Money

Reducing the impact of China’s potential slowdown with crypto

August 19, 2019

China’s economy has shown signs of slowing down. As we can read from BBC News, its currency has now weakened to its lowest point since 2008 - widely believed to be the result of a monetary policy shift on China’s end in response to the current trade war with the US. 

This story however, isn’t about politics. Instead, we will look into how China’s slowdown might affect vulnerable currencies and what the opportunities are for crypto.

Vulnerable currencies 

When the value of a currency goes down, a country’s products become cheaper which is good for export; but for the same country imports become more expensive. For a country like China, it’s a good way to ensure that it can keep export numbers up - despite tariffs - and as it is more costly to import goods, this may spur on local entrepreneurship, which in turn could bolster employment. 

On the flip side (of the coin), countries that are dependent on exports to China, may see their exports drop significantly - especially commodity-producing countries. 

For those who recall, in August, 2015, Chinese policymakers lowered the RMB-USD reference rate by 1.9% - the largest single-day drop in over twenty years. Back then, similar worries over the impact it may have on other economies proliferated. In one article, ten countries were listed as being at risk, due to their heavy reliance on exports to China: Indonesia, Thailand, Malaysia, Brazil, Peru, Japan, Chile, South Korea, Taiwan, and Australia.

Now again, similar analyses are being made. And according to experts, two currencies stand out as being the most exposed to China: the Australian dollar and the New Zealand dollar. To both countries, China is the biggest trading partner, accounting for around a quarter of New Zealand’s exports, and a third of Australia’s. 

The analysis also points to the Canadian dollar and Russian ruble as commodity-linked currencies that could come under pressure, and it mentions the Malaysian ringgit, Indonesian rupiah, and even the Singapore dollar as at-risk currencies. 

How it all plays out remains to be seen, of course, and if a trade deal between the US and China does happen, these risks may be averted. What’s clear, however, is that China’s potential slowdown raises concerns beyond its borders. 

The power of crypto as a hedge

According to an interesting report by Grayscale, Bitcoin - but also other cryptocurrencies - has shown time and again that it acts as a hedge against economic recession. 

In fact, following August 10, 2015, when the People’s Bank of China lowered the RMB-USD reference, prompting a five-month selloff of global risk assets in favour of wealth preservation assets, the numbers speak for themselves. 

Between August 10, 2015, and January 20, 2016, the Argentine peso dropped by -31.3%, the Russian ruble by -22.6%, the Brazillian real -16.1%, the Canadian dollar -10.3%, the British pound -9.0%, the Chinese renminbi -5.7%, the Singapore dollar -3.9%, the Thai baht -3.3%, the Swiss franc -2.0%, and the euro by -1.2%.  The Japanese yen, however, went up by 6.6%, and while that may seem remarkable, it is nothing compared to Bitcoin’s performance which rose by a staggering 53.6%.

Anyone who held the above currencies at the time, would have been in a good place had they allocated at least a portion of their total funds to Bitcoin. 

As we approach a possible repeat of 2015, you may wonder how you can buy into Bitcoin, or whether there are other benefits that crypto may offer when you hold a vulnerable currency. 

With Bitspark, we’ve set ourselves the goal of creating stablecoins for each of the world’s 180+ local currencies. Stablecoins are a type of cryptocurrency pegged to the value of other highly liquid, stable assets such as commodities or currencies. Already now, our users are able to buy into local currency stablecoins such as US dollar, euro, Hong Kong dollar, Philippine peso, Russian ruble, renminbi, and others.

Once you have converted your cash to stablecoins, it is easy to trade into other tokenised currencies or jump straight into Bitcoin. For example, if you hold Phillippine peso, you can go to one of our cash points in The Philippines, trade into stable.PHP which you then hold in your Bitspark wallet on your mobile app. 

From there, you can easily trade into Bitcoin, BitUSD, Sparkdex.EUR, Sparkdex.HKD and other currencies on the app. If you want to trade into other stablecoins such as BitJPY, or even BitGold, then you simply need to transfer your funds to your Sparkdex account to trade on our decentralised exchange. 

The power of crypto lies in the fact that it is borderless, fast, and convenient - with Bitspark, we connect cash to crypto so you can maintain maximum flexibility, amidst any kind of economic slowdown. 

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