{"id":17852,"date":"2016-02-16T13:57:08","date_gmt":"2016-02-16T18:57:08","guid":{"rendered":"http:\/\/olduvai.ca\/?p=17852"},"modified":"2016-02-16T13:57:08","modified_gmt":"2016-02-16T18:57:08","slug":"benn-steil-could-china-have-a-reserves-crisis","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=17852","title":{"rendered":"Benn Steil: Could China Have a Reserves Crisis?"},"content":{"rendered":"
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BENN STEIL: COULD CHINA HAVE A RESERVES CRISIS?<\/a><\/h3>\n<\/div>\n<\/header>\n
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Last summer, U.S. lawmakers were\u00a0condemning China<\/a>\u00a0for pushing down its currency, arguing that it was still \u201cterribly undervalued<\/a>.\u201d But those days may be long gone.\u00a0 Chinese and foreigners alike have been stampeding out of RMB, leaving the Chinese central bank struggling to keep its value up and prevent a rout.<\/span><\/div>\n

The People\u2019s Bank of China has been selling off foreign currency reserves at a prodigious rate to keep the RMB stable.\u00a0 At $3.2 trillion, China\u2019s reserves still seem enormous.\u00a0 But they are down $760 billion from their 2014 peak, and $300 billion in just the past three months.\u00a0 As shown in the figure above, at the current pace of decline China\u2019s reserves will, according to the\u00a0IMF\u2019s framework for reserve adequacy<\/a>, actually fall to a dangerously low level in the spring.\u00a0 This means that China would be at risk of a balance-of-payments crisis, unable to pay for essential imports or service its dollar debt payments.<\/p>\n

China has for years been pursuing what has been called the \u201cImpossible Trinity\u201d: controlling interest and exchange rates while leaving the capital account significantly open.\u00a0 Chinese residents are permitted to send up to $50,000 overseas annually \u2013 this is enough to allow trillions in outflows.\u00a0 So what can China do to staunch the rapid decline in reserves?<\/p>\n

It could impose tighter capital controls, as Bank of Japan governor Haruhiko\u00a0Kuroda controversially urged it to do<\/a>.\u00a0 As shown in the figure, this would allow China to operate safely with fewer reserves.\u00a0 But it would also put a halt to China\u2019s plans to transform the RMB into a major reserve currency.<\/p>\n

China could also raise interest rates, which might encourage capital inflows and discourage outflows, but this would hurt growth in an already sinking economy.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/header>\n","protected":false},"excerpt":{"rendered":"

BENN STEIL: COULD CHINA HAVE A RESERVES CRISIS? Last summer, U.S. lawmakers were\u00a0condemning China\u00a0for pushing down its currency, arguing that it was still \u201cterribly undervalued.\u201d But those days may be long gone.\u00a0 Chinese and foreigners alike have been stampeding out of RMB, leaving the Chinese central bank struggling to keep its value up and prevent […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[57,12292,130,325,2854,2615,1226,3491],"class_list":["post-17852","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bank-of-japan","tag-benn-steil","tag-china","tag-foreign-exchange-reserves","tag-haruhiko-kuroda","tag-peoples-bank-of-china","tag-reserves","tag-rmb"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17852","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17852"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17852\/revisions"}],"predecessor-version":[{"id":17853,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17852\/revisions\/17853"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17852"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17852"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17852"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}