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Posts Tagged ‘currency’

Something to chuckle about #2

January 26th, 2009 27 comments

Apparently, at least one of the columnists at the Washington Post reads this blog. Sebastian Mallaby, a veteran from the Economist and contributor to Foreign Affairs, Foreign Policy, Prospect, the National Interest, the New York Times, Policy Review, Slate and the New Republic, and specializing in globalization, trade, investment trends, international development and economic policy, has apparently taken my advice for Tim Butcher to heart. Mr. Mallaby decided to follow up with Tim Geithner’s recent and much discussed comment about China’s  “manipulation of currency” and penned a piece that’s not safe for your computer if you are drinking coffee while reading it.
Read more…

(Letter) How fast China can catch up the US in GDP? It may be faster than you think.

August 5th, 2008 50 comments

In 2002, the GDP of China was 10.2 trillion yuan, and the GDP of the US was 10.6 trillion US dollar. At the year-end exchange rate, China’s GDP was 11.7% of the US’. In 2007, the GDP of China was 24.7 trillion yuan, and the GDP of the US was 14.0 trillion US dollar. At the end-end exchange rate, China’s GDP was 24.0% of the US’.

If we assume the relative paces of the underlining economic numbers remain the same, China will catch up the US in 2019. That’s scenario #1. The key underlining economic numbers are: nominal GDP growth and currency exchange rate. Read more…

China's forex reserves larger than those of G7 combined

June 3rd, 2008 11 comments

Today’s Xinhua article brings to our attention that China’s forex reserves have ballooned to $1.76 trillion as of the end of April. To put this number in perspective: it is about 15% of the US annual economic output.

Before people get carried away, allow me to explain what the forex reserves is not: it is definitely not the government’s money, so there is no sense in talking about the government spending it. It is also not some kind of surplus money sitting around with no purpose. The forex reserves is part of the collateral that backs RMB-denominated debt obligations of China, and that includes all Chinese money and government bonds.

According to this Xinhua article, which quotes AFP, which got its information from a “Chinese media source” (got it?), China’s forex reserves increased by $74.5 billion in the month of April, or $100 million per hour. (The article and all the English ones that copy it say $10 million, but they all did their math wrong!)

China’s (mainland) forex reserves is followed in size by Japan’s at $1 trillion, Russia’s at $548 billion, India’s at $316 billion, and Taiwan’s at $287 billion. Of course, only Japan is part of the G7 in this group, so it is an exercise for the reader to figure out how much the remaining 6 of the G7 have.

A large forex reserve gives currency stability and can be a defense of a country’s credit-worthiness. On the other hand, its rapid increase adds to the inflationary pressure in China. Besides trade surplus and foreign investments, nobody has a good idea for where all this extra money is coming from — from Chinese expats, perhaps? I know many of them have sent money back as the RMB rises something like 8% a year against the USD. (On a side note, isn’t it interesting that the shrill rhetoric of Congress to make China revalue the RMB or face punitive tariffs has all but vanished…)

Something to ponder, where is this all headed?