your favorite crypto news blog

China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan

Other 2019/12/12 05:30 by Lubomir Tassev
China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan

China has been confronted with multiple economic and financial problems this year amidst an ongoing trade war with the United States. Authorities in Beijing have been trying to overcome the challenges with administrative measures in what has become a market economy over the years. Inflation of the yuan just rose to its highest level since January 2012 and is projected to increase even further, to 4.7% by January. This is happening while Chinese state banks and corporations prepare to trial a digital version of the national fiat.

Also read: Another Bank Run Highlights China’s Brewing Financial Crisis

Chinese Inflation Records 7-Year High

In November, the annual inflation rate in the People’s Republic jumped to 4.5%, from 3.8% in October, according to official data provided by China’s National Bureau of Statistics. The increase surpassed market expectations of 4.2%, the Trading Economics website noted in its analysis. Consumer prices also increased on a monthly basis, by 0.4% last month and 0.9% the previous month, well over the forecasted 0.1% for November.

China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan

The main driver behind the steady increase this year has been the rise of food prices, which adds a politically sensitive dimension to the general economic picture. Food inflation exceeded 19% percent in November, which is the highest figure on record since May 2008. That was mainly caused by the continuing increase in pork prices after last year’s African swine fever epidemic. They jumped over 110% in November due to a low supply of pork. Non-food prices increased as well, including rent, fuel and utilities (0.4%), healthcare (2%), and other goods and services (4.5%).

China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan

Although Chinese inflation is yet to reach the highest levels of the years following the last global financial crisis, the current trend is certainly worrying. It has been formed alongside a deepening liquidity crisis in the country’s enormous financial system that has led to several small banks failing or suffering bank runs. Some of these institutions had to be bailed out by the government as hundreds of regional Chinese banks control as much assets as the country’s ‘big four’ state-owned banks.

Digital Yuan May Be Greeted With a Crisis

The bank insolvency cases have created a real credit crunch on the interbank lending market and small banks have been forced to increase their already high deposit interest rates, to over 4% on annual deposits. To sustain liquidity in the sector, China’s central bank continued to pump fiat cash into the system. According to a recent report by Xinhua, only last month the People’s Bank of China injected 600 billion yuan (over $85 billion) via its medium-term lending facility (MLF), an instrument introduced back in 2014 for that same purpose.

China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan

True to its commitment to conduct a monetary policy that’s “neither too tight nor too loose,” as described by the government-run news agency, the PBOC also introduced 4.8 billion yuan of funds through pledged supplementary lending to the China Development Bank, the Export-Import Bank of China and the Agricultural Development Bank of China. Besides, the central bank lent more than 62 billion yuan to financial institutions through the standing lending facility, “maintaining market liquidity at a reasonably ample level in 2019,” as the report concludes.

But in a slowing economy, damaged by the trade conflict with the U.S., the People’s Bank has had to deal with declining growth rates as well. In November, it cut its one-year MLF rate, at which it provides funds to other banks, to 3.25% and reduced its one-year loan prime rate by five basis points to 4.15%. State-owned lenders were instructed to take the latter as a reference value for their loans and told to better serve the real economy. The administrative measures were aimed at stimulating businesses to borrow more after new lending fell in October to its lowest level since the beginning of the year.

China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan

Meanwhile, Chinese media broke the news this week that the launch of a planned central bank-issued digital currency (CBDC) could be imminent, with Beijing stepping up efforts to finalize the project. According to a report by Caijing Magazine, PBOC is preparing to start trials of the digital yuan in places like Shenzhen, where these may commence by the end of the year, and in Suzhou next year. Some of China’s largest financial institutions, the four major state-owned commercial banks, three leading telecom operators, and the tech giants Huawei, Alibaba, and Tencent are expected to participate. The People’s Bank has already set up two digital currency development companies in the two cities, the outlet noted citing knowledgeable sources.

“In the era of global digital currency, China is becoming a leader,” the Caijing Magazine stated. The digital yuan is obviously coming to existence soon rather than later. The question is whether it’s going to inherit the high inflation of the paper version.

Do you think China will be able to successfully quell its inflation crisis? Share your thoughts in the comments section below.

Images courtesy of Shutterstock, Trading Economics.

Did you know you can buy and sell BCH privately using our noncustodial, peer-to-peer Local Bitcoin Cash trading platform? The Local.Bitcoin.com marketplace has thousands of participants from all around the world trading BCH right now. And if you need a bitcoin wallet to securely store your coins, you can download one from us here.

The post China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan appeared first on Bitcoin News.

0 Like(s)

You should also read...

Crypto 17/11/19 19:00 by Jamie Redman
Market Update: Crypto Prices Improve After 3-Week Downtrend
Digital currency markets have been trending downward in a triangular pattern since the 40% spike that took place on October 25. Following the three-week downtrend, cryptocurrency traders are quietly p...
Read More
Other 27/11/19 01:00 by Thomas Delahunty
Former PBoC Governor: Digital Currency to Be Used for Retail and Remittance
Zhou Xiaochuan, former governor of the People’s Bank of China (PBoC), believes that digital currency and blockchain should continue to be a focus for China moving forward, citing the use of the ...
Read More
Crypto 27/11/19 08:00 by Martin Young
Will China’s Crypto Yuan be Used for Retail Payments or Mass Surveillance?
China’s blockchain drive has been about one thing: getting its people used to a state-backed crypto asset. The People’s Republic is determined to get its crypto yuan out as soon as possible and ba...
Read More
Crypto 05/12/19 14:30 by Kevin Helms
RBI Governor Discusses Crypto and Central Bank Digital Currency
The governor of the Reserve Bank of India (RBI), Shaktikanta Das, spoke about cryptocurrency during a press conference on Thursday. He also talked about the prospect of an RBI-issued digital currency,...
Read More
Crypto 31/12/19 20:51 by Mr Oak
5 Best Performing Cryptocurrencies Of 2019
2019, didn’t quite go as well as many crypto experts thought it would. Enduring one of the shameful crypto performance and volatility in the previous year, 2019 was expected to see a major turnarou...
Read More