by Must read for non-morons.Identifies the process by which bank reserve asset levels are increased in the surplus nation China vs. deficit nation USA.Germane to the current China led situation where they appear to be adding 0Bs equivalent of non-risk reserve assets to depositories this year and causing the current price reduction of risk assets and probably reduction of new credit for financing risk assets.No bottom in sight right now for price of risk assets in China as 0Bs (equivalent) reserves are added; and some related negative effects on US risk asset prices here too as China this year hacks a page out of the US monetary policy playbook from 2008 and down we go... By end 2014, the PBOC’s balance sheet totaled RMB33.8 trillion, or USD5.4 trillion using the yearend exchange rate
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Must read for non-morons.
Identifies the process by which bank reserve asset levels are increased in the surplus nation China vs. deficit nation USA.
Germane to the current China led situation where they appear to be adding $100Bs equivalent of non-risk reserve assets to depositories this year and causing the current price reduction of risk assets and probably reduction of new credit for financing risk assets.
No bottom in sight right now for price of risk assets in China as $100Bs (equivalent) reserves are added; and some related negative effects on US risk asset prices here too as China this year hacks a page out of the US monetary policy playbook from 2008 and down we go...
By end 2014, the PBOC’s balance sheet totaled RMB33.8 trillion, or USD5.4 trillion using the yearend exchange rate of one US dollar for 6.2052 Yuan. It was equal to 53% of China’s GDP in 2014 (RMB63.6 trillion), and 2.6 time bigger than its size of RMB12.9 trillion at the end of 2006.
Meanwhile, the Fed’s balance sheet rose to USD4.5 trillion, equal to 26% of the US GDP in 2014 (USD17.4 trillion), and 5.0 times bigger than its size of USD903.7 billion at end 2006.
The PBOC’s balance sheet was larger than the Fed’s in both the absolute and relative terms, but the Fed’s balance sheet registered faster expansion. These two balance sheets dwarf the world’s other major central banks’. However, they took different routes to get there.
The Fed’s balance sheet has expanded mainly through three rounds of asset purchases or quantitative easing. As a result, the Fed was holding USD2.46 trillion worth of US treasuries, USD1.74 trillion worth of AMBS at the end of 2014, which make up of 93% of its total assets. The PBOC never resorted to asset purchases. Instead, its balance sheet expansion came mostly from purchasing foreign currencies from inflows.
Comparison of China and US’ Bank Reserves and Their Implications
ECONOMIC REVIEW(A Monthly Issue) April, 2014 Dai daohua, Senior Economist
Bank of China (Hong Kong) Ltd.