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China Has $3T of ‘Hidden’ Currency Reserves, Setser Says
- vkou 3y agoSo what? TFA keeps repeating that this is bad, but fails to explain why. Is countries actually having money a problem now?
- morkalork 3y ago>Is countries actually having money a problem now? USA looking at central and south America: Yes.
- B1FF_PSUVM 3y agoPlanning to switch to another reserve currency seems to be a "career-limiting move".
- thoughtstheseus 3y agoIt’s unlikely to be a simple shift and more of a global splintering into various monies for different purposes.
- isykt 3y agoWhich country’s values do you prefer influencing the developing world: China’s, or the United States’?
- AngryData 3y agoNeither, 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.
- isykt 3y agoYou 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.
- gagged_s_poster 3y ago[flagged]
- AngryData 3y agoBeing a democracy didn't stop the US from killing Guatemalans over the possibility of bananas costing a couple more cents, or installing or supporting dictatorships in foreign countries when it benefited them. How much power do voters really have in determining foreign policy or large financial decisions? It is also not quite right to treat the Chinese government as a single minded monolith in determining their own policies. There is tons of internal factions and divisions within their own political system. Yeah sure certainly Xi has a lot of power, but only so long as he doesn't try to buck off the opinions and ideals over the rest of their political class, a political class who holds many of the same opinions and ideas as the US political class. The political sphere in China today is nothing near what it was 50 years ago.
- SanjayMehta 3y agoChina has one party. The US has two and it's hard for other countries to discern any difference between them.
- SanjayMehta 3y agoInteresting. This was upvoted when the US was asleep, and downvoted as the US woke up.
- mfru 3y agothe most significant difference is that one has blue paint and the other red. otherwise, they are seemingly the same in terms of outcomes for average workers.
- mandmandam 3y agoIt'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.
- petre 3y agoMontenegro did it and the country ended up with $1b debt for 25% of the planned project that was built. Now they are doing it again. https://www.rferl.org/a/montenegro-chinese-highway-debt-controversy/32380787.html https://www.rferl.org/a/montenegro-chinese-highway-debt-cont...
- gagged_s_poster 3y ago[flagged]
- vkou 3y agoSo, let me get this straight. Are you saying that our economic system only works if the right people have money? Then it sounds like the problem isn't 'who has money', it sounds like we need to scrap the economic system. What do you propose we replace it with?
- scotty79 3y agoThat's a very charitable interpretation. It's rather, which would you rather the developing world be exploited by, US or China? We have pretty extensive track record of developing countries being exploited by western economies. And it aint pretty. So the best case you can make for the US is thay familiar devil is better because it's familiar.
- isykt 3y agoI would rather third world countries be exploited by the US, since it would mean my country projects its power to those regions. My stable, democratic country. The lack of realpolitik in this thread is astounding. We don’t live in a perfect world, where economies of real people in countries that need roads and telecom get to say “No thank you, your country’s history is gross.” Belt and Road is a massive soft power grab by an autocratic dictatorship. That has enormous implications in geopolitics. China is about to collapse because it’s in a demographic tailspin. What happens to these initiatives — and those countries that depend on them - is a huge open question and risk.
- vkou 3y ago> The lack of realpolitik in this thread is astounding. Realpolitik arguments have the other problem, where they rely on hope that whatever's good for the elites that call the shots will eventually trickle down to the rest of us. There is certainly truth to it (A lot more truth than to trickle-down nonsense in domestic economics), but the track record for it is still... Mixed. Also, if China collapsing over demographics is a real concern, what about democracy in the US collapsing? Is that not a real concern in this decade? Is it normal for democratic countries to have a loser who pulls every stop to try to prevent a peaceful transfer of power, or for an eleventh hour beer gut putsch to invade its capitol, causing its government to shelter in closets? Or for one of it's two ruling parties focus more on waging culture war on the other, than on governing? Or for the frankly insane effort going into winner-wins-more systems of gerrymandering, voter suppression at polling stations, etc..?
- scotty79 3y ago> I would rather third world countries be exploited by the US, since it would mean my country projects its power to those regions. I'm sure Chinese citizen could have said exactly the same. > My stable, democratic country. And follow it by his own set of nice sounding (to him) words. Everybody is a good person with good intentions in their own judgement. Besides, US is not really a democratic country. You don't get a democracy if you just split one party system into two halves that play cooperative hot potato game with who's the current face of the power. What laws US lives by are dictated solely by the wealthy and both halves serve them equally efficiently at the tremendous cost to society and environment. China does pretty much the same only it didn't come up yet with the idea of having mock fights every few years to improve the stability of power. > China is about to collapse because it’s in a demographic tailspin. What happens to these initiatives — and those countries that depend on them - is a huge open question and risk. When a lender collapses it's usually very good news for the debtor.
