An Expose On Chinese Reserves, PBOC Currency Swaps, And The "Other Investor" Category
Submitted by Phaesed
Recently Zero Hedge did an expose on the increase of FX reserves held by China. The main hypothesis portrayed is that the increase in these reserves might be a function of a “stealth” quantitative easing. While it is functionally impossible to disprove this theory, this article first takes a look at the rise in reserves and then takes a closer look at the original source of the data, the quarterly Treasury Bulletin.
The period in question for analysis of the reserves comes into play in the period between September 1st, 2008 and October 1st, 2009. What should be noted during this period is that between September 1st to March 31st, there were a series of currency swaps established by the People’s Bank of China (PBOC) and several nations, including Japan (USD $29.3 Billion), Malaysia ($11.7 Billion), Belarus ($2.9 Billion), Argentina ($10.25 Billion), South Korea ($26.3 Billion), and Indonesia ($14.7 Billion). While there was a large flurry of swaps established in late 2008 and early 2009 totaling $95.2 Billion, all activity went quiet after that period. Except for some murmurs of potential deals coming out of Thailand and Brazil, no other deals were announced. Additionally a new large venture is the new Asian venture which seems to be establishing a central bank for that region of the globe, China has personally volunteered $38.4 Billion (USD) to help fund this bank itself. However a closer look at Zero Hedges chart shows that it was exactly during the period after March that the majority of the increase in reserves took place while the holdings of Treasuries remained flat. Unfortunately while interesting and raising several points, this attempt to back into the analysis is unable to refute the claim.
At this point, I needed to turn over and start taking a deeper look at the Treasury bulletin itself and the data presented within. While the initial bulletin posted a large increase in the “Other Investor” category, a look back at this category on a historical basis shows a complete inability for the Treasury to correctly report these items. In fact, over a 7 year period there were constant revisions of this data and more often than not, no mention was given of this data being revised. Please look at the table included below:
So while there was a large increase in the “other investor” category, the foreign investor category in fact decreased the further out that this data was still being released. While this information still cannot refute the China “stealth” quantitative easing thesis, it does raise the question over the accuracy of reporting and why there were such a large number of revisions to all categories.
But while researching this information, I noticed a larger, more worrisome set of data and ensuing questions. The true shocker is in the vast change in internal ownership of US debt versus the amount owned by foreign nations and the Federal Reserve. Between 1985 and 2009 U.S. ownership of the federal debt has decreased from 56% to 27% while foreign ownership has increased from 14% to 29%. Even more shocking is the vast change in the amount owned by the Federal Reserve, from 31% to 44%. During the majority of the Bush administration this percentage was in excess of 50%. Below is a visualization of this relation during this period.
Unfortunately this article cannot refute the stealth QE thesis; however it does raise larger concerns. Namely that Americans are increasing owning less of their country.
Yuan Currency Swaps Established between 10/1/08 and 9/1/09
- 1. 3/30/09 Argentina - $70,000,000,000 (USD$ 10,250,000,000)
- 2. 3/11/09 Belarus - $20,000,000,000 (USD $2,900,000,000)
- 3. 2/9/09 Malaysia - $80,000,000,000 (USD $11,700,000,000)
- 4. 12/12/08 South Korea (ROK) - $180,000,000,000 (USD $26,300,000,000)
- 5. 1/20/2009 Japan/Hong Kong - $200,000,000,000 (USD $29,283,000,000)
- 6. 3/24/2009 – Indonesia - $100,000,000,000 (USD $14,690,000,000)
- 7. 3/24/2009 Asean Currency Swap Facility – USD $38,400,000,000
- I am unsure of how this will affect the FX Reserves
- 8. Possible Swaps established Covertly
- 9. http://chinasouthamerica.blogspot.com/2009/04/chinas-currency-swaps-help-expand-yuans.html