interest rates

Swiss Savers View Cryptocurrencies as Option, Now That Bank Accounts Don’t Save Them From Inflation

20/02/2020 by Idelto Editor

Cryptocurrencies are gradually becoming a viable alternative for savers in Switzerland, according to a new poll. The Alpine nation’s crypto-friendly business climate and increasing regulatory clarity makes them a relatively easy addition to investors’ portfolios. Many Swiss people can afford and regularly do put some money aside but bank accounts are no longer offering inflation protection.

Also read: Swiss Financial Watchdog Proposes $1,000 Client Identification Threshold for Crypto Transactions

13% of Young Swiss Think Cryptos Will Be More Important in the Future

For a few years now, cryptocurrencies have been gaining ground in Switzerland. The Crypto Valley in the canton of Zug has already attracted over 800 companies creating more than 4,000 jobs. The expansion of the blockchain sector facilitated by accommodating regulations has created conditions for Swiss banks to work with fintech companies and offer new crypto-related products and services to their clients. The Swiss Financial Market Supervisory Authority approved two crypto banks in August.

Zurich-based Migros Bank has become the latest traditional financial institution to include cryptocurrencies in its scope of interests. It recently published a report on the savings behavior of various age groups that demonstrated the growing popularity of decentralized digital assets. The gathered data shows that it’s not at all unusual anymore for people to store value in cryptocurrency investments.

The survey conducted by market research institute Intervista on behalf of Migros reveals that 7% of the respondents in two age groups, 18 to 29 and 30 to 55 years old, now own cryptocurrencies. Furthermore, 13% of the younger participants believe that digital coins will become even more important for them, or state their intentions to invest in crypto in the future, compared to 7% in the second group.

Older investors are more pessimistic and remain wary of the new investment class, as Swissinfo reported this week, with only a fraction of those aged over 55 years (0.5%) expecting cryptocurrencies to appreciate and grow significantly in the long run. Yet, even in that age group, one in every 100 savers currently owns digital money.

90% of Swiss People Save Regularly, Most Put Aside up to 1,000 Francs a Month

Intervista carried out the poll online with over 1,500 respondents aged 18 and over from the German and French speaking regions of Switzerland as well as the Italian-speaking canton of Ticino. The researchers established that Swiss people from all ages are good savers. For example, over 90% in the 18 to 55-year bracket and 80% of those over 55 years regularly put money aside. That’s 88% of the adult Swiss population. 67% of the young, 52% among 30 to 55-year-olds and 61% among people over 55 save up to 1,000 Swiss francs per month.

The majority of 18 to 29-years-olds still chose to use their savings accounts even for long-term purposes and a third of them keep over 70% of their funds in this type of account, despite no longer being offered protection against inflation. The policy rate set by the Swiss National Bank has been in negative territory for years and it’s currently at -0.75%. The young cite two major reasons for not switching to financial market investments – that they are not familiar with them (52%) and that there’s a limited amount of wealth they can set aside (48%).

Many of the young Swiss are afraid of making a wrong move with alternative investments. The lack of knowledge is considered to be the greatest risk by the surveyed 18 to 29-year-olds. At the same time, these respondents are quite open to closing the knowledge gap, the authors of the study point out. 41% of them are interested to learn more about financial and investment matters compared to 37% in the 30 to 55 years segment and 32% among older participants. Curiosity is what led many to discover Bitcoin, too, and that opens another opportunity for cryptocurrencies to attract more investors, especially among young people in Switzerland.

Do you think the popularity of cryptocurrencies will continue to grow among Swiss savers? Share your expectations in the comments section below.

Images courtesy of Shutterstock, Intervista.

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Central Bank of China Pumps 300 Billion Yuan Into Financial System, Cuts Loan Rates

18/02/2020 by Idelto Editor

The Chinese government has taken multiple steps so far to contain the economic fallout from the coronavirus epidemic, including interest rate cuts and financial injections worth billions of yuan. It did it again this week, extending the monetary easing provided by the central bank. With the budget under pressure, however, there are indications that Beijing may opt for some austerity measures later this year rather than a larger fiscal stimulus.

Also read: China Is Scrubbing Cash Notes to Stop Virus Spreading so Its Government Paper Money Won’t Kill You

PBOC Cuts Interest Rates on Loans for Lenders

The People’s Bank of China (PBOC) injected 200 billion yuan (almost $29 billion) into the country’s banking system which has been experiencing liquidity issues over the past year. On Monday, the funds were offered as one-year medium-term loans for Chinese financial institutions, according to Reuters. The central bank also cut the interest rate on the money from 3.25% to 3.15%.

Furthermore, the PBOC added another 100 billion yuan ($14 billion) through seven-day reverse repurchase agreements, Bloomberg reported. 1 trillion yuan (over $143 billion) of reverse repos were due to expire on the first day of the week but in the end the measures resulted in a net 700 billion yuan (over $100 billion) withdrawal from the markets.

