Bloomberg buried the lede here

The real story isn't that Kenya is saving ~ 200m in debt service costs by restructuring into CNY --

It is that China has already gotten $1.5 b of the principal on the original railway loan back

1/ It is well known in sovereign debt circles (but not among the foreign policy world) that the amortization structures on Chinese policy bank loans are super steep, and that China has taken big $$$ off the table between 22 and 25 ...

2/

Great reporting from Bloomberg

Argentina's governemtn has two pools of fx assets. The Treasury fx account -- which can be sold "inside" the band agreed with the IMF, and the BCRA's fx. The Treasury account is close to being empty

1/ The Treasury bought ~$2b in fx from the ag exporters when the ag export tax was dropped (irritating US farmers) ... but that pool of funds is about gone. The BCRA also has a bit of cash but that can only be sold at the edge of the band

2/

Bessent: US Treasury wants to support Argentina's strong policies ...

The message seems a bit off. Countries with strong policies don't usually need a second bailout in a year. Argentina already blew through $14b from the IMF

1/

https://twitter.com/SecScottBessent/status/1975299966701871257

Argentina's strong peso policy this has relied on borrowed money (hence the reserve sales) --

and some of the best evidence that the peso is overvalued has come from the big wave of Argentine outbound tourism

2/

batimes.com.ar/news/amp/econo…

Have the tariffs reduced the trade deficit? The answer is actually not obvious ...

The headline data misleads because of massive swings in the pharmaceuticals balance and the gold balance

1/ many If you look at goods trade net of pharma and gold, imports are down a bit from earlier in the year (consistent with a tariff impact) but the base earlier in the year was inflated by a bit of front running

2/

One of the arguments I made at last week's Federal Reserve (Board +FRBNY) Conference on the international role of the dollar is that the dollar's share of reserves gets too much attention, and the absolute stock of reserve holdings gets too little ...

1/many Central banks did add a bit to their Euro holdings in dollar terms (or rather, they didn't sell euros just because the euro rose against the dollar in q2). But the bigger story is that dollar holdings are basically constant ...

2/

Thanks Glenn. Always appreciate your input.

A simple explanation of the changes that China made back in 2021 might help others understand the issue, and why many people (even some at the IMF) question the size of China's reported current account surplus. 1/

https://twitter.com/GlennLuk/status/1973416731142951099

The adjustments made to the data lowered the "BoP" goods surplus relative to the customs balance --

it though is easy to replicate the old methodology and report what the surplus would be absent the new "survey" rather than customs based methodology

2/

Saudi Arabia's balance of payments break even oil price is now in the 90s. With oil in the 60s, a large current account deficit should now be baked into the calculations of the desert kingdom

1/ The reasons for the deficit are well known: new cities in the desert don't come chief, and the PIF is spending a lot on other projects as well ...

2/

A good (upper level) essay question for a course on international economics (if folks still teach the balance of payments these days)

China's reported errors and omissions have collapsed. Does this make China's balance of payments data more or less accurate?

1/

https://twitter.com/Brad_Setser/status/1973139166473974112

A junior (BoP) analyst question -- how does the renewed rise in foreign asset accumulation by the state banks relate to the reported current account surplus?

a: it increased, as more reported outflows implies a higher surplus if reported errors needs to be zero

2/

One of the (many) annoying things about China's new (after 2021) balance of payments data is that the adjustment relative to the underlying customs and services data isn't constant. The q2 reported surplus even tho the underlying customs data showed a bigger surplus

1/many That gap had shrunk in q3 and q4 of last year, and in q1 -- but it widened again in q2 (see the chart below)

2/

Time to mark some views to market: I now think the preponderance of evidence suggests that the PBOC (SAFE) has reduced its holdings of long-term US bonds even after accounting for increased use of custodial centers

1/ There are a couple of important caveats (weasel words) in there -- I consciously said SAFE not China (that is a big caveat, as the state banks now have the money) and I consciously said long-term bonds ...

2/

Hardly the first time China has treated its agricultural imports as a source of leverage -- back in 2009 China responded to the "inside the WTO rules" tires safeguards case with tariffs on chicken feet and certain animal feeds ...

