Chinese banks brimming with foreign exchange

[beijingwalker]

Chinese banks brimming with foreign exchange

The Economic Times

As China's foreign reserves piled up to over $ 3.20 trillion, the country's banks, too, were brimming with surplus foreign exchange in September, says a report.

Quoting China's foreign exchange regulator SAFE, the report by state agency Xinhua said that total surplus of Chinese banks' foreign exchange from bank-to-client transactions reached $ 26 billion in September.

During this month, institutional and individual clients sold $ 142.6 billion in foreign currencies to banks while purchasing $ 116.6 billion, the State Administration of Foreign Exchange (SAFE) said.

From January to September, more foreign currencies were sold than purchased through Chinese banks, resulting in $ 380.7 billion of foreign exchange surplus during the period, the statement said.

Foreign exchange surplus, which makes up part of China's foreign reserves along with current account surpluses and foreign direct investment inflow, do not include banks' own foreign exchange transactions or inter bank transactions, according to the SAFE.

Last year, foreign exchange surpluses made through Chinese banks' transactions with domestic clients increased 51 per cent year-on-year to reach $ 397.7 billion.

 

[bubble123]

Question from economists.

Is foreign exchange important for country's growth or an indicator of growth.

Because US seems to have just 143 billion meaning Thailand,Singapore and even Algeria seems to have more money than US.

 

[Archie]

Question from economists.

Is foreign exchange important for country's growth or an indicator of growth.

Because US seems to have just 143 billion meaning Thailand,Singapore and even Algeria seems to have more money than US.

As long as US Dollar Remains the Official Reserve currency of the world , then US has no need to Maintain a Reserve , coz they can print more money when they require

 

[bubble123]

As long as US Dollar Remains the Official Reserve currency of the world , then US has no need to Maintain a Reserve , coz they can print more money when they require

Whatttttttttttttt. I mean how can they just print money ? There must be some rules otherwise i mean they would have unlimited money.

 

[beijingwalker]

yes,that's a risk,now China is working hard on diversifying its makeup of foreign reserve,US is a very special case,its currency dominates the world's economy for decades.it's kind of international standard currency.

 

[twocents]

Whatttttttttttttt. I mean how can they just print money ? There must be some rules otherwise i mean they would have unlimited money.

There indeed was a stipulation in the original Brettenwood Agreement that the US dollar had to be pegged to Gold. It is called the gold standard. US unilaterally broke the agreement in 1971 because it was printing more paper money than its gold reserve could cover. In essence US has, in Vladimir Putin's word, been a parasite on the rest of the world for the past 40 years. In terms of debt ratio Greece and US are almost identical. Greece is in trouble because it cannot print Euros on its own whereas US can just let its printing press run wild. Quantitative easing (QE I and QE II) is the latest example.

 

[Jade]

The objective in managing forex reserves is to preserve the purchasing power over goods and services, while minimizing risk and volatility in returns. In short, the forex reserves should acts as insurance against volatility. As a rule of thumb, the optimal forex reserves to GDP should be near 10%. However, China’s ratio is above 50%. China should use the excess reserve to reduce regional imbalances rather than keeping the money idle. Sheer waste of opportunity

 

[ChinaToday]

The objective in managing forex reserves is to preserve the purchasing power over goods and services, while minimizing risk and volatility in returns. In short, the forex reserves should acts as insurance against volatility. As a rule of thumb, the optimal forex reserves to GDP should be near 10%. However, China’s ratio is above 50%. China should use the excess reserve to reduce regional imbalances rather than keeping the money idle. Sheer waste of opportunity

Oh yeah and become like Italy greek spain and irland not to mention usa, no thank you very much.

 

[ao333]

You know, if you guys weren't communists, you'd actually be able to invest that. Communists...

 

[oct605032048]

The objective in managing forex reserves is to preserve the purchasing power over goods and services, while minimizing risk and volatility in returns. In short, the forex reserves should acts as insurance against volatility. As a rule of thumb, the optimal forex reserves to GDP should be near 10%. However, China’s ratio is above 50%. China should use the excess reserve to reduce regional imbalances rather than keeping the money idle. Sheer waste of opportunity

Forex reserve is a net saving or investment in an economy. As a fast developing country with very high invest rate, it is common to have a large Forex reserve. Look at Japan in the 70s and other asian economies like South Korea, Hong Kong, Singapore.

 

[beijingwalker]

Forex reserve is a net saving or investment in an economy. As a fast developing country with very high invest rate, it is common to have a large Forex reserve. Look at Japan in the 70s and other asian economies like South Korea, Hong Kong, Singapore.

China just follows this path but in a much bigger scale due to the vast size of China's land and population,now China alone holds over 30% of the world's total foreign reserve.

 

[pluto]

Whatttttttttttttt. I mean how can they just print money ? There must be some rules otherwise i mean they would have unlimited money.

dude, the rule is the advanced weapons, solders, carriers, nuke bombs. Without these, even U.S is the most advanced country, U.S$ can't have the position. all above + culture guarantees that U.S is the most stable, advanced country in the world, that gives the U.S $ the same position.

 

[SBD-3]

Question from economists.

Is foreign exchange important for country's growth or an indicator of growth.

Because US seems to have just 143 billion meaning Thailand,Singapore and even Algeria seems to have more money than US.

Foreign exchange reserves are the residual of exchange equation mainly comprising of capital and current account balance thus it is not a exact indicator of growth. The rule of thumb is if the economy is export oriented, then Exports growth or balance of trade is a good indicator. If the economy is internally driven then moneygrowth derives the demand and thus production and growth.
USD is the domestic currency for US, thus US does not need to hold USD denominated reserves. Just like Germeny holds its reserves in USD and JPY but not in Euro. Secondly, the global acceptability of USD means that US can discharge its external obligations with the help of its domestic currency, which means that it does not need reserves at all, or if it does, then at minimal level.

---------- Post added at 03:56 PM ---------- Previous post was at 03:54 PM ----------

Forex reserve is a net saving or investment in an economy. As a fast developing country with very high invest rate, it is common to have a large Forex reserve. Look at Japan in the 70s and other asian economies like South Korea, Hong Kong, Singapore.

Japan is a trade driven economy, as soon as their exports fell, their economy dwindeled despite their huge reserve holdings. A simple example is BoJ's highly interventionist policy to keep JPY from excessive appriciation. Something which US does not care.

 

[SBD-3]

The objective in managing forex reserves is to preserve the purchasing power over goods and services

Its the objective of monetary policy, not the reserve mangement which is predominently aimed at minimizing the external risks to the economy. The reserve management is driven preominently by the objectives of liquidity,safety and then comes return. Even with excess reserves holder like China and Japan, the prime concern is again safety and liquidty which is explained by their large holdings of US treasuries.

, while minimizing risk and volatility in returns. In short, the forex reserves should acts as insurance against volatility. As a rule of thumb, the optimal forex reserves to GDP should be near 10%. However, China’s ratio is above 50%. China should use the excess reserve to reduce regional imbalances rather than keeping the money idle. Sheer waste of opportunity

Correct in the first part, but there is no explicit thumb rule for determinantion of determination whether reserves are excess, a clear case would be the Bank of Korea who's reserves fell to just around 30Billion from 230Billion in the matter of months in recent crisis. Just before this happened, like everybody BoK also considered its reserves to be excess but (they learned it the hard way that) they were not

 

[Shardul.....the lion]

why did bank of korea's reserves fell from 230 billion to 30 billion?
Means it sold it or utilized it? or what happened?
Just a question