This week’s interest rate reduction was largely expected by observers. A similar cut in the benchmark loan prime rate, which serves to determine the price of corporate and household loans, is likely to follow later this month. Economists surveyed by Bloomberg expect the same 10-basis point decrease of the rate on 1-year loans.

These measures come in the wake of early February’s PBOC announcement that it’s going to spend 1.2 trillion yuan (over $170 billion) to support growth in the Chinese economy hit hard by the coronavirus epidemic. The outbreak has already claimed the lives of more than 1,700 people in mainland China. The funds were dedicated to the reverse repurchase operation aiming to maintain stability in the currency market.

Experts quoted in the report have expressed similar opinions about the latest intervention. According to Zhou Guannan, an analyst at Huachuang Securities Co., the rate cut was expected and the supplied funding is relatively small. Becky Liu, head of China macro strategy at Standard Chartered Plc, thinks the PBOC does not intend to lower front-end rates any further.

Stimulus Through Fiscal Spending Only Not Feasible

Beijing has so far refrained from announcing a significant increase in its stimulus measures. Quoted by Reuters, the chief economist at Founder Securities, Yan Se, predicted that the PBOC will shift its focus from short term stabilization through large fund injections via reverse repo operations, to addressing the mid to long-term financing needs of Chinese businesses.

Additional fiscal spending and measures to encourage consumption remain on the table after China vowed to meet its 2020 targets for the economy last week, according to South China Morning Post. Local governments have been reportedly allowed to issue more debt to support growth in the short run. Corporate tax cuts should ease the burden on companies.

All this requires funding and the Chinese Minister of Finance, Liu Kun, believes efforts to reduce “unnecessary” government expenses must be made to fill in the widening budget gap. He discussed government plans in an article published recently in Qiushi, a magazine linked to the Communist Party of China. The minister pointed out that various external developments have intensified the downward pressure on the Chinese economy. At the same time, internal challenges such as the virus outbreak have created the need to increase fiscal revenue to cover the higher expenditures.

In 2019, China introduced the largest tax and fee reduction measures in its history, the government official remarked, amounting to over 2 trillion yuan, or more than 2% of GDP. These cuts will promote economic growth but also directly reduce fiscal revenue. Liu Kun also expects continuing pressure to increase spending, forcing the government to keep fiscal operations in a tight balance. “Under such circumstances, it is not feasible to implement a proactive fiscal policy solely by expanding the scale of fiscal expenditure,” the finance minister elaborated, indicating that Beijing is unlikely to commit to a large stimulus package as some investors have hoped.

What are your expectations about China’s fiscal and monetary policies in 2020? Share your thoughts in the comments section below.

Images courtesy of Shutterstock.

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China Stocks Plummet Despite 1.2 Trillion Yuan Injection to Mitigate Effects of Epidemic

03/02/2020 by Idelto Editor

China’s stock market plunged Monday under selling pressure accumulated during a prolonged holiday. Investors have been worried by the coronavirus outbreak that’s already taken the lives of more than 360 people. Beijing authorities have responded by pumping well over a trillion yuan into the country’s economy and financial system.

Also read: China’s Inflation Hits a Record 4.5% as Beijing Prepares to Test Digital Yuan

Chinese Stock Market Opens With Sell-Off

Reacting to economic complications stemming from the growing coronavirus outbreak, investors marked the opening of the Chinese stock market with an intensive selling. On Monday, the first day of trading after an extended Lunar New Year break, the majority of shares dropped by the daily limit. The CSI 300 Index fell over 9% during the day before closing at 7.9%, the biggest loss since 2015, Bloomberg reported. Ending the year down 2.8% on Jan. 23, the Shanghai Composite Index has now sank 7.7%.

Crypto markets reacted to the losses with a temporary spike. The price of bitcoin core (BTC) briefly exceeded $9,600, its highest level since October 2019, before losing some of those gains shortly after. Bitcoin cash (BCH) jumped to over $393 following the opening of the Asian markets on Monday morning. At the time of writing, BTC is trading in the $9,200-$9,400 range and the price of BCH hovers around the $380 mark.

The stock market slump came after media reports this weekend revealed that Chinese regulators are taking steps to limit short-selling. According to sources quoted by Reuters, China Securities Regulatory Commission (CSRC) issued a verbal directive to that effect, instructing brokerages to prevent clients from selling borrowed stocks when markets reopen on Feb. 3. The CSRC reportedly suspended securities lending.

The turmoil affected China’s national currency as well and the yuan opened at its weakest level since the beginning of the year, losing more than 1% to around 7 per U.S. dollar. Meanwhile, Beijing accused the United States of instigating fear over the coronavirus outbreak. Chinese Foreign Ministry spokeswoman Hua Chunying stated that with evacuations and travel restrictions, Washington “has unceasingly manufactured and spread panic,” contrary to recommendations of the World Health Organization. Countries should make reasonable, calm and science-based judgements, the diplomat added.