- dirtyid 3y agoI prefer values to be secondary to development for developing countries. If PRC actually gets powerplants and roads build, then don't be surprised if African real politik chooses Chinese infra over western lectures. And don't be surprised African leaders would PRC surveillance model to reduce ability of US to spread their values via influence ops. Or African leaders look at modern development history and still pick PRC/East Asian model, because at the end of the day, democratic societies are easily hijacked by external factors and terrible at developing. Authoritarianism is the worst development model, except for all others that have been tried.
- photonbeam 3y agoThey could in theory choose to sell lot of it in exchange for another currency, messing with exchange rates. Or they could go on a buying spree, messing with asset prices
- taneq 3y agoIt's not just 'having money', it's 'having a huge amount of money in foreign assets'. One entity controlling that much capital is able to manipulate the global economy in some interesting ways. For example, they could strategically pump or dump other countries' currencies, and probably even crash most other countries' economies at will. This is naturally pretty scary to other competing entities that historically are used to being the ones doing the controlling.
- COGlory 3y agoThere'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.
- rcme 3y agoChina is the bank in this case.
- jlund-molfese 3y agohttps://archive.is/ej8fe https://archive.is/ej8fe
- gumby 3y agoand...? 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 smaller % of total (federal, state, municipal, and random entity) government debt. And that's merely the US. EU is smaller but adding it up in my head it's about 15-20 T. The US has about 4T of foreign exchange reserves (despite having the reserve currency) and presumably private entities have a large amount too (sovereign debt), surely more than China's private entities.
- woodruffw 3y agoI 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.)
- ergocoder 3y agoBut 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...
- woodruffw 3y agoI 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.
- veqq 3y agoThese 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.
- superchroma 3y agoI mean it's the gigantic elephant in the room. The reported narratives have aligned over the years as if they were our enemy. Here are some: Economically, they're an adversary; they undercut western manufacturing and all our manufacturing went there. They manipulate their currency. They interfere with foreign owned businesses. They steal IP. They're seeking to upset the global money standard. They entrap other nations with predatory loans for infrastructure. They trade with our other enemies and flaunt sanctions, etc, etc. Ethically, they're our adversary: They use (basically) slave labor, unethical materials (e.g. live plucking), environmentally damaging materials (e.g. banned CFCs), they happily pollute the earth as if tomorrow isn't a concern. They are scraping the ocean clean to feed their people. They oppress their citizens, they operate a crude faux-democracy, they have embarked on an extremely damaging zero covid approach long after it ceased to be relevant to save face for creating it, etc, etc. Politically, they're our adversary, insulting foreign politicians, trying to annexe land and sea that definitively isn't theirs (Tibet, "South China" Sea), engaging in brinksmanship to force the issue, etc. These are all things from media stories that I can think of from the top of my head. Not exactly representation as a best friend.
- bugglebeetle 3y ago
- AngryData 3y agoHolding 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."
- woodruffw 3y agoThe 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.” [1]: https://youtu.be/aLQCwVkhFvM https://youtu.be/aLQCwVkhFvM
- deleted 3y ago[deleted]
- candiodari 3y agoThe article is about a foreign country loaning foreign currency to other foreign governments. That, most definitely, does not contribute to world peace or stability.
- scotty79 3y ago> That, most definitely, does not contribute to world peace or stability. Why not? Dependency makes peace more probable.
- safog 3y agoI assume they can manipulate their currency w/o making it obvious. Is there any thing else that might be a problem?
- nashashmi 3y agoWhy this is a problem? China’s foreign reserves is a result of the artificial peg introduced decades ago and loosened recently. It kept Chinese labor devalued. And to counter local inflation because of issuing too many Yuan, they kept interest rates high. So they accumulated surplus from years of high export to import ratio. This was a problem because they had a significant amount of our money. But they were also buying our debt. And so economists argued this was ok. The doomsday scenario is this accumulation of reserve puts them in power to flood the market and cause significant devaluation. Or it causes them to make excessive loans and cause devaluation. Or it has leverage to threaten to do this and influence policy. Either way, this is a growing concern. It’s fine if a country knows and understands that concern. But it’s worse if that concern is underestimated. And that is the problem here: excessive reserves is a concern, and even bigger concern if you are unsure of what the excess reserves are.
