1/7
This is an interesting problem for central banking geeks. Many of China Evergrande's suppliers, who were paid not with cash but with Evergrande commercial paper (CP), are now finding it hard to get paid, and so are worried about their own...
reuters.com/business/china…
This is an interesting problem for central banking geeks. Many of China Evergrande's suppliers, who were paid not with cash but with Evergrande commercial paper (CP), are now finding it hard to get paid, and so are worried about their own...
reuters.com/business/china…
2/7
solvency and liquidity: "The plight of Wu and many others like him has thrown a spotlight on the extensive use of CP in China's property sector. Developers favour it as they prefer to not pay upfront and because it doesn't count as interest-bearing debt."
solvency and liquidity: "The plight of Wu and many others like him has thrown a spotlight on the extensive use of CP in China's property sector. Developers favour it as they prefer to not pay upfront and because it doesn't count as interest-bearing debt."
3/7
This is an obvious problem for Evergrande's suppliers, who might not be paid after having delivered products, but, as I plan to explain in my central bank seminar tomorrow, it is in fact also a monetary problem. As long as CP from large property developers was...
This is an obvious problem for Evergrande's suppliers, who might not be paid after having delivered products, but, as I plan to explain in my central bank seminar tomorrow, it is in fact also a monetary problem. As long as CP from large property developers was...
4/7
widely accepted as an efficient payments mechanism, it was not much different from other forms of money. As Hyman Minsky liked to point out, while anyone can make money, the hard part is getting others to accept it, and this CP was widely accepted as money.
widely accepted as an efficient payments mechanism, it was not much different from other forms of money. As Hyman Minsky liked to point out, while anyone can make money, the hard part is getting others to accept it, and this CP was widely accepted as money.
5/7
As such it formed part of China's money base. Money isn't a "thing" so much as it is a quality inherent — to very different degrees — in all assets. If suppliers now become reluctant to accept CP issued by property developers, this will have two macroeconomic impacts.
As such it formed part of China's money base. Money isn't a "thing" so much as it is a quality inherent — to very different degrees — in all assets. If suppliers now become reluctant to accept CP issued by property developers, this will have two macroeconomic impacts.
6/7
First, obviously, it will reduce the efficiency of business transactions — i.e. raise frictional costs — in the property sector. Second, it will cause a contraction in China's "real" money supply as an asset that was once highly "money-like" becomes much less so.
First, obviously, it will reduce the efficiency of business transactions — i.e. raise frictional costs — in the property sector. Second, it will cause a contraction in China's "real" money supply as an asset that was once highly "money-like" becomes much less so.
7/7
To the extent that the PBoC recognizes this, they should expand the domestic money supply to make up for the partial demonetization of Chinese CP.
To the extent that the PBoC recognizes this, they should expand the domestic money supply to make up for the partial demonetization of Chinese CP.
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