Why is bitcoins Falling?
Many have predicted that once the price of bitcoins becomes too high, it will fall to the same level as conventional currencies. The price is predicted to fall below US$600 within the next three months. However, there are still a number of factors that will contribute to this move. These include government policies and the economic outlook in China.
The Chinese government has been restricting the circulation of virtual currencies. At present, banks are only allowed to trade in the People’s Currency, which is created by the central government. This policy, combined with the recent devaluation of the RMB (Peoples‘ Currency), have led many to speculate on the potential decline of the Chinese national currency. The main reasons why this happens is because the government wants to maintain the peg of the country’s currency to the dollar, and prevent foreign investors from stealing the Yuan. The last few years saw the growth of offshore Chinese investment companies, mainly in the Middle East. The success of these companies paved the way for a more liberal exchange rate regime between the RMB and the US dollar.
There was a time when the People’s Currency was strong, but the trend has changed with the current government policies and the growing popularity of offshore banking. Therefore, a significant decline in the value of the Yuan is unavoidable. However, analysts predict that the PBOC will not allow the value of the currency to depreciate further. If it tries to, the government can easily step in and stimulate the economy using different methods. If the central government decided to intervene on the domestic front, it will surely be a massive move, but there are several risks involved. For instance, if it was the central government that implemented the policy, it might lose control over the flow of information and force citizens to exchange their Yuan for hard cash.
On the other hand, if the people start trading their Yuan in the open market, this could lead to chaotic liquidity. There are two types of people in China, including the rich one-per-center who have their cash stored in the mainland banks and those who live a life of luxury outside the Chinese mainland. The central government does not want these people to conduct business on the Yuan and has made several attempts to control the spread of the foreign exchange trade. Whether or not this attempt is successful depends on whether the central government has extensive control over the internet and the financial market.
To be able to speculate on the movements of the Yuan without restrictions, you should take advantage of some Forex trading tools which work online and operate across various foreign currencies. They are called as cross-currency trading instruments. They help you to trade in multiple foreign currencies simultaneously with the help of a single website. They allow you to trade with the same currency in multiple countries at the same time, at high precision. This is a great advantage as compared to trading in individual currencies on your own.
Another reason why we can say that the Yuan is falling is because there has been an extensive buildup of the private money in China. This has resulted in a massive increase in the number of people who have access to the monetary system. However, the government is attempting to regulate this wealth by restricting the amount of foreign currency that can be owned by any one individual or company individually.
Now, let us look at the private sector. Again, the rise in private sector wealth is being driven by the rise in the number of people who trade in the forex market. However, this has not reduced the value of the Yuan in the global market and some analysts are predicting that it might even lose some value rather than stabilizing. But there is an explanation for this is the simple fact that when there is more wealth in the hands of fewer people, there is bound to be a push towards more centralization of the economy.
This will either happen when the government seizes all the foreign assets, or when the economy becomes too dependent on domestic sources of revenue and wealth creation. At any rate, it would be difficult for the Chinese government to intervene in the Forex trading market since this will require them to break the bank’s rules. This could create a serious problem for the economy, causing unemployment to rise, reducing consumer spending and investment, and so on. So, there is no need to panic yet, but keep a close eye on the trading sector and you will be able to spot the signs of a possible downfall of the Yuan.