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Saturday, December 7, 2019
Donald Trump Tweet - China and money creation
Why is the World Bank loaning money to China? Can this be possible? China has plenty of money, and if they don’t, they create it. STOP!
Once the BOC buys the surplus USDs they create RMB Reserves of which there are minimum requirements for Depositories to possess as % of RMB deposits... this is typical of all central banking systems...
For the BOC to reduce these official holdings of USDs they would have to reduce RMB Reserves (exchange official USD for RMB Reserve Assets at their Depositories) and put their Depositories into violation of the minimum Reserve requirements...
They cant reduce their official USD balances without making their Depositories insolvent...
Trump thinks chynah! can make their own USD loans or something...
Chynah! has most of their USDs at the BOC purchased with new RMB reserves creating required Tier1 RMB Reserves at their Depositories.... can’t “lend them out!”....
Or trump just thinks “money is money!” like everyone else...
China doesn’t run high enough fiscal deficits to create the Tier1 RMB Treasury security assets required to regulate their depositories ...
So they have to add RMB Reserves to create necessary Tier1 RMB Assets by buying the surplus USDs with RMB reserves... banks then use the RMB Reserves as Tier1 assets to comply...
USD can’t come off the BOC ‘balance sheet’ via a purely financial transaction without reducing RMB reserves below threshold...
I agree André. China of course can't reduce its dollar reserves without buying something or giving them away. Buying the RMB it can create with dollars from its own banks is crazy. And it could violate reserve requirements, I guess, but that isn't why it isn't done, for they got the dollars from the banks and exporters originally - who need to pay their bills in RMB, not dollars. But RMB has nothing really to do with it. Trump is right, China has no need of a loan.
Yes it IS why it’s done..., the firms have to use depositories to exchange for the USD... their Depositories have the USD as risk assets so depositories need RMB Tier1 (RMB Reserves or RMB Treasury securities) to comply with reserve ratio and leverage ratio...
BOC buys the USD at the exchange rate they set thru creation of new RMB reserves at depositories...
Point is BOC can’t do anything (“lend them out!”, etc) with the USDs without reducing reserves at depositories which could put depositories in regulatory violations
Possible I still couldn't get what you said, but for me it works this way:
When the BOC wants to buy USD it goes to the spot market and buy it. Depending on the volume, it will move the exchange rate.
To pay for the USD, the BOC will simply create renminbi bank reserves and transfer it to the counterparty's bank.
The bank will recieve X renminbi in its asset side (as bank reserves) and will register X renminbi in its liability side (as deposits in favor of customers). It would be able to face a 100% reserve requirement at this stage.
Yes, because of the assets they would have higher equity requirements (S LR) but it is 3% of the assets. If the bank cannot face it then it is safe to say that it is heavily missmanaged (is this the point of the discussion?)
"When the BOC wants to buy USD it goes to the spot market and buy it. Depending on the volume, it will move the exchange rate."
No way... they set the exchange rate by declaring what price in RMB they will pay for a USD... the CB is the monopolist.... who are they competing with for ANYTHING paid for in RMB reserves???
"Yes, because of the assets they would have higher equity requirements (SLR) but it is 3% of the assets."
NO ITS NOT GET IT THRU YOUR THICK HEAD ...
For US banks they need in excess of 10% Tier1 QUALITY assets to comply with CCAR (stress tests) which are additional regulatory requirements to the SLR....
US banks currently maintain a CET1 ratio of like 13%... that is Tier1 QUALITY assets divided by TOTAL assets...
Why do you think they maintain it at 13% if the minimum is allegedly 3%??????
Evolved from the apes by random chance mutation???? Pull it out of their ass?????
The govt REQUIRES them to have that much to pass the CCAR "stress tests"....
"In its 2019 stress test disclosure, JPMorgan and the Federal Reserve estimated what losses and capital ratios might look like under certain adverse conditions. These include an 8% drop in U.S. GDP, a rise to 10% unemployment, housing price declines of 26%, and a 50% decline in the stock market, among others.
In that cataclysmic scenario, which bears a resemblance to the decline of 2008, JPMorgan’s earnings would actually go negative — though only slightly, at a $13.1 million loss over a period of nine quarters through Q1 2021. The bank would also see its capital ratio drop from the current 12% common equity tier 1 capital (CET1) ratio to 9.5%. That is actually quite a safe number, but still below the minimum 10.5% CET1 ratio that will be required of JPMorgan this year."
Point is PBoC cant make USD loans very easily if it all...
The World Bank USD loan to "China!" might have been to finance the pay of US entities participating in the Development Program over in China who have to get paid in USDs....
Trump like everyone else thinks "money is money!"... he's no different...
Once the BOC buys the surplus USDs they create RMB Reserves of which there are minimum requirements for Depositories to possess as % of RMB deposits... this is typical of all central banking systems...
ReplyDeleteFor the BOC to reduce these official holdings of USDs they would have to reduce RMB Reserves (exchange official USD for RMB Reserve Assets at their Depositories) and put their Depositories into violation of the minimum Reserve requirements...
