The central bank also reduced the interest rate on 7-day reverse repurchase agreements to 2.2 percent from 2.4 percent.

The decision to pump money into the banking sector and cut interest rates is being taken by China to help the economy deal with the coronavirus crisis. It also follows the Communist Party’s promise to increase support to the economy through increased sales of sovereign debt, as domestic and international demand slumps due to the pandemic.

Julian Evans-Pritchard, senior China economist at Capital Economics said the interest rate cut was the largest since 2015.

He told the media,” “By offering funds at a lower rate, the People’s Bank of China will be able to keep market interbank rates low even as the liquidity from the RRR (reserve requirement ratio) cuts is absorbed by the banking system.”

Earlier this month, the central bank cut the cash that banks must hold as reserves for the second time this year, releasing $79 billion to help the economy fight the coronavirus pandemic.

The central bank also asked lenders in the country to lend more to small businesses under its inclusive financing push and has urged lenders to extend cheap loans and tolerate late payments from companies hit by the health crisis.

The novel coronavirus was first discovered in the Chinese city of Wuhan last year. Since then, the deadly pathogen has spread throughout the globe and has brought the global economy to a standstill. So far, the virus has claimed around 25,000 lives worldwide.

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The decision has been taken to counter a slowing Chinese economy which has led to smaller capital buffers and a fall in the reserves, forcing the need to reduce risk in the wider economy.

According to a report from the China’s central bank, the local governments, high risk banks and the government regulators should jointly work to resolve the risks related to smaller banks and financial institutions.

China’s central bank will encourage merger talks for banks that are under financial risks. The bank will try to resolve the issues related to smaller institutions by understanding the cause and nature of the risks. There has been no correct information as to when exactly will the new rules be introduced.

The government recently took over the Baoshang Bank, a relatively unknown bank, as a part of its decision to assist risk prone financial institutions. The government also assisted the Bank of Jinzhou by providing backing through three financial institutions that included the Industrial and Commercial Bank of China.

The state-owned Central Huijin Investment is taking in Hengfeng Bank as a part of the reform to enhance the bank’s capital adequacy and corporate governance.

To revive a slowing Chinese economy, the central bank previously brought out reforms in the rate charged on loans, to reduce borrowing costs for business. China’s economy is facing major problems due to the on-going trade war with the US. The economic growth for the second quarter of 2019 witnessed a thirty year low.

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The central bank had been trying to launch its own digital currency since 2014. The launching of China’s cryptocurrency will cut down the costs of circulating traditional paper money.

According to some reports, the launch of China’s cryptocurrency was accelerated in response to the US based social media giant Facebook’s decision to launch digital coin Libra in a year, a decision which has raised regulatory concerns.

The bank will issue the digital currency to seven institutions immediately after its launch. The institutions include tech giants, Alibaba, Tencent, China UnionPay, and four state-owned banks of China which include the Industrial and Commercial Bank of China, China Construction Bank, Bank of China and the Agricultural Bank of China.

There are reports of an additional eighth institution that might be a recipient of China’s digital currency as soon as it launches, although the identity of the institution is not disclosed.

The recipient institutions are the ones that would have the responsibility to disperse the digital currency to 1.3 billion Chinese citizens.

Mu Changchun, the deputy director of People’s Bank of China’s payment department had stated earlier this month that the bank is ‘almost ready’ to launch its own cryptocurrency.

Reports state that the technology behind the cryptocurrency was ready since last year.

The digital currency will be made available to the rest of the world through correspondent banks. The launch of the currency will make the People’s Bank of China the first central bank to come up with a cryptocurrency.

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