China can afford a totally digital currency, and Italy?

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So let’s start our journey directly from the field from China and we do it with Professor Michele Geraci already undersecretary in the Italian government for economic development, professor of economics, economist who teaches in Shanghai we should already have him in connection.

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This text is a translated transcription of the original video interview avaiable on Class CNBC – milanofinanza.it

Welcome Professor Geraci.

Good afternoon to you.

Thanks for your time, where is Professor Geraci today?

Today I am on the island of Hainan, specifically in the city of Boao where the annual economic forum, the Chinese Davos, is held. This is really a very important forum so much so that even the Chinese President Xi Jinping spoke there only two days ago but I also start from a curiosity as we live today in China? How is life also on the island of Hainan, compared to the pandemic and Covid? We live in total normality, all activities have been resumed, almost exactly twelve months ago for a year now , in April 2020 China has reopened everything, we travel normally, there is the use of apps that have the code green or red. Red if you go to areas where there have been outbreaks, now very rare and many swabs, I do two a week because moving from one place to another is almost necessary and arriving on this island: Hainan is a bit like what we try to define, now that we are preparing our tourism season on a Covid free island, at the airport, at the port and at the entrance and at all points of arrival on this island we need to make a swab to verify the negativity . This was done a bit in a forced way, during this forum because obviously there are party leaders, many managers and in general it is not like that but China does not need the pads because the app still manages the risk of individual and having a risk that is now truly reduced to almost a minimum, are a bit of habits rather than strict necessities. But what I want to say that life is back to normal and obviously the economy you have said yourself + 18.3% which means that China is as if it had never had the crisis, it is as if Italy grew by 34% in the first quarter of 2021.

Here we come to these aspects Professor Geraci, because what you tell us gives us the idea of ​​how China has radically overcome even with measures that perhaps here would have been difficult to take but in any case she managed to get out of it with her head held high and now the figure that reminded her runs is that relating to the first quarter of 2021 + 18.3%, the Chinese President also spoke about the future of the economy. What is your feeling about how the Chinese economy will re-emerge relative to other economies in the world and what role will it play in the global recovery this year and next?

Having just reopened them around for a year, this 18% that you mentioned in this quarter is obviously the result of a growth gone from speeding in the three quarters of 2020. The growth is based heavily on exports, something about the investment, domestic demand continues to be a weak moment but be careful, to put everything in perspective, here we are talking about GDP growth that this year will make about 6% and probably even 8%, I am more on their eighth they are held low for a moment out of prudence, but think this 18 already in the first quarter if nothing happens in the next four it is already almost 5 percent. So the government made a choice, it understood that the fight against the pandemic and that of saving the economy were not two objectives that were in contradiction, that it was necessary to choose: what do we do? Do we save lives or do we save the economy? They understood, after their delays, delays until January so not until yesterday but January 2020, they understood that these two fights had to be done at the same time. So they closed the country for two months, they practically stopped the economy and then everything started again. This will be a growth engine for all of Asia that is attracting because other Asian countries obviously the 15 countries of the RCEP agreement and the new free trade area in Asia will benefit from China’s economic growth and attention are countries that are yes Asia but I call them: Asian Euros, because there is Japan, there is Korea, there is the Philippines and there is also Australia and New Zealand, countries of the Five Eyes, so let’s say our Western allies that anyway when it comes to doing business, America is first and foremost and trying to do more with China.

And so this attention rather than global growth I invite reflection, it will be a decoupling of growth, that is, China and Asia will go on and Europe will struggle, so on average (yes there will be an average) but it is as you know , “hot head and cold feet” unfortunately, because we have been chasing the problem for 15 months and if I can afford it, China has never given opening dates, they never said we will open on April 20, there are no the provinces were fighting against the central government who pulled the blanket, they said on January 23 they made a three-line decree where he said we close everything, ports, airports, no one leaves the house and we will tell you when it will reopen. You have rightly said these are methods that perhaps could not be done here but the result is this decoupling of performance.

Here I want to ask you two other things quickly Professor Geraci, the first is you are following what you have defined the Chinese Davos, every year from Boao some important messages emerge then on what are on the one hand the programs, the plans, the intentions of the Chinese government but also as business partners and also at the political level react. What is the message this year coming out of this very important conference these days?

