These 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.<p>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.<p>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.
The 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.<p>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.
Holding 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?<p>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."
Why 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.
and...? 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.<p>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.
Why this is a problem?<p>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.<p>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.<p>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.
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.