Chinese central bank was recently labeled as the "global boss" in the banking industry.
The latest report from the Standard Chartered Bank (SCB) shows that the total assets of People's Bank of China (PBOC), the Chinese central bank, grew by 119 percent in the past five years, reaching 28 trillion yuan (about 4.5 trillion U.S. dollars) at the end of 2011. Its asset size exceeded the Federal Reserve Board and the European Central Bank (ECB) and became the central bank managing largest assets scale in the world.
The Chinese central bank at once received flattery from all sides.
The SCB report said that the main provider of global currency liquidity now is PBOC. Zhou Xiaochuan is not only the governor of Chinese central bank but also the governor of global central banks.
Although PBOC was suddenly crowned with the title of "global boss”, insiders warned that do not be dazzled by the superficial figures and flattery. Whether it is the global “boss” depends on the asset quality and structure of the central bank and people should be very vigilant on the conspiracy of interest groups behind.
Economic pain behind huge assets
We can see from the balance sheet of PBOC that more than 80 percent of its total assets are foreign exchange assets at the end of 2011.
The SCB report said that the increment of broad money supply (M2) of China accounted for 52 percent of that of the world’s M2 in 2011, which clearly shows that in recent years much of the world’s newly increased currency supply is from China. The experts said that the excess currency is related with the foreign exchange assets of PBOC.
Zhang Monan, associate researcher of the World Economy Research Office under the State Information Center, said that China has been maintaining foreign trade surpluses for 30 years. In order to cope with the huge amount of foreign exchange inflows and maintain the stability of RMB exchange rate, China developed a compulsory settlement of exchange, requiring enterprises or individuals selling their foreign exchanges earned in foreign trade to the banks appointed by the state. The RMB used to buy the foreign exchanges is called funds outstanding for foreign exchange. After the money enters into the bank credit system, it will create several fold currency due to the money multiplier effect.
Someone said that if PBOC is the central bank owning the largest assets, it can also be called the largest bank of USD exchange.
PBOC passively issued a large number of RMB to charge against foreign exchange and every dollar of the balance of payments surplus became the RMB in circulation, which formed huge assets on the surface. However, it reflected China’s economic pain, the imbalance of domestic and foreign demand.
China not to blamed for global flood of liquidity
As the total assets of PBOC exceeded the Fed and the newly increased M2 of China accounted for high proportion in the world, the SCB concluded that China has replaced the United States and became the major provider of the global currency liquidity. The experts disagreed to the view.
Zhang Yugui, dean of College of International Finance and Commerce of Shanghai International Studies University, said the fact that PBOC owns huge assets and China exceeded the United States in terms of M2 scale is a suboptimal choice for China, which has to passively accelerate monetization of economy under the USD-based international financial system. Therefore, it cannot be said that PBOC has replaced the Fed and became the world’s central bank and China has become the major provider of global currency liquidity.
Experts said that the RMB can neither flow freely in the world nor be as the reserve currency of other countries. Therefore, the newly increased M2 of China does not have the ability to cause liquidity on a global scale.
Zhang Tao, doctor of economics, said that the PBOC’s assets are a passive increase and that of central banks of developed countries including the Fed is a voluntary increase. Meanwhile, the passively increased RMB mainly flow in China due to non-freely exchange of RMB. Although the offshore RMB market has a rapid development in recent years, the capacity of the market is small.
With China getting stronger and stronger, some ill-disposed interest groups of Western countries no longer poured sewage like in the past but changed the way. They first flattered China and let it assume some extra responsibilities so as to reach their purpose.
According to Wang Peng, expert of the China Center for International Economic Exchanges, the SCB said that PBOC is the central bank of the world. Once the view is widely disseminated in the international economic community, people are likely to blame the inflation pressure and rising prices in some other countries on the overflowed liquidity of RMB. It will have a negative influence on China.
Then, who caused the global inflation? The experts said that it is still the USD.
Finance commentator Yu Fenghui pointed out that as international reserves and currency of payment, the USD can freely flow in the world. Desperately issuing the USD affected other countries and led to inflation. However, in China, due to the control of RMB exchange rate and that the RMB is not the international currency, a large number of RMB can only flow in China and the inflation is bore by Chinese people.