Forex Reserves

[kennynah]

ok..later i call you the finmin for kopi-o, and have him explain to me

[winston]

Could it be the same case if my neigbour knows i earned 200k per year, but i am also on credit line of 2000k, they also label me as rich?

Yes, you got the point.

Just because China has US$1.7t of forex reserves and Japan has US$1t of forex reserves, it does not mean that they are very rich.

China has to pay US$1.7t in Renmimbi to the Chinese exporters.

And Japan has to pay US$1t in Japanese Yen to their Japanese exporters.

[winston]

the buyer's bank does NOT pay the japanese government for the exports....they pay the seller directly through the seller's bank....

The US Buyer pays in USD. So how did it end up as Japanese Yen, in the Japanese exporter's bank account ? There are steps in between that's invincible to you.

when we speak about national reserves, we speak loosely about the NET surplus of money in the national treasure box.... and yes, when a country has usd1.1trillion in reserves, it literally means the country has that money and no corresponding liability...

Politicians speaks loosely about forex reserves as if there's no corresponding domesic liabilities on those forex reserves.

just like china, which literally has US owing her >USD 1.7trillion....they count that as their foreign reserves....do they have a liability in RMB against such foreign reserves? my answer is a simple.....no....

The answer is yes. The Chinese government also owes US$1.7t to their Chinese exporters.

[kennynah]

ok...you win

[winston]

ok...you win

Ha Ha ... winning is not the objective here. I want to make sure I understand the process thoroughly. Anyway, cant make money off this academic discussion...

[kennynah]

ok...you understand....

[winston]

A SMALLER PILE OF CASH

China officially has a pile of $3.2 trillion of foreign exchange reserves, there isn't nearly so much money on hand.

Excess reserves -- the amount of foreign currency above and beyond that needed to cover short-term trade and sovereign debt purposes -- are calculated closer to $1.5 trillion.

Some of that has already been channeled to China's sovereign wealth fund and much of the rest could easily be spent, if Beijing chose to clean up a pile of bad debt accumulated by its local governments, meaning free reserves might be as low as $500 billion.

That doesn't leave a huge amount of money to divert toward the euro zone rescue, which could easily explain official Chinese reticence on the size and scale of any commitment.

Source: Reuters

[winston]

Jim Chanos: When people talk about China's foreign reserves of $3 trillion, what everybody forgets, is there’s liabilities against that.”

Source: Bloomberg

http://www.ritholtz.com/blog/2011/11/ch ... y-fragile/

[winston]

China Forex Reserves Drop for 1st Qtr Since ’98

China’s foreign-exchange reserves dropped for the first time in more than a decade as foreign investment moderated, the trade surplus narrowed and Europe's crisis spurred investors to sell emerging-market assets.

The holdings, the world’s biggest, fell to $3.18 trillion at the end of December from $3.2 trillion at the end of September, People’s Bank of China data released in Beijing showed today. The quarterly drop was the first since the second quarter of 1998, according to data compiled by Bloomberg.

Capital outflows and changes in the values of foreign currencies are among factors that may have pulled down gains in the foreign-exchange reserves.

An estimated $34 billion may have moved out of China in the third quarter alone, driven by a mix of escalating fear over China’s hard landing, a worsening euro area crisis and concerns the yuan may fall against the dollar, Lu Ting, an economist at Bank of America Corp. in Hong Kong, said in a Jan. 5 report.

The nation needs about $1 trillion of its holdings for international payments purposes and should use the remainder to buy assets such as exploration rights for energy and resources, he said.

http://www.bloomberg.com/news/2012-01-1 ... ecade.html