They cant reduce their official USD balances without making their Depositories insolvent...
Take an Accounting course....
Righto!
DeleteThere's not much there, I will be able to fit that into two tweets send it off to the President.
DeleteEither I couldn't understand your English or it doesn't make any sense at all
DeleteThe imf loans are in USDs...
ReplyDeleteTrump thinks chynah! can make their own USD loans or something...
Chynah! has most of their USDs at the BOC purchased with new RMB reserves creating required Tier1 RMB Reserves at their Depositories.... can’t “lend them out!”....
Or trump just thinks “money is money!” like everyone else...
China doesn’t run high enough fiscal deficits to create the Tier1 RMB Treasury security assets required to regulate their depositories ...
ReplyDeleteSo they have to add RMB Reserves to create necessary Tier1 RMB Assets by buying the surplus USDs with RMB reserves... banks then use the RMB Reserves as Tier1 assets to comply...
USD can’t come off the BOC ‘balance sheet’ via a purely financial transaction without reducing RMB reserves below threshold...
Their stuck with them...
unless they buy gold or something...
This comment has been removed by the author.
ReplyDeleteI agree André. China of course can't reduce its dollar reserves without buying something or giving them away. Buying the RMB it can create with dollars from its own banks is crazy. And it could violate reserve requirements, I guess, but that isn't why it isn't done, for they got the dollars from the banks and exporters originally - who need to pay their bills in RMB, not dollars. But RMB has nothing really to do with it. Trump is right, China has no need of a loan.
ReplyDelete“but that isn't why it isn't done, ”
ReplyDeleteYes it IS why it’s done..., the firms have to use depositories to exchange for the USD... their Depositories have the USD as risk assets so depositories need RMB Tier1 (RMB Reserves or RMB Treasury securities) to comply with reserve ratio and leverage ratio...
BOC buys the USD at the exchange rate they set thru creation of new RMB reserves at depositories...
Point is BOC can’t do anything (“lend them out!”, etc) with the USDs without reducing reserves at depositories which could put depositories in regulatory violations
Possible I still couldn't get what you said, but for me it works this way:
ReplyDeleteWhen the BOC wants to buy USD it goes to the spot market and buy it. Depending on the volume, it will move the exchange rate.
To pay for the USD, the BOC will simply create renminbi bank reserves and transfer it to the counterparty's bank.
The bank will recieve X renminbi in its asset side (as bank reserves) and will register X renminbi in its liability side (as deposits in favor of customers). It would be able to face a 100% reserve requirement at this stage.
Yes, because of the assets they would have higher equity requirements (S LR) but it is 3% of the assets. If the bank cannot face it then it is safe to say that it is heavily missmanaged (is this the point of the discussion?)
"When the BOC wants to buy USD it goes to the spot market and buy it. Depending on the volume, it will move the exchange rate."
ReplyDeleteNo way... they set the exchange rate by declaring what price in RMB they will pay for a USD... the CB is the monopolist.... who are they competing with for ANYTHING paid for in RMB reserves???
"Yes, because of the assets they would have higher equity requirements (SLR) but it is 3% of the assets."
NO ITS NOT GET IT THRU YOUR THICK HEAD ...
For US banks they need in excess of 10% Tier1 QUALITY assets to comply with CCAR (stress tests) which are additional regulatory requirements to the SLR....
US banks currently maintain a CET1 ratio of like 13%... that is Tier1 QUALITY assets divided by TOTAL assets...
Why do you think they maintain it at 13% if the minimum is allegedly 3%??????
Evolved from the apes by random chance mutation???? Pull it out of their ass?????
The govt REQUIRES them to have that much to pass the CCAR "stress tests"....
Its F-ING 13%.....
Here:
ReplyDeletehttps://over50finance.com/2019/06/30/jpmorgan-chase-unveils-its-2019-capital-program-what-investors-need-to-know/
"In its 2019 stress test disclosure, JPMorgan and the Federal Reserve estimated what losses and capital ratios might look like under certain adverse conditions. These include an 8% drop in U.S. GDP, a rise to 10% unemployment, housing price declines of 26%, and a 50% decline in the stock market, among others.
In that cataclysmic scenario, which bears a resemblance to the decline of 2008, JPMorgan’s earnings would actually go negative — though only slightly, at a $13.1 million loss over a period of nine quarters through Q1 2021. The bank would also see its capital ratio drop from the current 12% common equity tier 1 capital (CET1) ratio to 9.5%. That is actually quite a safe number, but still below the minimum 10.5% CET1 ratio that will be required of JPMorgan this year."
All the big CBs are running it this way post 2008... Fed, ECB, BOJ, BOC...
ReplyDeletePoint is PBoC cant make USD loans very easily if it all...
ReplyDeleteThe World Bank USD loan to "China!" might have been to finance the pay of US entities participating in the Development Program over in China who have to get paid in USDs....
Trump like everyone else thinks "money is money!"... he's no different...