- kjkjadksj 3y agoThem being leveraged in foreign currency would suggest they don’t want to flood the market and devalue this massive holding.
- timcavel 3y ago[dead]
- FreshStart 3y agoThe problem is that China does not want to become the US, they want to become colonial great Britain or France. The goal is classic mercantilism-all raw material have to go through them to become a product. It's barely disgused Manchester allover. The US by comparison has been quite dedicated to free trade. They abandoned there own production base, imported more culture then they exported and overall been quite friendly an empire.
- pySSK 3y ago> The US by comparison has been quite dedicated to free trade. They abandoned there own production base, imported more culture then they exported and overall been quite friendly an empire. [[Citation Needed]]
- simonh 3y agoI'd say the US is a hegemon but not really an Empire except for a few small islands. They've also made some terrible mistakes such as Vietnam and the 2nd Gulf War. The way the US prosecuted the Korean war was also inexcusable, although I think that one did need to be fought. Let's add some appalling interventions in South America while we're at it. On the other hand the 1st Gulf War was unavoidable, and overall with the exception of the 2nd Gulf War over the last 40 years they've more or less tried to do the right thing. Today it's widely recognised across parties in the US that 2GW was a mistake. Still, since WW2 they've sunk vast resources into guaranteeing Western European security, and spent Trillions guaranteeing global freedom of navigation that's benefited everybody. They've been aggressive economically, true, but that's a whole massive deal better than being aggressive militarily and overall global trade in the last 70 years has had incredible benefits. Global poverty has collapsed to a tiny fraction of what it was, the middle class has risen from about 5% to about 60% of the world population, life expectancy rates have soared. Death rates from war have collapsed. The stats on that are up on the last decade it's still historically low. The majority of this happened after the collapse of the Soviet Union. What Russia and China want to do is take the world back to a cold war situation of vying spheres of geographic influence. What the US wants to do is get out of the world police business while maintaining a peaceful global order conducive to business. So we have Russia and China flexing their territorial military muscles, while the US builds networks of alliances such as an expanded NATO, AUKUS, the Quad and such to better share the load. I say alliances, but for the latter US strategy to succeed it eventually needs to include nations that are not traditional US allies. India, Brazil, Indonesia, South Africa, even places like Vietnam. These will or may never align with the US and Europe the way the US and Europe do, so such relationships will have to be transactional in nature. Partnerships rather than true alliances, based on common interests around eliminating the scope for military expansionism that favours big regional military hegemons. So sure, a lot of past mistakes for sure, but the question for us now is where does the world go from here?
- oneTbrain23 3y agoWhy is this a problem? If a seller want to sell you something or buy something from you, do they need to dig thru your safe and whatever secrets you have in order to make the transactions? The only concern is USA couldnt gauge how much of economic weaponry they need to unleash on China to destroy it. Japan did that in the 70s-90s and basically economically subservient to America. Same goes with EU. Russia, China and India not doing that to give American wallstreet vultures any advantage of raids.
- frankreyes 3y agoExcept that they're selling cash. China doesn't sell you USD, they keep the USD in their safe and give you their own currency in exchange. That hidden money is overly leveraged, ie debt, and you'll never know if tomorrow you'll get your original value back. China is the most indebted country in history. How do you know that for each $1 hiding in accounting magic is not being resold twice? We don't, because of what the article says.
- henry2023 3y ago>>> China is the most indebted country in history. Last time I checked China was ~23T in debt vs USA’s ~32T. They also have a population almost 5 times larger.
- frankreyes 3y agoThat's external debt. I'm talking about total private credit. Private credit is what brought the 2008 crisis in the USA. The public debt wasn't the problem before, but it was after: using public debt to pay private debt from banks. And that's what the article is also talking about: China keeps the USD in their own banks and prints CNY to spend, but how many USD for how many CNY is not clear. It's pretty much a Ponzi. As long as people don't ask their USD back from their CNY it's all good. Good luck when people starts asking USD from China. China TOTAL private credit in CNY is available here: https://zeihan.com/wp-content/uploads/2022/05/total-private-credit.jpeg https://zeihan.com/wp-content/uploads/2022/05/total-private-... You can also see how much money they printed here: https://zeihan.com/wp-content/uploads/2022/04/global-money-supplies-01.jpg https://zeihan.com/wp-content/uploads/2022/04/global-money-s...
- activiation 3y agoI also like monopoly money