The message that comes out was the strong one from President Xi who said we really have to cooperate, we are all in trouble, he used a Chinese saying that means “we are all in the same boat” so he invited all present but also those who listen to lower the tone and to cooperate and it is no coincidence that in recent days there was a meeting on climate change, therefore on the environment, between Carrie and those Chinese ministers, because I believe that China and perhaps also the United States we hope, they want to find a ground for dialogue where there is an agreement because it is clear that the conflict themes are many, you said them in the introductory report so it is useless to touch on those themes for now, it is better to reset the relationship starting from the themes where everyone, including Europe, so we have a participation of the three big blocs Europe, the United States and China that have both the economic and political interest to do something for the environment and this was the great message.

Then I also had the opportunity to talk to the former Central Bank Governor with Xiaochuan we talked a lot about Global Digital Currency and they said don’t worry the renminbi is not going to replace the dollar, we just want it to come a little bit. ‘like what Chinese trade is and therefore not to go to supplant and beware these digital currency is not Bitcoin, it is not crypto currencies it is just a let’s say a different representation of the renminbi instead of being paper it is electronic. It may or may not increase the monetary base but it is not the cryptocurrency that the markets deal because it is a digital currency that has a fixed exchange rate with the renminbi 1: 1, indeed it is a renminbi.

Indeed, the Chinese central bank seems to be among the most advanced in the study of this project which also concerns Europe with the European central bank, the Brit Coin, the currency that the British are also thinking about.

Warning! China can afford the digital currency for a technical reason, that the rates are positive while Europe at negative rates cannot do it because this would force citizens who could no longer keep the cash, the cash in the mattress to have to suffer negative rates. in deposit rates, bond rates. So the same thing, forcing let’s make an extreme example that all cash becomes digital, China has positive rates but countries that have negative rates it is as if a transfer of wealth from citizens to banks is imposed, so we pay attention to how to go. on absolute digital, without leaving the citizen the choice of keeping cash at home at zero rates rather than forcing it into digital with negative rates.

Of course, Professor Geraci thank you for this exhaustive overview of the moment that China is going through from health to the economy, but I leave you with an anticipation of what will be the topic we will discuss more today that also how the great phenomenon changes in Chinese society the lengthening of life expectancy and therefore the relationships between generations, the demographic pressures. You have also known Chinese culture well for many years, I ask you how you see the evolution from this point of view, soon then we will deepen it further.

If you allow me they are implementing a new Fornero, they have understood that life is lengthened and that people cannot retire as they pay attention here 50 55 years men and women and therefore they are slowly, the government is pushing a narrative where invites people to retire a little later because obviously they also have a problem with the financing of funds, because based on the salary system, mixed contributions, in short, they have financial problems. Attention they have many problems but with these policies, we say centralist, statist often, this is the competence that the members of the government obviously have, today I was talking with the deputy minister of trade, about technical things, in short, here they do the work for thirty years, forty years before they get to be ministers and manage to resolve. So they have understood that there is this problem of pensions, they look a lot at Italy, because they know that Italy has the problem that China could have in twenty years if they do not have to take countermeasures, so they study what we have done in these twenty years and they try to avoid making the same mistakes and therefore they have long been trying, with an advertisement and a narrative to convince people that retiring at sixty at sixty-five is not so bad, playing on the discourse that there is an experience, that the elderly, middle-aged people, attention, cannot retire but have added value and can continue to contribute to society and this in a society we say that also pays attention to well-being , not only of the individual but of the whole society, which derives from Confucianism, is a little more digestible by us where instead individualism prevails and one tries to grab what he can, while he can.

Professor Geraci Professor Fornero will be proud of this globalization of his model do not know if they were inspired by that, but let’s see.

Attention sorry they pass from 50 years upwards not from 66!

In fact I thought I heard wrong, but in fact those dates is like saying those dates, those levels to retire make us think, I thank you again, good job and we will stay on Class CNBC still in contact with you, always from China and see you soon.

Thank you goodbye!

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