Right now China has about 3.2 trillion in ForEx of all kinds and currencies which means that this bailout represents nearly half of the total.
ForEx is an extremely complicated subject, way too much for a single post, but it is essentially the lubricant for trade. If you don’t have enough of it in the right currency on an hourly (or less) basis to support your imports and exports then the machine will seize up.
So what China is doing here is risky as hell and if it doesn’t work they will soon have the same kind of financial problems that Iran does and that is stupendously bad for an export based economy.
They’re not going to do this with cash. They’ll print up some paper money (eg. bonds) like everybody else and make the poor subsidize the rich via inflation.
The way I (state certified smoothbrain) think of it is this: Cash reserves serve as short time collateral when a state is shopping on credit (which states usually do). So your transactions need to be backed by a currency your trading partner is willing to accept.
Other types of reserves exist, but these usually need to be converted first, which adds a layer of delay and transaction that makes it a more long term thing.
Not sure how correct it is, but I find that this oversimplification works and is correct most of the time.
Right now China has about 3.2 trillion in ForEx of all kinds and currencies which means that this bailout represents nearly half of the total.
ForEx is an extremely complicated subject, way too much for a single post, but it is essentially the lubricant for trade. If you don’t have enough of it in the right currency on an hourly (or less) basis to support your imports and exports then the machine will seize up.
So what China is doing here is risky as hell and if it doesn’t work they will soon have the same kind of financial problems that Iran does and that is stupendously bad for an export based economy.
They’re not going to do this with cash. They’ll print up some paper money (eg. bonds) like everybody else and make the poor subsidize the rich via inflation.
https://www.ft.com/content/b2feba22-5064-4eb1-84b1-3003cac36def
The way I (state certified smoothbrain) think of it is this: Cash reserves serve as short time collateral when a state is shopping on credit (which states usually do). So your transactions need to be backed by a currency your trading partner is willing to accept.
Other types of reserves exist, but these usually need to be converted first, which adds a layer of delay and transaction that makes it a more long term thing.
Not sure how correct it is, but I find that this oversimplification works and is correct most of the time.