Economist Brad Setser estimates that China has around $3 trillion in “unreported” currency reserves. These reserves are not disclosed in official figures by the People’s Bank of China and are held by state-owned banks and other entities.
According to Setser, the undisclosed reserves can pose a global economic risk. They can be used to support the Chinese yuan or intervene in foreign exchange markets. However, due to the lack of transparency, evaluating China’s financial vulnerabilities becomes challenging.
The Chinese government has not commented on Setser’s estimates, but it has previously emphasized its commitment to transparency in managing foreign exchange reserves.
Several potential implications arise from China’s hidden currency reserves:
- They could be utilized to bolster the yuan, potentially hindering China’s ability to adjust its currency based on economic fundamentals.
- They could be employed to intervene in foreign exchange markets, potentially disrupting the global financial system.
- They could be used to finance government debt, possibly leading to financial instability.
While the full extent of China’s hidden currency reserves remains uncertain, they pose a potential risk to the global economy. It is crucial for the Chinese government to provide transparency regarding these reserves and clarify their purpose.
