Europe likely to send hot money to China

Updated: 2015-03-02 07:38

By CECILY LIU(China Daily)

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The measure was decided upon to address problems in the eurozone after it was revealed in December that the eurozone had fallen into deflation for the first time in more than five years.

Meanwhile, in January, the Swiss National Bank introduced a negative interest rate of-0.25 percent on commercial bank deposits in order to stem the rise of the Swiss franc against the euro.

Derrick says the QE in the eurozone is on a magnitude similar to that of the QE introduced by the US Federal Reserve in 2009, leading to the potential for a big flow of hot money into China on a similar scale.

The negative interest rate of the Swiss franc will encourage borrowing, and China then will become an obvious location for this extra money to be invested, he says.

Put into a historical perspective, such major monetary adjustments globally will create a real test for the Chinese government on how to keep its exchange rate under control.

Such overseas investment will help the Chinese economy grow, help Chinese companies internationalize and support the internationalization of the Chinese currency over the long term, he says.


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