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Investing.com – A former US Treasury official questions the reliability of reserves data from the world’s second largest economy after the United States, China.
Brad Cester, a former Treasury official, said that half of China’s currency reserves are “hidden”, a situation that could add risks to the global economy in the future.
And China announced in its latest disclosure that foreign assets were estimated at 3.12 trillion last December, but Setser says that foreign exchange reserves are actually about 6 trillion dollars.
“China is so big that the way it manages its economy and currency is of great importance to the world,” he wrote in his critique. “However, over time, the way it manages its currency and foreign exchange reserves has become less transparent – creating new types of risks for the global economy,” he continued.
One of the most important observations of Sisters is that the ten years between 2002 and 2012 witnessed violent rises in China’s foreign exchange reserves, as the Chinese central bank bought dollar assets to maintain a low value of the yuan and stimulate exports. This has stopped from 2012 until now, although the growth of the trade surplus has not stopped.
Setser, formerly deputy assistant secretary of the Treasury for international economic analysis and senior fellow for international economics at the Council on Foreign Relations, explains:
“Just as China has ‘shadow banks’—financial institutions that act like banks and take on the kind of risks a bank might ordinarily take on but are not regulated like banks—China might be called ‘shadow reserves.’ Not everything China does in the market shows up now. on the balance sheet of the People’s Bank of China.
Setser said China’s state-run banking system is the main way Beijing hides its reserves. This includes state commercial lenders such as the Bank of China, the Industrial and Commercial Bank of China or ICBC, the China Construction Bank, and the Agricultural Bank of China, as well as policy banks such as the China Development Bank and the Export-Import Bank of China.
This report was published in the Insider newspaper, and the Chinese administration did not respond to the inquiries that Setser shared in this report.
“The sheer amount of China’s reserves carries enormous weight in financial markets and represents a risk,” Setser emphasized.
He went on to explain his concerns: “China’s earlier accumulation of agency bonds – such as Freddie Mac and Fannie Mae – helped trigger the 2008 financial crisis, by driving investors more towards riskier mortgage-backed securities.”
“China’s lack of transparency here is kind of a problem for the world,” he said. “China is structurally so central to the global economy that anything it does, visible or invisible, will ultimately have an enormous impact on the rest of the world.”
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2023-07-02 16:30:00
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