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What started out as a trade dispute between the world’s two largest economies is now a full-blown currency war as the U.S. and China bring their big guns to the battlefield. The impact on the global financial markets was immediate and severe, driving up safe-haven assets as ordinary people fear losing the value of their fiat savings.

Also Read: US, EU and Japan Could Trigger ‘Cold Currency War’ by Debasing Fiat

The U.S. – China trade war has rapidly escalated in the last few days, with the governments on both sides apparently pulling out all the stops. Last week U.S. President Donald Trump revealed his decision to impose a new 10% tariff on $300 billion worth of Chinese goods, in addition to his previously imposed tariffs on imports from the rival country. On Monday, the government of China retaliated by officially announcing it is suspending the purchases of U.S. agricultural products by Chinese firms as well as threatening to impose tariffs on the farm goods purchased after August 3.

The trade battle has also spread into the monetary arena and sparked what is now an undeniable currency war between the two economic superpowers. This Monday, the People’s Bank of China (PBOC) also allowed the Chinese currency to fall bellow the 7 yuan to 1 U.S. dollar threshold, an important level that it maintained for 11 years, ever since the 2008 financial crisis. And this happened after last Wednesday the U.S. Federal Reserve cut its key interest rates for the first time in more than a decade.

In a statement regarding the exchange rate changes on Monday, the PBOC explained that it “has accumulated rich experience and policy tools, and will continue to innovate and enrich the control toolbox, and take necessary and targeted measures against the positive feedback behavior that may occur in the foreign exchange market.” This was taken by the American side as an official announcement by the Chinese central bank that it remains committed to fight in order to defend its interests on the currency front.

In a response to these recent developments, the U.S. Treasury Department announced on Monday that Secretary Steven Mnuchin, under the auspices of President Trump, has officially determined that China is a ‘Currency Manipulator.’ As a result of this determination, Mnuchin will now turn to the International Monetary Fund (IMF) in order to “eliminate the unfair competitive advantage created by China’s latest actions.”

The Treasury’s announcement complains that: “In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves despite active use of such tools in the past. The context of these actions and the implausibility of China’s market stability rationale confirm that the purpose of China’s currency devaluation is to gain an unfair competitive advantage in international trade.”

Besides asking the IMF to probe into its trade rival’s currency devaluation, this step will also allow the Trump administration to take further actions against China within the American legal system. These include banning Chinese companies from seeking trade financing or taking part in U.S. government contracts.

President Trump himself came out with a tirade against China on Twitter, accusing it of manipulating its currency while simultaneously putting pressure on the Fed to effectively devalue the U.S. dollar again. He wrote: “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

The U.S. president also added that: “China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers’ wages and harm our farmers’ prices. Not anymore! China is intent on continuing to receive the hundreds of Billions of Dollars they have been taking from the U.S. with unfair trade practices and currency manipulation. So one-sided, it should have been stopped many years ago!”

Labeling China a currency manipulator was one of Trump’s 2016 presidential campaign promises as part of his strategy to focus on the trade imbalance between the two countries. By taking this action now he is signaling to his voters that he is still focused on this issue as the 2020 elections are coming up as well as to the Chinese leadership that he is not going to back down, despite the economic impact on the American economy.

The news that the two biggest economies in the world are headed for a direct collision, with international trade and currency battles, sent global stock markets way down. In the U.S., the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite all dropped between 2.9 to 3.5% on Monday, the worst daily performance for all three major indexes during the whole year of 2019. Chinese stock markets were also badly hurt on Monday and trading across Asia opened with a wave of red screens on Tuesday morning.

Unsurprisingly, the currency war has also triggered a flight to safety by investors who see both governments across the Pacific struggling to weaken their own fiat currency in an attempt to hurt the other side. Gold, for example, jumped to a price level not seen in more than six years on Monday.

This phenomenon is also widely considered to be one of the driving factors behind the recent sharp upturn in the cryptocurrency markets. With the situation only heating up and no end in sight, this might be the start of a new long term crypto bull market as more investors will see it as a hedge against their savings losing value. If you want to diversify some of your money into digital assets, you can purchase BCH, BTC, ETH, XRP, LTC, and BNB with a credit card at Buy.Bitcoin.com or with all other payment methods over at Local.Bitcoin.com from peer-to-peer traders.

What do you think about the global currency war and how it will impact the cryptocurrency ecosystem? Share your thoughts in the comments section below.

Images courtesy of Shutterstock.

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The post Currency War Erupts as US and China Bring Out the Big Guns appeared first on Bitcoin News.

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