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Thursday January 23, 2020 - 10:39:24 GMT
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What could China’s open Forex market cause?

China has recently started considering opening up its current FX market. The decision was made nearly a month ago, but no real progress has been made on the announcement quite yet. There is a definite possibility of it being just a fluke from the government in order to somehow have more leverage during trade talks with the United States, or it could be a real power move to influence the global financial situation.

The current FX situation in China

Currently, FX in China is most definitely not a serious focus for the government. According to several comments from the past, numerous Chinese lawmakers have commented that the demand for the Chinese Yuan will start increasing over the years. Allowing foreigners to speculate on the currency on Chinese platforms could cause it to appreciate much faster.

Although this would seem like a positive change for most economies in the world, we need to consider that China is a primarily export-based economy. What this means is that a strong Yuan would cause a serious issue for local manufacturers.

Importers all over the world will quickly see that the number of goods they were able to get with their current budget is halved or even worse. Although the purchasing power of the Chinese community will increase, the income from local businesses will decrease dramatically.

This was the argument used by most Chinese lawmakers in the past, but now it’s a different story.

China has the world right where it wants them

China’s political situation in the world right now allows it to take serious risks. What this means is that if they open up the FX market, it is true that the demand will skyrocket for the Yuan, but that also means that they can afford to print more money in the first place.

This would significantly increase the financial presence of China in the world and bring it ever so closer to the United States. This additionally increases China’s soft power across the world, making it a primary trade partner for the years to come.

According to this Oinvest review, Chinese Forex brokers will also find quite a lot of clientele if they manage to display their licenses from the local government. Very few countries would be able to afford not speculating on the Chinese currencies, and all of them are nearby China, thus more susceptible to the influence.

Main goals of the FX market

Although financial dominance on the global markets seems to be China’s goal, there are ulterior motives as well.

As many know, the Chinese Communist Party recently started investing heavily in blockchain technology. Pair this up with the national project for a Chinese CBDC (Central Bank Digital Currency) and we get a completely different picture of what Chinese lawmakers are planning 

By getting financial dominance over the global markets, China will be able to be the first to start influencing the digital space with its currency. By simply being the first through the door it pretty much guarantees itself 1st place on the digital currency market by default.

Should this happen, the United States, as well as most of the other rich countries, will lose their leverage over the situation, thus causing a significant increase for China’s global political power.

Influencing the trade deal

Due to major setbacks in terms of the CCP’s public image during the Hong Kong protests and now an unidentified virus coming from the country, China will have to have at least some kind of guaranteed tool it could use for future trade disputes with the United States.

Right now, it’s forced to agree to a not-100% profitable situation, thus causing a minor slump in its production.

One could say that the belt-and-road initiative is a project to shore up issues caused by the trade war, while others believe that China’s soft power is already significant enough to start reducing the USA’s relationship with Eastern and Southern developing nations. This is especially relevant for the African continent, which is the hub for most consumer goods raw resources.

 

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