A number of the policies left over from the Trump era have left Biden with limited options on what to do about China — especially involving trade and digital goods. It’s no secret that China is ramping up tech operations, and that has major implications for the future of digital economies, which can be much more complex and internationally integrated than traditional cash money systems.
Right now, here’s what we know about the current state of economic affairs: The United States Federal Reserve plans to keep interest rates very low for several years in order to continue purchasing assets. The purpose behind this plan is obvious. The economy is in shambles right now, and they want to flood it with money to prop it up. That’s what the economic relief package recently passed by Congress was all about.
But the Chinese are worried that this cash will create rumblings in financial markets there.
Former central bank adviser Huang Yiping said, “What worries me the most is the next adjustment of Fed policies.”
Another fear is that the American economic plan will work too well, forcing the Federal Reserve to respond by increasing those interest rates sooner rather than later.
US Federal Reserve chair Jerome Powell said, “These measures, along with our strong guidance on interest rates and on our balance sheet, will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete.”
Financiers overseas understand that the $1.9 trillion bill recently passed in the United States is only the first step for a Biden Administration, and will likely be followed with a somewhat less feasible plan to boost infrastructure spending by late 2021.
Huang said, “There’s no free lunch. We all remember what happened in 2014-15. The US [Federal Reserve] is the world’s major central bank. Once it quits quantitative easing and raises rates, we could encounter capital exodus, currency depreciation and falling asset prices.”