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Uh-oh!!!! China Is Running Out Of Money. forbes.com!!! Aug 12!! Breaking news!!!! pin!!
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China Is Running Out Of Money. Why has the economy so far failed to respond? There are various reasons, but perhaps the most important is that the country is running out of money for stimulus.
At first glance, that proposition seems preposterous. After all, the People’s Bank of China, the central bank, held $3.24 trillion of foreign currency reserves at the end of the first half of this year. Yet foreign currency, no matter how plentiful, has limited usefulness in a local currency crisis. In any event, the PBOC’s foreign currency holdings are almost evenly matched with renminbi-denominated liabilities that were incurred to acquire all those dollars, pounds, euros, and yen. As a result, the central bank cannot use the reserves without driving itself deep—actually, deeper—into insolvency.
The recent slight decline in the value of the renminbi versus the dollar has decreased the amount of the PBOC’s liabilities in relations to its assets and has therefore marginally strengthened its balance sheet, but the central bank still does not have the flexibility to use its reserves as it pleases. Therefore, a massive foreign currency injection into the economy, even if it would work, is not in the cards.
[link to www.forbes.com]
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