When an accounting 'fudge' accounts for $300 billion of a nation's Balance of Payments, you might suspect something is amiss. And sure enough, as Goldman notes, the growing 'error and emission' items in China’s balance of payments may reflect a pickup in hidden cash transfers as China's anti-corruption probes encouraged the corrupt oligarchs to get their money out of dodge. As Goldman warns, "such outflows may be harder to contain with regulations, a continuation of their recent acceleration could start posing tangible financial stability concerns."
Wondering where all that Oligarch cash flooding into London, New York, and SoCal is coming from? Here it is...
Nothing to see here, move along!!!
As Bloomberg reports,
Growing error items in China’s balance of payments may reflect a pickup in hidden cash transfers from the nation and the central bank will likely favor a stable yuan to prevent outflows quickening, Goldman Sachs said.
Net errors and omissions, an accounting fix used to plug the gap when official records of cross-border flows don’t balance, was negative by more than $300 billion since 2010, Goldman Sachs economists MK Tang and Maggie Wei wrote in a note today. That included a record $63 billion in the third quarter of 2014, a year in which yuan sentiment soured and President Xi Jinping’s anti-corruption drive widened.
“Since such outflows may be harder to contain with regulations, a continuation of their recent acceleration could start posing tangible financial stability concerns,” Tang and Wei wrote in the note.
President Xi’s campaign to rein in corruption has ensnared more than 480 officials spanning all of China’s provinces and largest cities. Cash outflows may tighten funding conditions at a time when the government is attempting to lower borrowing costs to boost an economy estimated to have grown at the slowest pace since 1990 last year.
As falling confidence in the yuan will exacerbate any hidden outflows, the PBOC may aim to maintain a stable exchange rate, according to the Goldman Sachs economists. The U.S. lender expects the monetary authority to weaken its daily fixing for the yuan only slightly to 6.16 a dollar in three months and to 6.20 in a year, compared with 6.1195 today.
It is not in the PBOC’s interest to allow the yuan to decline because that could lead to capital outflows and increase financial risk, Australia & New Zealand Banking Group Ltd. economists Liu Li-Gang and Zhou Hao said in a note today. The currency is unlikely to drop sharply in 2015, they added.
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Having weakened into year-end, the Yuan has stabilized in the last week or two...