People’s Bank of China

Claire Jones

This from the FT’s Josh Noble:

The Australian central bank plans to invest about 5 per cent of its foreign reserves in Chinese government bonds, in the latest move to build closer economic ties between the two countries.

The lead set by the Reserve Bank of Australia and a few others is likely to be followed by central banks elsewhere. Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

IMF/ World Bank meetings

Many of the world’s top central bankers will travel to Tokyo this week for the IMF/ World Bank annual meetings. The meetings take place on Friday and Saturday.

Details of the meetings and the full programme of seminars is available here. Highlights include a talk by Zhou Xiaochuan, governor of the People’s Bank of China, on Sunday at 11:30 a.m Tokyo time (2.30am GMT), and appearances by Fed chair Ben Bernanke and ECB president Mario Draghi at a BoJ/IMF event later in the day. Read more

Claire Jones

The People’s Bank of China has not cut rates twice in a month solely because the domestic economy is showing signs of slowing down.

Officials in Beijing, and elsewhere in Asia, are easing monetary policy in part because they are intent on getting ahead of the curve should things get much worse in the eurozone and global trade collapse in the way in did in the months following Lehman Brothers’ failure.

Two fascinating speeches made in recent days by Federal Reserve and Bank of Japan staff highlight just how grave central bankers believe the threat from Europe actually is. Read more

Claire Jones

Our week ahead email helps you to track the most important events in central banking. To see all of our emails and alerts visit www.ft.com/nbe

Bernanke goes back to school

Ben Bernanke, Fed chairman, next week delivers the first two of four lectures to undergraduates at the George Washington University School of Business. Read more

Claire Jones

The People’s Bank of China will welcome the news that China’s foreign exchange reserves dipped for the first time in a decade in the final quarter of 2011.

This from the FT’s Simon Rabinovitch in Beijing:

A more serious problem for China has been the need to cancel out the domestic inflationary effect of the reserve accumulation.

The root cause of the growth in currency reserves has been Beijing’s policy of keeping the renminbi in a managed float against the dollar. The semi-pegged currency obliges the Chinese central bank to buy most of the foreign exchange coming into the country, injecting fresh renminbi into the financial system in return.

To prevent that newly created money from pushing prices higher, the People’s Bank of China must constantly engage in what are known as “sterilisation operations”. It issues bills to banks or forces them to set aside a portion of their deposits as required reserves to mop up the excess liquidity.

Not only are these “sterilisation operations” burdensome for the central bank, they are also costly.  Read more

Ever since Wen Jiabao, China’s premier, promised in October to “preemptively fine-tune policy at a suitable time and by an appropriate degree” markets have been waiting for monetary easing to begin.

In fact it is already under way, in the form of increased lending from China’s state-owned commercial banks and in sharp falls in China’s money market rates. But on Wednesday came the first sign of a lifting of reserve requirements. It has begun with rural banks. More will follow.

 Read more

Claire Jones

The dip in the price of gold in early autumn failed to do much to dampen demand from the central banks. In fact, their buying rocketed. This from the FT’s Jack Farchy:

Central banks made their largest purchases of gold in decades in the third quarter, as a sharp drop in prices in September accelerated the shift to bullion as a means of diversification.

The scale of the buying, at 148.4 tonnes on a net basis, was far bigger than previously disclosed, surprising some traders.

 

The report by the World Gold Council, industry lobbyists, on which the story is based confirms a few of Money Supply’s earlier suspicions about why central bank demand would to remain strong, or even rise, on the back of the dip in price. Read more

Claire Jones

The IMF and the World Bank will regard the publication of its report on the first Financial Sector Assessment Programme, or FSAP, for China on Tuesday as something of a triumph.

Pre-crisis, China (along with the US) refused to undergo the programme, which serves as a health check on a country’s financial network.  Now, they are compulsory for those financial networks deemed systemically important.

People's Bank of China. Image by Getty.

People's Bank of China. Image by Getty.

That’s to be applauded; the more that is done to warn of risks to financial stability, the better. But the People’s Bank of China’s response to the exercise highlights its limits. Read more

Claire Jones

Standard & Poor’s downgrade looks set to have little immediate impact on central bank reserve managers’ fondness for US Treasuries.

Despite China’s posturing, it – and others– look set to remain big holders of Treasuries for now. Japan – the second largest international holder of US debt after China – has said it thinks “there is no problem regarding the creditworthiness of US Treasuries and US government bonds will continue to be attractive assets.” Russian and Middle Eastern officials have said likewise. Read more

Claire Jones

Nobody is quite sure yet what does and doesn’t count as macroprudential policy. But, given it’s seen as a force for good, central bankers are keen to pin the tag on as much of what they do as possible. Once the hype fades, though, it is unlikely to displace interest rates as their most important tool.

A key, perhaps even the question for policymakers, then, is how monetary policy and macroprudential policy can best interact.

According to research from Standard Chartered’s Natalia Lechmanova, which looks at the lessons that can be learnt from how Asian policymakers have used macroprudential tools such as loan-to-value ratios, the two policy strands are most effective when they are combined. Read more