According to a recent report by Brad Setser, it has come to light that China may be concealing over $3 trillion of hard currency from the global economy. The report highlights the potential hazard this poses to the world economy.
At the close of each fiscal year, a nation releases its official records or makes available to the public documents pertaining to its economy through government domains. These reports are widely considered to be the definitive representation of a country's status.
However, there have been reports that China may have provided false information regarding its cash reserves to the public. It is alleged that China's actual reserves exceed those disclosed to the public and that the hidden amount is in the trillions, which is a concerning revelation.
How much does China have in these reserves? According to reports from Brad Setser of The China Project, a New York-based news platform, the official figures of China's cash reserves are different from hidden figures.
The Asian country is sitting on a foreign reserve of more than $6 trillion, with about $3 trillion hidden from the public. Brad Setser says the figures relating to China's foreign reserves have been bouncing around for more than 10 years with no significant increase. Recently, China has been viewed from the lens of a crumbling economy; however, the new findings can only call for more insight.
Brad Setser alleges that the figures shown by the central bank (the People’s Bank of China or PBoC) are very different from reality.
"But the foreign exchange reserves reported by the central bank (the People’s Bank of China or PBoC), which accounts for its reserves on its balance sheet at their historical purchase price, has been constant," Brad Setser reported through The China Project.
China's Lack Of Transparency A Huge Problem for the World
Brad Setser argues that the lack of transparency from China will pose a huge problem for the world. It is a fact that China makes up the central part of the world's economy, and any move they make around its economy will be critical to the world. Setser pointed back to China’s enormous purchases of U.S. Agency bonds which contributed heavily to the financial crisis that happened in 2008.
"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," Brad Setser said in his report on the situation.
Setser's recommendation is for China to reveal the actual nature of its foreign reserves, enabling the world economy to respond appropriately.
How is China Hiding Its Foreign Reserves?
According to Brad Setser, China has concealed a significant portion of its foreign reserves from the global community. Setser proposed one method that involved using commercial banks. It is widely recognized that China exerts significant influence over its commercial banks, similar to its control over the Central Bank.
Also, China could be hiding its foreign exchange reserves through policy banks in the country. Another option for hiding the foreign reserves is convincing the state commercial banks to act like PBOC. China's economic growth is said to be greater than official figures, and it might create world economic problems.