China is turning its attention to Bitcoin and generating massive amounts of Bitcoin as concerns grow over the vulnerability of the global financial sector says Chairman of China Smartpay Group.

A recently published article of Joe Zhang’s in the South China Morning Post highlights the fact that while the Chinese government is cautious about Bitcoin there are in fact plenty of active exchanges in the country with a large number of Chinese individuals taking part.

Zhang, however, states that there are two points, which are interesting to look at. Namely that China is an overbanked country providing banking access to the rich and poor where it only takes ten minutes to open a bank account, and Chinese banks and post offices provide good services for money transfers.

He says:

It’s hard to imagine Bitcoins enabling cheaper and more efficient money transfers.

Of course, he states, there can only be one reason why Bitcoin is rising in popularity in China: the country’s fear of inflation. However, while Zhang says that many people believe that the high volatility of the cryptocurrency will prevent it from becoming a currency, he thinks otherwise.

He says:

The price of gold, and the exchange rates of the Russian ruble and the Nigerian naira for example, are just as volatile and that has not prevented them from being used as currencies. More importantly, Bitcoin users treat their holdings as part of their asset diversification, therefore the high price volatility does not matter much, as long as the long-term trend is up.

Zheng talks about the how the rate of inflation continues to be a major concern for the Chinese people and how the Nationalist government collapsed due to inflation in 1949 with the Chinese government refusing to accept the existence of inflation between 1949 and the late 1980s. Unfortunately, for China over the past 25 years’ inflation has swept through the country, which has produced a negative impact on inequality.

Zheng states that in the past ten years, the prices of properties have risen, raising alarms while the Chinese stock market continues to be one of the most expensive in the world.

So it is small wonder that Bitcoin is becoming a popular hedge against the steady erosion of the yuan’s purchasing power.

Image from Flickr. Image courtesy of Jonathan Rees.