In terms of its assets, the People's Bank of China has gone from the undisputed heavyweight to a middleweight
, the size of its balance-sheet is now roughly the same as the Fed’s—around 35%.
In part China’s restraint is because the economy is in relatively better shape, with the virus all but stopped and a growth rebound well under way. Partly it also reflects what might be called the Kipling doctrine in China’s bid to promote the yuan’s international role: if you can keep your money supply in check when all about you are expanding theirs like mad, then reserve-currency status may some day be yours.
There is also a deeper reason for China’s apparent conservatism, though. It is gradually reversing some of its extraordinary past interventions. In order to maintain an undervalued currency, theprinted as much yuan as needed to buy the foreign currency streaming into China. To prevent that newly created money from causing inflation, it then had to soak much of it back up, or to “sterilise” the inflows. It did that primarily by jacking up reserve-requirement ratios for commercial banks.
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