People’s Bank of China Pumps 1.2 Trillion Yuan

Other senior Chinese officials have made similar statements regarding market participants urging investors to be rational and objective when evaluating the consequences of the spreading virus. However, the death toll from the epidemic has reached 361. And the number of fatalities is higher than during the 2003 SARS outbreak. Over 17,000 cases have been registered so far and infections have been confirmed in two dozen other territories, with the first death outside China reported by the Philippines this past Sunday.

As part of efforts to shore up the slowing economy and aid financial markets, Chinese authorities took a number of steps including an interest rate cut for companies based in Hubei province, the epicenter of the epidemic. On Sunday, the People’s Bank of China announced it’s going to spend 1.2 trillion yuan, over $170 billion, to support economic growth which is taking a hit from the deadly virus.

The funds were dedicated to a reverse repurchase operation launched to ensure “reasonable and abundant liquidity” and maintain stability in the currency market, France Presse reported. According to the PBOC, overall liquidity in the banking system should reach 900 billion yuan (approx. $129 billion), which is more than during the same period last year. In 2019, the Chinese economy grew by a record low of 6.1%.

What do you think about the latest developments in China and the government’s anti-crisis measures? Share your thoughts on the subject in the comments section below.

Images courtesy of Shutterstock.

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ECB Keeps Subzero Interest Rates and Open-Ended QE Worth €20B a Month But Launches Policy Review

24/01/2020 by Idelto Editor

The European Central Bank (ECB) has launched an extensive review that will examine a wide range of its policies by the end of this year. Under its new president, Christine Lagarde, the bank will try to establish why its monetary stimulus has failed to achieve the Eurozone’s goal of close to 2% inflation. Sharing few details, Lagarde indicated the ECB will go on pushing towards the threshold as the institution’s governing body kept a key interest rate below zero and pledged to continue to inject billions into Europe’s economy.

Also read: 6 Bankers Accused of Earning €30M in Bonuses From German Fraud, Tax Lawyer Out on €4M Bail

ECB Maintains Interest Rate at Record Low -0.5%

During a Governing Council meeting on Thursday, the Eurozone’s central bank decided to keep in negative territory the benchmark deposit rate, the one banks face when leaving money at the ECB. The record low level of -0.5% was approved in September 2019 when the financial institution also announced the restart of its stimulus program.

The monthly buying of €20 billion ($22 billion) worth of bonds, which began in November, will continue indefinitely. The quantitative easing effort is an open-ended commitment to pump more money into the system which struggles to maintain inflation above 1%. The ECB started buying bonds in early 2015 and spent over €2.6 trillion in the previous program, which ended in December 2018.

Although Christine Lagarde noted a “moderate increase in underlying inflation” and remarked that downside risks to the Eurozone’s economic outlook are “somewhat less pronounced,” she was quoted by Bloomberg stating that the monetary policy must remain “highly accommodative” and that governments which can afford to increase spending should be prepared to do so.

The improved economic prospects are due to the easing tensions between the United States and China, which signed a preliminary trade deal. However, the storm has not subsided for the European Union yet. On Wednesday, U.S. President Donald Trump warned during the World Economic Forum in Davos that if there’s no deal with the EU, he will have to impose “very high tariffs” on cars and other European imports.

Policymakers at the European Central Bank are determined to make sure borrowing costs for EU businesses will remain at their current levels or be lowered even further. This state of mind and status quo are likely to persist until the inflation outlook converges with the 2% goal, they say, while quantitative easing will be practiced for the foreseeable future. No one has a firm idea of how long that could possibly be.

Review to Cover Monetary Policy, Climate Change and Anything in Between

After years of monetary stimulus that saw interest rates in Eurozone countries drop to historically low levels and billions of euros printed, the ECB will now try to find out and explain why the measures didn’t work. It will attempt to do so after the policies evoked strong criticism that led to lawsuits in some Eurozone member states. In Germany, which is Europe’s economic and financial locomotive, a political initiative to curtail negative rates has been gaining traction in the past months. Its backers point out that savers are losing money due to ECB’s policy. A ban to prevent the passing of negative rates onto small savers has been proposed in the Federal Republic.

The review announced by the ECB represents the first rethink of its policies since 2003. Its former president, Mario Draghi, left the post in late 2019 after an eight-year term at the helm of the important institution during which key interest rates were never raised. The bank’s new management now wants to conduct a wide-scope assessment of its policies but it hasn’t shared many details about it. At a press conference after the Governing Council meeting, Christine Lagarde stated:

We are going to review a whole host of issues. It will have to do with how we deliver, how we measure, what tools we have and how we communicate… It’s a broad exercise. My commitment was really to be able to listen to the expectations of ordinary people, to better understand the economic concerns and the imperatives and how we can deliver on them. It is going to be our task and our goal to listen.

