China Prints, And Prints

China's money supply is increasing faster than ever. Where will all those yuan find their home?

Where will all that money find a home?

China's money supply is growing rapidly, and the printing appears to be getting faster. M2 passed 200 trillion yuan the beginning of 2020, and has increased almost 50% to 297 trillion yuan in the four years since.

M2 is a key measure of the money supply within an economy. It includes physical currency (coins and notes), demand deposits, savings accounts, and other highly liquid assets that can be readily converted into cash. M2 provides insight into the availability of liquid assets within an economy and is closely monitored by central banks and policymakers to assess economic conditions and guide monetary policy decisions.

Overall, China has doubled M2 in the past 7 years, tripled it in the last 11 years, and more than quadrupled it in the last 14 years.

China's M2 chart, TradingEconomics
M2 has grown almost 50% in 4 years.

For comparison, the US has taken around 11 years to double M2, to its current level just below $21 trillion, and 18 years to triple it.

While the money printing undertaken at the beginning of 2020 increased M2 sharply, the Fed has made efforts to reduce it in recent months. China's M2 growth, meanwhile, continues to accelerate.

So What?

China is a different case to the US, since the country is currently struggling with deflation, rather than the persistent inflation that has affected Americans.

China’s Persistent Deflation: Consumer Prices Drop For Third Month
China’s CPI continues its deflationary trend for a third month, challenging economic recovery efforts.

Nonetheless, it's a huge increase to M2 that has been taking place for years, and long before deflation became a problem. As China's stock markets falter, traders and investors are looking for places to put their money. With a soaring money supply (and central bank balance sheet), there's an obvious candidate.

Hong Kong's bitcoin futures ETFs are already seeing increasing interest as bitcoin's price increases, but as we know from the US equivalents (like BITO), these do not feed demand through to the underlying market like spot ETFs.

Hong Kong Eyes Own BTC ETFs
Hong Kong is set to approve its own spot bitcoin ETFs, providing crypto exposure to the Asian market.

Hong Kong is set to launch spot bitcoin ETFs in the near future. One provider, Venture Smart Financial Holdings, has been planning for launch in Q1 2024. Their target of $500 million under management by year-end now seems laughable, given the intense demand for the US ETFs.

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