There's an adage that goes something like...when you owe the bank $100,000, you have problems. When you owe the bank $100,000,000, the bank has problems.
China is the bank in this case.
China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
11–20 of 238 posts
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#12So what? TFA keeps repeating that this is bad, but fails to explain why. Is countries actually having money a problem now?
Which country’s values do you prefer influencing the developing world: China’s, or the United States’?
Neither, and I fail to see the difference between them. Neither country would do such a thing with altruistic goals and both have proven they shouldn't be trusted. We have already seen how badly the US fucks up other place's economies and governments with their meddling.
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#13These currency reserves largely represent loans China issued abroad, which have been paid off (or are in the process of being served). Similar to Eurodollars in the past yielding outsized interest rates, increasing demand and thus dollar outflows, this shows a (perhaps?) unrecognized accumulation in China, which may very well either allow them to essentially print their own dollars or mean that they already have been, synthetically.
The article has an interesting premise, calling it a problem for China to have cash - because China is an adversary. I've not seen this stated so explicitly in normal business news before. Warning of the potential for it to be invested abroad in the B&R initiative really shows that the US is gearing up for great power competition again.
N.b. Brad Setser is perhaps the most insightful expert on debt and international monetary flows. He often speaks about African refinancing deals - or why they're nearly impossible to refinance, due to insane complexity.
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#14So what? TFA keeps repeating that this is bad, but fails to explain why. Is countries actually having money a problem now?
Which country’s values do you prefer influencing the developing world: China’s, or the United States’?
It's the wrong question.
Developing nations will take the support they can get - just ask the predatory lenders who've been dicking them over for hundreds of years. Values don't really come into it, unfortunately.
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#15Holding on to cash reserves seems like a smart move for any government. People will applaud private companies and investors holding decent chunks of cash so they can invest into economic dips and crashes, and we have watched many countries borrow huge amounts to alleviate economic downturns, but a government holding money to either invest into or diminish an economic downturn is suppose to be bad?
If the opposite happened everyone would be freaking out about how bad China is playing with fire that will hurt the global economy by holding too much debt. And if they held the account books even everyone would complain how they are either not leveraging debts to invest in the economy or complaining how they are unprepared for an economic downturn. To me it just reads "China bad because China."
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#16and...? The article doesn't say how it's a big deal (or not). Looking at the list oof countries' forex reserves, tiny Switzerland has almost a trillion. Generally this is a sign that they export more than they import so are stuck with a bunch of foreign exchange. Of course they have to buy stuff with it: oil, other commodities, or, you know, foreign debt. China's 3T would be 10% of the US federal debt, or much smalle…
I think the implication is that the global market makes pricing and reliability guarantees based on the public number, not the actual number. In other words: by secretly hoarding foreign reserves, China is signaling something that the markets might not have priced in already. (This is my interpretation; not an endorsement in any particular direction.)
But what is the point of making it a secret?
It would make foreigners' companies have a harder time because the public info is wrong... But this also makes Chinese companies have a harder time as well.
Not to mention, it erodes trusts for every entity that depends or trades with China...
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#17Holding on to cash reserves seems like a smart move for any government. People will applaud private companies and investors holding decent chunks of cash so they can invest into economic dips and crashes, and we have watched many countries borrow huge amounts to alleviate economic downturns, but a government holding money to either invest into or diminish an economic downturn is suppose to be bad? If the opposite hap…
The article is about undisclosed foreign reserves, not any foreign reserves. There’s general consensus among economists and political scientists that maintaining foreign reserves is both good for countries and for global peace, but that really only works if everybody knows you’re doing it[1].
In other words: it’s easier to think of untoward reasons for hiding foreign reserves than honest ones. That’s why there’s a story here, not “China bad.”
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#18So what? TFA keeps repeating that this is bad, but fails to explain why. Is countries actually having money a problem now?
Planning to switch to another reserve currency seems to be a "career-limiting move".
It’s unlikely to be a simple shift and more of a global splintering into various monies for different purposes.
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#19Earlier quoted context omitted.
I think the implication is that the global market makes pricing and reliability guarantees based on the public number, not the actual number. In other words: by secretly hoarding foreign reserves, China is signaling something that the markets might not have priced in already. (This is my interpretation; not an endorsement in any particular direction.)
But what is the point of making it a secret? It would make foreigners' companies have a harder time because the public info is wrong... But this also makes Chinese companies have a harder time as well. Not to mention, it erodes trusts for every entity that depends or trades with China...
I have no idea!
Speculating baselessly: a country might choose to hold excess foreign reserves without publicly disclaiming them when it lacks confidence in its own currency or economy, or if it foresees global market upsets (e.g. wars) that would make their local currency less desirable for international trade.
I agree with your point about eroding trust: it’s hard to think of a reason to do this that would be worth it.
Re: China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
#20Earlier quoted context omitted.
Which country’s values do you prefer influencing the developing world: China’s, or the United States’?
Neither, and I fail to see the difference between them. Neither country would do such a thing with altruistic goals and both have proven they shouldn't be trusted. We have already seen how badly the US fucks up other place's economies and governments with their meddling.
You fail to see a difference between a country run by an autocratic cult of personality and a country run by a democracy? That’s troubling. The US commitment to human rights is flawed, but it’s nothing compared to the dystopia that is China. Values matter.