The process will involve the central banks of all 19 Eurozone member states which, as Lagarde acknowledged, don’t always speak the same language. Besides studying the ECB’s economic and monetary policy toolkit, the assessment will focus on tackling other issues such as concerns related to financial stability in general, employment in the single currency area as well as environmental sustainability.

The Eurozone is not in perfect shape but the world’s other leading economies are experiencing similar challenges. The U.S. Federal Reserve, for example, is also conducting an appraisal of its strategy despite certain improvements due to the fiscal policy applied in the United States. The results of the Fed’s review are expected this year too. And in Japan, where inflation has hovered around and below 1% since 2015, an extremely accommodative policy hasn’t helped to significantly improve the economy.

What do you think will be the results of ECB’s policy review? Share your expectations in the comments section below.

Images courtesy of Shutterstock.

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Low Interest Rates Provide Precarious Protection Against Crisis, World Bank Warns

10/01/2020 by Idelto Editor

The latest global debt wave is the largest in the past five decades, the World Bank has acknowledged in a new report. The international institution notes that previous waves of broad-based debt accumulation lead to widespread financial crises. Historically low interest rates this time might not be sufficient to avoid the next meltdown.

Also read: Another Bank Run Highlights China’s Brewing Financial Crisis

Largest, Fastest, Broadest Debt Wave

The risk of a new global financial crisis is one of the focal points in the January edition of the World Bank’s Global Economic Prospects report. There have been four waves of debt accumulation in the last 50 years, the institution remarks, but the one that started in 2010 represents the largest, fastest, and most broad-based increase in debt so far.

The bank warns that while current interest rate levels, which have reached historic lows in many countries around the world, are mitigating some of the risks associated with high debt, previous waves of debt accumulation have ended with widespread financial crises. Undoubtedly a warning for governments and central banks that other anti-crisis measures are needed.

While the crypto space maintains significantly higher interest rates than the fiat world, and platforms like Cred allow individuals to earn up to 10% on BTC and BCH holdings, many developed nations have continued to lower their benchmark rates. More than 20 European countries now have 0% interest rates and a few, such as Denmark and Switzerland, have been in negative territory for around five years.

“Policy options to reduce the likelihood of crises and lessen their impact should they materialize include building resilient monetary and fiscal frameworks, instituting robust supervisory and regulatory regimes, and following transparent debt management practices,” the authors of the report insist. World Bank Prospects Group Director Ayhan Kose elaborated:

Low global interest rates provide only a precarious protection against financial crises. The history of past waves of debt accumulation shows that these waves tend to have unhappy endings. In a fragile global environment, policy improvements are critical to minimize the risks associated with the current debt wave.

History Shows Mounting Debt Leads to Crises

Another report published by the World Bank this past December, titled “Global Waves of Debt: Causes and Consequences,” indicated that debt in emerging and developing economies has climbed to a record $55 trillion in 2018. The document contained a study of the four major debt accumulation periods since 1970 and concluded that the debt-to-GDP ratio of developing nations has climbed 54 percentage points since the start of the latest debt buildup a decade ago.

Around half of the national episodes of rapid debt growth in developing countries, which have totaled over 500 since 1970, were accompanied by financial crises that significantly weakened per-capita income and investment, the World Bank noted. “History shows that large debt surges often coincide with financial crises in developing countries, at great cost to the population. Policymakers should act promptly to enhance debt sustainability and reduce exposure to economic shocks,” commented Ceyla Pazarbasioglu, the World Bank Group’s Vice President for Equitable Growth, Finance, and Institutions.

The latest debt wave differs from the previous three, however, in several aspects. The World Bank points out that it involves a simultaneous accumulation in both public and private debt and it’s not limited to one or two regions. Debt is quite high in developing countries; it is twice the nominal level reached in 2007, the institution emphasizes.

A considerable portion of the debt increase has been driven by China. The debt-to-GDP ratio of the People’s Republic has risen 72 points to 255% since 2010. In the past months and years, a liquidity crisis has been brewing as well. The government in Beijing had to bail out several banks due to a credit crunch in the interbank lending market while also trying hard to stimulate lending for its slowing economy and ensure liquidity in its troubled banking sector.

Despite persisting downward risks, the global economy is expected to grow up to 2.5% in 2020. But according to the World Bank, this is likely to happen only if global investment and trade gradually recover from the weak levels observed in 2019. Although growth in emerging and developing economies is projected to reach 4.1% this year, growth among advanced economies is probably going to slow down to 1.4%.

What are your forecasts for the global economic and financial system in 2020? Share your expectations in the comments section below.

Images courtesy of Shutterstock.

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