China rushes to mint its own digital currency


The central bank might use digital currency to help steer the economy
Chief Investment Office11 Sep 2019
    Photo credit: AFP Photo


    MAINLAND CHINA & HONG KONG

    The People’s Bank of China (PBOC) is poised to become the first major central bank to issue a digital version of its currency, the yuan, seeking to keep up with – and control of – a rapidly digitising economy. Unlike cryptocurrencies such as Bitcoin, though, dealing in the digital yuan will not have any presumption of total anonymity, and its value will be as stable as the physical yuan, which will be sticking around too.

    Not all the details are out, but according to new patents registered by the PBOC and official speeches, it could work something like this: Consumers and businesses would download a digital wallet on their mobile phone and load the digital cash from their account at a commercial bank – like going to an ATM. They then use that like cash to make and receive payments with anyone else who also has a digital wallet.

    China is increasingly a cashless society. Even street food sellers in small towns will prefer to use a mobile payment app than make actual change. In the first quarter of 2019, such apps handled CNY59t (USD8.3t) of transactions in China, up 15% from a year earlier, according to a research firm.

    As the PBOC’s digital money is designed to replace cash, it will not have a big impact on the broad money supply, and thereby its effect on monetary policy will likely be neutral. If the digital currency is widely accepted and people are encouraged to hold more cash, bank deposits could decline, but the impact will be manageable.

    In a more distant future, the central bank might use digital currency to help steer the economy. Patent filings made public in October 2018 described a currency that would require banks making loans to input details about borrowers and interest rates before funds could be transferred. That could allow the PBOC to more proactively control bank lending and direct funding where it deems appropriate. Furthermore, should there be a need for China to turn to an unconventional monetary policy toolkit, digitised currency would allow it to apply negative rates even for people holding digital cash. – Bloomberg News.

    The Shanghai Composite Index slid 0.12% to 3,021.20 while the Hang Seng Index added 0.01% to 26,683.68.

     

     

    REST OF ASIA

    Consumer discretionary stocks were among the few positives across the weakest Australian earnings season in five years. Even short sellers are paring bets.

    Retailers providing electronics, travel, and gaming beat the market’s low expectations due to resilient business models, although there will need to be ongoing signs of consumer spending to indicate a lasting recovery.

    Short sellers seem to think so. Although the consumer discretionary sector is the most shorted on the benchmark index in weighted average terms, according to Bloomberg, the rate of bearish bets is at its lowest in three months.

    Still, strategists remain cautious about the outlook for equities amid a local economy growing at its weakest pace since 2009 and international ructions including the US-China trade war, Brexit, and the Hong Kong protests.

    The Reserve Bank of Australia’s decision to lower interest rates in June and July, as well as the government passing laws to reduce the tax rate in the wake of a surprise election victory are seen providing long-term support for a sector where most of the retailers were cautiously optimistic in their outlook.

    This comes a year after hedge funds shorted Australia retailers amid expectations that lower house prices would curb consumer spending. On Monday (9 September), Australia reported July mortgage approvals rose the most in four years as central bank interest rate cuts help revive the property sector. – Bloomberg News.

    Australia’s S&P/ASX 200 Index climbed 0.25% to 6,630.80 at the open on Wednesday (11 September). It decreased 0.51% to 6,614.01 the previous session.

    South Korea’s Kospi Index upped 0.59% to 2,044.01 early-Wednesday morning. It gained 0.62% to 2,032.08 the previous session.

    The Taiwan Stock Exchange Weighted Index (Taiex) decreased 0.44% to 10,753.58.

    The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

    The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

    The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

    DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

    To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.

    The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.