While some are shocked that China may have ‘used’ a huge amount of ‘reserves’ in November, that is only because so many myths and anachronisms continue to abound in the mainstream and beyond. Any conversation about forex in the context of central banks and national government agencies is one that still views money from a traditional standpoint – as if these places have piles of currency sitting in a vault or in some kind of standard deposit account. Even where securities are recognized as the mainstay of that accumulation, it still seems to reckon some kind of sentimentalist pursuit.
For one, we have no idea to what China’s ‘reserves’ actually belong; they don’t report much information and what we do have on this end is often quite incomplete. The TIC figures, for example, which show China’s domestic holdings in one sense don’t align with the dramatic swings in Belgium. Belgium is notable for many reasons but particularly the home location of Euroclear which is Europe’s primary derivatives clearinghouse (eurodollar primary among the ‘products’ offered such clearing). Thus, if China’s holdings of UST’s diminish in Belgium then it isn’t at all obvious that they are ‘selling UST’s’; in fact, contrarily, it is far more likely that they are posting collateral for forward transactions, swaps and the like.
This post was published at David Stockmans Contra Corner by Jeffrey P. Snider ‘ December 7, 2015.
Recent Comments