(Agence Ecofin) – In an editorial published by the chairman of China’s banking regulator Guo Shuqing, the US Central Bank’s recourse to massive injections of money into the economic system exposes the world to yet another financial crisis.
Injection policy “Unlimited” money in the economy carried out in the United States is leading the world to a further collapse of the financial system. So said Guo Shuqing (pictured), chairman of China’s banking regulator, in a publication on August 16, 2020 on the website of the Chinese Communist Party magazine.
“There is no free lunch in the world or a permanent banquet. In an international monetary system dominated by the US dollar, the unprecedented unlimited quantitative easing policy of the United States in fact consumes the credit of the US dollar, erodes the foundations of global financial stability and will have unimaginable negative effects, ” Mr. Shuqing said.
He explains that as a result of this American practice, emerging economies may face multiple pressures such as imported inflation, contraction of foreign currency assets, the exchange rate and volatility in financial markets. But according to the Chinese politician, what is more serious, “Is that the world is once again on the brink of an international financial crisis”.
The analyst tends above all to demonstrate that if things are going so badly in the Chinese financial sector, it is in fact because of the practices of developed economies which adopt short-term solutions to the current crisis. The reflection which is not far from propaganda comes back to the victories of the Chinese Communist Party in the face of the various financial risks that the country has known.
However, China is not alone in showing concerns about the current situation of the dollar, which has reached its lowest level in two years. Several hedge funds have recently sold this currency from their investment portfolios in favor of the euro, the European currency, which appears to be more stable. This results from the fact that the Central Bank of the United States carried out massive injections of liquidity to prevent bankruptcies in the American economy.
It also lowered its key rates to historically low levels with the aim of accelerating the economic recovery, but above all, boosting inflation. Despite these stabilizers, the US economy is still seeking a path to a sustainable recovery. Unemployment is still at one of the highest levels in developed countries (11%) and the outcome of the next presidential election is uncertain.
However, it is not easy to talk about the risk of an international financial crisis without talking about the case of China. The country is finding it difficult to honor its commitments in terms of import quotas for American products; which increases trade tensions with the United States.
Likewise, it was noted that the profits of more than 1000 Chinese commercial banks experienced the largest decline in a decade during the second quarter of 2020. They were negatively impacted by a rising bad debt volume which reached 2.7 trillion. yuan ($ 389 billion) at the end of June 2020.
To allow the financial sector to breathe, China has also played on interest rates by lowering them considerably; which has caused an appetite among investors for shares of companies listed on Chinese stock exchanges. However, the latter operate in an economic environment that has become fragile. From the point of view of some analysts, this covers a risk of a financial bubble explosion in the country.
Idriss Linen
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