Trump, China and the Currency Crisis

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The global economy is facing a crisis, and it is being further stirred up by the trade war between China and the USA. This could be bitcoin’s big moment, but it will have some hoops to jump through before it proves itself to be “an uncorrelated asset immune from political risks,” says Michael J. Casey at Coindesk.

Last week China allowed the renminbi to fall below RMB 7.0 to the dollar. The immediate reaction from the US Treasury was to call China a “currency manipulator.” This is a rather unusual step and signals the US’s antagonism to wards China. It would also allow Trump’s administration to legally impose punitive sanctions against Chinese. As a result, the markets were panicked into “a tit-for-tat feedback loop of exchange rate depreciations fueling a destructive downward spiral in trade and growth,” as Casey writes.

Following this market chaos, the People’s Bank of China (PBoC) aimed to allay investors’ fears by buying more renminbi, this stabilising its value. This was also a signal that China doesn’t intend (at least for now) to use its currency as a trade weapon.

Casey also says that the US Treasury announcement about “manipulation” didn’t make any sense, because by it own definition, this “entails persistent, one-sided intervention in markets to weaken the domestic currency.” Whereas China within a few days was supporting the renminbi and on that basis, “there’s no way the International Monetary Fund or World Trade Organization would support the Trump Administration’s case that China is a currency manipulator.” Indeed, it could lead to the USA facing international sanctions if it continue down this path.

Casey also notes something very important: “The scariest image here is not one of rebellion by angry rich savers, or even of a repeat of the heavy market turmoil of the 1997–98 Asian financial crisis or the even more extreme losses of 2008–2009. It’s that a currency war in which the U.S. is a deliberate belligerent would look more like the 1930s.”

Of course it isn’t the 1930s and we now have the Internet. Casey says, “This greater interconnectivity, economists and political scientists often argue, will compel people, businesses and their politicians to resist conflict, economic or otherwise.”

However, it has also led to disruption of the political establishment and the liberal vision of the nation-state is under threat, which is creating chaos.

And as well as the Internet, we also have cryptocurrency. In the 1930s people turned to gold as a safe haven, while today investors could turn to bitcoin, which as Casey says is more appropriate for the digital age. Casey writes: “Herein lies the “buy bitcoin” argument for this current moment: that, regardless of your own beliefs, a sufficiently large number of other people now believe bitcoin to be the best way to hedge against political-economic turmoil in the global financial system.”

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