FX.co ★ Federal Reserve may put the world into another global financial crisis

The Fed's response to the coronavirus pandemic could put the world on the brink of yet another global financial crisis, said the China Banking Regulatory Commission.

Guo Shuqing, chairman of the CBRC, believes that an unrestricted money printing, combined with the fact that the US dollar remains the world's dominant currency, will only put pressure in the global economy.

"In an international monetary system dominated by the dollar, an unprecedented softening monetary policy is effectively diminishing the creditworthiness of the dollar, which will negatively affect global financial stability," Guo said on Sunday. "The likelihood of a new global financial crisis is high," he added.

Tensions between the US and China also continue to mount, as long-awaited trade talks scheduled for the weekend have been postponed.

It escalated this summer as the Trump administration banned the Chinese-owned video app TikTok, closed the Beijing consulate in Houston, and imposed sanctions on companies and individuals linked to security measures in Hong Kong. In response, Beijing closed the US consulate in Chengdu and imposed sanctions on some members of Congress.

So far, China has indeed lagged behind its commitments to purchase US exports.

For gold, this current situation is likely to be good news, especially if further escalation occurs, said Han Tan, market analyst at FXTM.

"If trade negotiations between the US and China turn negative, traders may abandon their attempts to capture new record highs in capital while paving the way for gold to rise above the $ 2,000 mark," Tan said last Friday.

The CBRC also spoke about China's own financial system, saying that "after the coronavirus pandemic, the quality of its assets will inevitably deteriorate."

Second-quarter profits for over 1,000 commercial banks in China fell to their lowest levels in a decade, and loans hit their highest levels in more than a decade, rising 2.7 trillion yuan ($ 389 billion) by the end of June.

Guo said that more debt is expected to pile up soon, and that expectations for lower rates could spark new asset bubbles amid speculation and leveraged deals.