The People’s Bank of China (PBoC) injected new money into its economy on Monday, February 3, in an effort to alleviate financial instability. This followed in the wake of an earlier announcement by PBoC that it would pump an additional 1.2 trillion Yuan into its markets via reverse repo. This amount is the equivalent of US$174 billion or the entire market capitalization of bitcoin at the time.
The move is aimed at increasing liquidity and mitigating volatility with trading resuming this week in the backdrop of the coronavirus outbreak. Shanghai and Shenzhen based investors were faced with a potentially catastrophic return to trading with the mainland Chinese economy suppressed following the coronavirus outbreak. The situation was worsened by the week-long closure of financial markets as the country observed the Lunar New Year holidays.
The newly minted money will be used partially as banking bailouts. This is designed by the Chinese financial regulators to cushion commercial banks against the adverse market conditions and to ensure liquidity. The PBoC alluded to this stating that the cash injection was aimed at stabilising the economy in the face of the ‘epidemic situation’. In their statement, they said they would
Inject 1.2 trillion Yuan via reverse repo operations on February 3 to ensure sufficient liquidity supply. The liquidity of the overall banking system will be 900 billion Yuan more than the same period of last year
The new funds are expected to support a desirable level of market activity in the financial centers of Beijing and Shanghai. They are also supposed to steel the economy from external shocks and disruption arising from the coronavirus epidemic.
This is the first time that the China central bank has made such a statement with the injection now becoming its largest single-day reverse repo. It is also one of 30 measures installed across the Chinese economy in a multiagency approach designed to stop the economy from crashing.
The PBoC is not alone in doing fund injections as the US Federal Reserve has been engaged in similar activity since September 2020. The Federal Reserve has so far pumped new money amounting to billions of dollars in an attempt to stabilise the economy. The Trump led US government has been offering billions worth of tax cuts and bonuses to banks and their executives.
These actions have not gone unnoticed, especially in the crypto community with discussions about how Bitcoin fixes these problems through decentralisation, finite currency supply, and fixed inflation rates. With Bitcoin as the dominant currency, there is no need and possibility of printing new money since it is hard coded and self governing.