When it comes to the Chinese government’s official piggy bank, known as its foreign currency reserves held by the central bank, China just keeps getting richer. It’s incredible. The central bank increased its holdings by $23.9 billion in four weeks to a total of $3.08 trillion.
What does this mean? It means that the People’s Bank of China is armed with enough cash to bail out any failure in a shadow banking lender at the provincial level, and control its currency exchange rate against the dollar.
In just one month’s time, the Chinese government through its central bank absorbed enough to money to buy out American toymaker Hasbro, two times over. In fact, in four weeks, the central bank took in enough dollars that if it wanted to, it could buy Hasbro, Macy’s and The New York Times based on their market cap, and still have a billion bucks left over.
So when someone tells you that China’s shadow banking system will crash its economy, think about the arsenal of dollar bills, euros and gold it has sitting in a vault inside the PBoC in Beijing.
That cash makes its economy nearly indestructible. Beijing has more than enough ammo to bailout important industries, banks, or entire provincial governments in an absolute worse case scenario.
June’s increase in cash build-up was twice what the market expected, making for its longest build-up of reserves in three years. The bank increased June reserves by just $3.2 billion, enough to buy out the entire New York Times in cash.
The State Administration of Foreign Exchange (SAFE), China’s currency regulator, said the increase was really due to a higher valuation of non-dollar reserves (namely euros and gold), which pushed up the value of the reserve funds in dollars.
By Kenneth Rapoza