Chinese currency: New RMB 100 banknotes are coming!

Voodoo commented on 23 Aug 2015

I better save that one before it's taken down...

Voodoo commented on 23 Aug 2015

I better save that one before it's taken down...

Mr Shelly commented on 17 Aug 2015

So...Here's what happened: In 2008, following the financial crisis, China bought large amounts of US debt. The Chinese government looked at this as a form of Credit - after all, another foreign country just gave them a large I.O.U. They took this "credit" and extended lines of credit to local governments and State-owned enterprises (SOEs) by way of obscene lending through the banks. The central government gave local government councils instructions to use the money they were lent through the banks to build infrastructure projects, like hospitals, roads, schools - stuff China desperately needs. Instead local governments largely ignored such directives and used the money they borrowed to buy land, which they in turn put up as collateral to borrow EVEN MORE money. This money was borrowed through largely informal, illegal, under-the-table sources (the so called "shadow banking system"). This caused China's Government-debt-to-GDP-ratio to mushroom to 284% in just 7 years - to put that in context, the United States has a ratio of 115% (also terrible, but better than China). Local governments, in turn, used this extra money to build capacity projects - factories, gold mines, steel mills, etc., - stuff CHina already has and doesn't need - creating the "Overcapacity" problem we see now. When the collateral was up, the land they illegally bought would be auctioned off, typically to realtors who would then use it to build unnecessary high rise apartments. This is where the "ghost cities" come from. In 2013, this system began catching up with its self, leading to the "credit crunch" and the slowing of the economy. The government responded by trying to shell up cash through the selling of "junk stocks" on the stock market - selling largely useless stocks of flagging state-owned enterprises (SOEs) and coupling this with a propaganda campaign promoting the stock market, especially to farmers with no high school education (67% of people playing the stocks in China lack a high school degree). In June of 2015, it backfired, leading to the stock market crash we just saw. China next tried to readjust it currency, so as to make the debts worth less and to promote exports, which notwithstanding the ethical or legal questions, has some validity. But now, there is another problem, the "capital crunch" - you see, the real wealth of the average Chinese person has increased over the past 30 years, so lowering the cost of money destroys the savings and spending power of the average person, but keeping it where it is hurts China's export based economy, which in turn also bankrupts the country. Damned if you do, damned if you don't. Plus, keeping the RMB pegged to the dollar ultimately gives China an unfair advantage over everybody else - whereas everybody else in the world has to trade their goods at the real cost, China can artificially trade for less than it is worth, because the exchange rate is set. SO if the RMB is actually 4 to the dollar, they sell at 6.9 - which is another way of saying the rest of the world bites the 2.9. SO international pressure mounts if you lower or raise it. At the same time, China also made a bid to make their currency international, which also lead to them buying gold as a backer, eventually overbuying it. What to do? Some people are saying that they may try to secretly print more money. Printing more money and funneling it to the Banks might give debtors the raw currency they need to pay their debts. However, printing more cash leads to the depreciation of the currency, making it worth less. SO, what they may do, is print more money IN SECRET and tell everybody else in the world that they haven't. This is a really stupid thing to do. There are two ways to do it. 1.) Actually admit to people that they are printing SOME new money, and then print more then you say, or 2.) roll over the currency and then fail to destroy the antiquated bills. OH NO! These are a buddies thoughts not mine as you can tell it is well written ha ha but it seemed to fit the news...