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30 Oct, 5 tweets, 2 min read
Nice turn of phrase from @S_Rabinovitch. China's reported reserves have indeed been "uncannily steady" ....

economist.com/finance-and-ec… Image
This tho may be the most important bit --

... "currency traders sense the hand of the state, albeit more discreet than in the past. “My guess is that the central bank now has special trading accounts at the state banks" ...
I have long thought that you can get a more accurate picture of what China is really doing by adding the net foreign assets of the state banks to the PBOC's reported (CNY balance sheet) foreign exchange reserves -- which have indeed been a bit too steady for the last year + Image
for close observers of the data, the PBOC balance sheet reserves were also super steady in 2012 -- the activity then as now was over at the state banks. And the state banking data suggests (sensibly) sales in q1, followed by purchases in q2 and q3 ...
That matches my read of the balance of payments data for both q1 and q2 ...

Alas, we have to wait another two months for the complete q3 BoP data.

cfr.org/blog/chasing-s… Image

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More from @Brad_Setser

Brad Setser Profile picture
1 Nov
A bit more on global debt issues, spurred by the @petersgoodman article.

As noted in the NYT, debt service deferral cannot be the only way to help low income countries, as not all low income countries are highly indebted.

Yet some countries really do have too much debt

1/x Image
As the chart above shows, African countries borrowed heavily between 2010 and 2019 -- so external debt, net of reserves, rose from around $100b to over $400b ...

That's a problem now, as exports (needed to repay external debt) are down. External debt is now 2x exports

2/x Image
And since most of the new debt has come from Chinese policy banks and the bond market not traditional bilateral lenders or the MDBs, it carries a fairly high (for Africa) interest rate. Interest payments are rising faster than total debt

3/x Image
Read 12 tweets
Brad Setser Profile picture
1 Nov
The New York Times (@petersgoodman) highlights how the global financial response to the pandemic, to date, has fallen short of providing the financial support low income countries need to cope effectively with the shock

1/x
nytimes.com/2020/11/01/bus…
Deferring debts owed to bilateral creditors was always going to only be a small part of the solution, but especially if China deemed key institutions like the CDB to be "private."

It was thus a mistake to make the DSSI the central mechanism for providing pandemic support

2/x Image
Only about $5b of the $30b in non-MDB debt coming due in 2020 will be rescheduled; the initiative has failed even on its own terms.

And since debt burdens aren't uniformly distributed, even a broad DSSI limited to bilateral creditors would not have provided enough to most

3/x Image
Read 8 tweets
Brad Setser Profile picture
29 Oct
Today's GDP data obviously has gotten its share of coverage -- but I did want to highlight now unusual the downturn in q2 and partial recovery in q3 are. The downturn was led by services (usually the most stable component), and services are lagging the broader recovery

1/x Image
All this is looks totally crazy in the (annualized) contributions data, as, well, data wasn't designed for these kinds of swings.

But it is clear that goods consumption led the recovery

2/x Image
I de-annualized the data to put it on a more reasonable scale over the last year. Goods consumption is now 1.8 pp of US GDP higher than in q4 2019. Services consumption is down 2.7 pp of GDP

3/x Image
Read 7 tweets
Brad Setser Profile picture
27 Oct
Yes, absolutely. An important point.

Also please note that the numbers here are cumulative loans not current exposures. At the same time, the WB numbers on exposures miss a lot of project finance.

1/x
Another important point -- both China and bond holders have lent to a (subset) of African countries at higher rates than the MDBs/ the traditional bilateral creditors. So the interest bill for those countries that have borrowed has increased faster than the stock of debt

2/x
A chart from a recent report by the Group of Thirty that (hopefully) highlights how not all low income countries are in the same position

(higher numbers on both the x and y axis are bad ... )

group30.org/publications/d…

3/3
Read 4 tweets
Brad Setser Profile picture
27 Oct
I am impressed @ChadBown

Seasonal adjustments are actually kind of important here (ag is the most important category ... and it is, umm, classically seasonal)

And, well, the interesting story in the September data is in the ag numbers

1/x
My (more modest) seasonal adjustment looks at the monthly data. The 'beans numbers were (as expected) solid. September basically made up for a weak start of the year. I hear the 'bean harvest came in early, and supplies in Brazil are by all accounts tight

2/x
Bean exports should top the 2017 base given the orders data USTR highlighted and current bean prices. Topping 2016 may be harder ...

(But don't forget 2018 -- the empty bar there isn't an accident; China showed that its state import companies control the market)

3/x
Read 8 tweets
Brad Setser Profile picture
26 Oct
Turkey's banks now have more foreign currency exposure to the government and the central bank than they have to Turkey's firms.

cfr.org/blog/changing-…
The Government of Turkey stepped up its local foreign currency denominated debt issuance this summer --

And the banks have lent a ton of fx to the CBRT, which normally would be viewed as a safe exposure but, well, the CBRT itself doesn't have much fx left
For the historically minded, Turkey's increased domestic dollar and euro denominated borrowing has some parallels with Mexico's issuance of tesobonos way back in the mid 1990s ...

Cuts borrowing costs, but generates substantial rollover risk
Read 6 tweets

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