1/

https://twitter.com/acrossthecurve/status/1972414796504109347

Chinese ag imports have long been a hostage to the state of the relationship -- and Xi certainly is aware of its political impact in the US

2/

I would enjoy reading a careful analysis of the Glenn's counter-consensus claim that the "core" of China's EV industry is profitable (covers operating cost, paying off capital investment ... ) from @dunne_insights or an investment bank analyst

1/

https://twitter.com/GlennLuk/status/1971913037763252269

counter-consensus isn't necessarily wrong -- from a long time my argument that the state banks were helping the PBOC manage the currency ran against the DC consensus that China was moving toward a more flexible currency ...

3/

A little more on Bessent's commitment to help Argentina "within the mandate" of the US Treasury ...

1/ There is a huge difference between the Exchange Stabilization Fund (now the "peso stabilization fund") buying pesos to help Argentina defend the band and the ESF lending Argentina dollars (a swap is de facto a loan) so Argentina can support the peso ...

2/

The Argentine's are pushing for a direct loan (which risks being a bailout for an unsustainable policy regime ... ) from the United States through the Exchange Stabilization Fund

But I suspect the question of what more the IMF can do will also come up ...

1/ The Fund has only lent out about a quarter of its quota resources, so it has the funds ...

2/

Confirmation of a full on run out of the peso from the BCRA; huge acceleration in reserve sales between Wednesday and Friday

1/ The Buenos Aires election result no doubt was the catalyst here, as the FT emphasizes.

But the deeper cause is that Milei/ Caputo welcomed peso overvaluation over the last 12ms

2/

ft.com/content/270d99…

My actual concern -- a concern that is global -- is that China's unbalanced domestic economy has contributed to an incredibly unbalanced pattern of global trade.

1/

https://twitter.com/haugejostein/status/1967924505113669638

China has a great deal of agency. It chooses to have its state banks intervene to hold its currency down v the USD. It has chosen to maintain a regressive tax system (with heavy taxes on low wage work and consumption) and to limit redistribution and social benefits

2/

President Trump has ripped up the global trade rules.

But, so far at least, there hasn't been much impact on "core" global trade.

All the volatility has been in pharmaceuticals and gold ...

cfr.org/blog/trump-sho… US imports are on track to be up modestly for the year
(with strong electronics imports driven by the AI boom and the tariff exclusion for chips offsetting weakness in vehicle trade)

2/

Probably time for China to try a different strategy

The IMF article IV is due this fall. Shouldn't the IMF be recommending that the central government use its obvious fiscal space to directly support household spending?

1/ The FT stated the obvious "Beijing has relied on exports in recent years to meet its ambitious annual growth targets" - the IMF should too ...

2/

ft.com/content/156125…

A chart that I always find interesting -- global reserves v Treasury notes and bonds (reserve managers generally don't buy bills) as a share of US GDP

Period between 03 and 08 notable for reserve growth w-o // increase in supply of US classic reserve assets

1/ Always striking to me that there is a lot more talk about the dollar as a reserve currency now, when the impact of reserve holdings on markets is waning, than there was talk of the market impact massive reserve growth back when it was happening

2/

Not a fan of most of the Miran paper (and the Treasury restructuring proposals), but also not a fan of Employ America's claim that dollar strength doesn't impact the US manufacturing sector

1/

employamerica.org/monetary-polic… This argument in particular has two particular problems --

a) it ignores lags, and treats 02 to 08 as one period of dollar weakness
b) it doesn't look at petrol and non-petrol trade

2/

Set aside politics for a moment (which no one in Argentina ever does) and focus on the numbers. Milei's core problem is that fiscal adjustment hasn't generated balance of payments adjustment. Net out IMF lending and Argentina has been burning through its reserves

1/ and set aside funds borrowed from the IMF and SDR conversion -- even so Argentina's net fx reserves are flat (data through July). And ~ half of that fx more or less is CNY from the PBOC swap line which isn't freely convertible into USD ...

2/