风云Ⅱ:Why govt cannot spend FX at home

来源：百度文库 编辑：九乡新闻网 时间：2024/04/29 12:23:29

Why govt cannot spend FX at home

The Italian government is reportedly seeking for Beijing to buy colossal amounts of Italian bonds. Should China make this purchase? This is not only a financial issue, but has becomes a “political” issue at home.


Some plausible but odd questions have been raised. More than a few netizens questioned: Why not use the money to improve lives, rather than to buy foreign bonds? Mounting anger and doubt are now questioning the legitimacy of government decision-making in using foreign exchange reserves. It is high time for the government to provide a complete, straightforward explanation.


FX reserves have risen from the trade surplus created by domestic companies. These are not financial revenues belonging to the government, and cannot be used at home. For instance, if a Chinese company makes $1,000 abroad, it sells the $1,000 to the central bank, and gets 6,399 yuan in exchange, at the current exchange rate, to pay workers and spend at home. If the central bank spends the money at home, as some suggest, the same $1,000 would be exchanged again and lead to inflation.


The broader public is not familiar with the nature of FX reserves. Even some officials, entrepreneurs and experts are not fully comfortable with the concept. A provincial official once said that all problems in his province would be solved if the central bank gave him $100 billion. This is beyond ridiculous.


The scale of China’s FX reserves is unparalleled in the world, with most held by the central bank. The government’s only obligation and responsibility is to maintain and increase the value of these FX reserves through various investment channels.


Currently, buying foreign bonds issued by the US and other powers is relatively safe as compared with other investments.


Nevertheless, the circumstances are very subtle – the sovereign credit of traditional powers is not as reliable as before, and China has seen a severe shortage of funds in various fields of civil livelihood. Meanwhile, among the public, a lack of financial knowledge mingles with an unprecedented passion toward public participation. The government has to clarify its stance, otherwise, the more FX reserves it holds, the more public doubt will increase.


The government should constantly increase its transparency concerning the use of FX reserves and establish an accountability system in related investments. With this prerequisite, the government should start a campaign to popularize economic knowledge about FX reserves. Meanwhile, domestic economists should speak only the truth.


Some well-known scholars propose to divide up FX reserves, allocate them to people and use them at home. Such viewpoints probably only prevail in a society that lacks financial knowledge.


Using FX reserves is primarily a financial issue. The authorities need to make sure it does not become a political one.  
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