China Translated

China’s State Administration for Foreign Exchange (SAFE) has a difficult job.  They have to manage China’s massive reserves of foreign exchange - USD2.45bln at the last count and probably a few more billion when the figures for the second quarter of 2010 are released in the next few days.

SAFE is quite happy to tell the world how much FX reserves China has, but it is rather more cautious about revealing the details of where they are invested. 

A recent notice on SAFE’s website offers few details on where the reserves are stashed away, but it does provide some insight into SAFE’s thinking on the reasons for secrecy.  This is my translation of the main points:

‘The size of our foreign exchange reserves means that information about where they are invested could move global markets.  Publishing information about our transactions could lead to market turmoil. 

A higher degree of transparency could also negatively impact our ability to effectively implement our investment strategy.

The majority of countries are cautious in publication of data on their FX reserves, and do not publish information on specific transactions.  The IMF standards for data disemination in this area are not particularly stringent.’

The key point here is the second one.  If you are moving USD2.45trln in funds around, and you telegraph your movements to the market, anything you want to buy is suddenly going to get very expensive, and anything you want to sell very cheap. 

Secrecy about the composition of China’s FX reserves is partly realpolitic, but there is also a real financial logic behind SAFE’s determination to play their cards close to their chest.

You can see the full SAFE announcement in Chinese here.

International Relations, Monetary Policy, Statistics, US-China Relations