China Has $3-T Of "Hidden Currency Reserves"

China is sitting on a $6 trillion pile of money, half of which is “hidden,” and that presents a new kind of risk to the global economy, according to Brad Setser, a former US trade and Treasury official, Cormac Mullen reported for Bloomberg News.

Photo Insert: A lot of the country’s foreign-exchange reserves allegedly doesn’t show up in the official books of the People’s Bank of China (PBoC).

A lot of the country’s foreign-exchange reserves doesn’t show up in the official books of the People’s Bank of China (PBoC), Setser wrote in a report on The China Project, a New York-based news platform.

What can be called “shadow reserves” appear among the assets of entities such as state lenders and policy banks, Setser said. The “hidden” variety likely pushed higher alongside China’s export surplus.

“China’s lack of transparency here is a bit of a problem for the world,” Setser wrote. “China structurally is so central to the global economy that anything it does, seen or unseen, will eventually have an enormous impact on the rest of the world.”

An example of the influence China’s reserves can have is their role in funding the country’s Belt and Road Initiative (BRI).

“They are powerful enough of an economic force such that an entire, global, decades-long infrastructure plan was in some ways, just a side effect of a 2009 decision to find new ways to manage China’s foreign exchange.”

Institutions reporting to Beijing have closer to $6 trillion in foreign assets, Setser said. That compares with the $3.1 trillion in official reserves reported at the end of last year, he added.

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