Body
On August 31, 2015 without a press release, the People’s Bank of China (PBoC) took an important step toward increased transparency. On that date, the State Administration of Foreign Exchange (SAFE), the agency of the PBoC that manages China’s foreign exchange assets, posted on its website data on China’s international reserves as of the end of June and July in the format of the Template for International Reserves and Foreign Currency Liquidity (Reserves Template).
The Reserves Template is a major element of the International Monetary Fund’s (IMF) Special Data Dissemination Standard (SDDS) to which China has pledged to adhere by the end of 2015. In light of the recent turmoil in domestic and international financial markets and the extraordinary support of its markets by the Chinese authorities, I was skeptical that they would take this step. I expressed my skepticism on September 10 not knowing that the PBoC had already released their data following the Reserves Template. I was wrong and I congratulate the PBoC. And for the record, whatever one might think about other aspects of China’s statistical systems, I have no doubt that the PBoC followed the 94-page guidelines for reporting to the letter. [1]
The Reserves Template was adopted as part of the SDDS by the IMF executive board in March 1999. The objective was to provide more information about the quality of a member’s international reserves and their de facto availability to help the country meet its international obligations and resist foreign exchange market pressures. For example, adherents were required to disclose the amount of forward sales of foreign exchange (short-term net drains on reserves) as Thailand had not done in 1997 and to disclose the amount of deposits in banks headquartered in that country to bolster their international liquidity as Korea had not done in 1997.
For China, as of July 31, the amount of short-term net drains on its reserves over the coming year was $1.8 billion ($5.3 billion of outflows and $3.5 billion of inflows), a trivial amount relative to its $3.7 trillion in official reserves. An almost equally trivial $9.0 billion was deposited in Chinese banks, but entirely outside the country. The only item of interest that I found in China’s Reserve Template as of July 31 was $189 billion in other foreign assets ($177 billion in securities and $12 billion in loans) that are not included in China’s reserves. One can hypothesize that these may be claims on countries such as Venezuela, but one cannot be sure.
The data presented in China’s Reserve Template release do little to answer recent questions about the availability of China’s foreign exchange reserves to support the renminbi (RMB) or finance private capital outflows. That is not China’s fault, but the fault of IMF members for failing to agree to update the Reserves Template to provide more information on the asset composition of a member’s reserves. For example, we learn from China’s July 31 Reserves Template that $3.63 trillion of its $3.65 trillion in foreign currency reserves were invested in securities issued in countries other than China. The public would like to know the countries issuing those securities and the nature and maturity of those instruments. But that is true for other countries as well.
The public also would like to know about the currency composition of China’s reserves. About two dozen countries voluntarily publish that information. But subscribers to the Reserves Template are only required to report the amount of their reserves in the currencies in the special drawing rights (SDR) basket (presently the euro, Japanese yen, UK pound sterling, and US dollar) and only once a year. The PBoC by demonstrating its adherence to the Reserves Template has taken a significant step toward IMF acceptance of including the RMB in the SDR basket. Maybe after November when the IMF executive board makes its decision on this matter, China will make this additional disclosure and provide more information on its reserves.
[1] The PBoC did maintain its individuality by reporting in units of $100 million.
