This is neither here nor there and you probably know it all already. But just in case you don’t, you may find it useful to get a quick contrary view of these icons of financial statesmanship:

White: http://en.wikipedia.org/wiki/Harry_Dexter_White

Keynes: http://www.mises.org/etexts/keynestheman.pdf

Good question. Right now, i would guess no. But i also don’t think it is entirely the fund’s fault: there isn’t much appetite in the big players for policies that would reduce the risk of int. monetary disorder. The amount of opposition to the imf’s modest agenda for strengthening exchange rate surveillance stunned me — all of East Asia seems to be against the idea (hmmm …). The US is more interested in a surge and tax purity than fiscal balance and so on. And in the markets, there isn’t any real demand for action — no one seems all that worried. Bets on the stability of the current system have generally paid out handsomely (as long as they weren’t “go long $ v everything”), bets on instability not so much. So long as the markets don’t see much risk of a new round of monetary disorder, building support for action will be hard.

Your line, “Think two systems, one global economy”, is (almost) quite literally the bottom line. We are in a bipolar exchange rate world. The appropriate historical analogue is the 1920s, when, following war-induced fiscal debauchery and inflation, the international monetary system was characterized by some on gold (at pre-war parities), some on gold (at new, devalued parities) and some on floating exchange rates. At the time, Keynes lamented the “mal-distribution” of gold that, under the strictures of the gold standard, forced countries in recession to adopt austerity as the orthodox (or “prudent”) policy response. The reason was the asymmetry in the “rules of the game”. As Barry Eichengreen put it, the international monetary disorder of the 1920s was caused by a failure of leadership: “the Bank of England couldn’t, and the Fed wouldn’t” provide the leadership needed to promote international monetary stability.

In the post-war period, the IMF was chosen instrument. Today the Fund is in disrepute. The Fund “can’t” and the other players seemingly “won’t” provide the leadership. Meanwhile, discussions of IMF reform focus on everything except the real issue. Against this background, the question is: Do the men and women charged with the responsibility of overseeing reforms to the Fund have the vision of Keynes and Harry Dexter White to avoid another round of international monetary disorder?

OTOH, it may not be that Chinese are shying away from investing their money abroad. Rather, the product was defective to begin with as a fixed-income fund at a time when the dollar is on the Great Leap Downward:

Bank of China’s “U.S. Dollar Return Enhancement Fund” promised to protect returns from currency fluctuations and invested in money-market products such as certificates of deposit.

The fund yielded 0.48 percent during the holding period from Sept. 18 to Feb. 9, or about 1.3 percent annualized, according to its Web site. The rate was even lower than the 2.52 percent for one-year yuan deposits.

as for the overall carry — it is clearly still positive so long as you ignore the capital loss from the RMB’s appreciation — Stephen Green of Standard Chartered did the math and it was published not long ago in the Economist. One thing really helps — a lot of cash (as in bills) circulates in China, so a lot of the PBoC’s liabilities don’t pay interest. So long as you don’t count the capital loss from the xR mismatch and so long as only about 1/2 the PBoC’s assets are offset by interest paying liabilities, it would take a lot to get negative carry.

on the other hand, the PBoC’s cash flow profits have been one way the government has financed NPL disposal, so a fall in cash flow profitability still has consequences.

re: the TIC data, it should count purchases by Chinese banks (the TIC data combines both private and official purchases), but I suspect that in practice a lot of the same issues that apply to the middle east apply to Chinese banks — including custodial bias. My guess is that a lot of their purchases are routed through hong kong and register as hong kong purchases or purchases from another financial center (the bank loans $ to its branch in HK, which purchases US securities and counts as a HK resident in the US reporting system, i think). If that’s right, there should be a surge in net purchases from HK starting in late 05, as that is when CHinese bank purchases really started .. another thing to check when i have time.

In general, TIC flows to CHina from the US have been running at around $100b a year in 06, which is a bit low given the overall growth in China’s foreign assets. So my operating assumption is that the next survey will show a lot bigger increase in Chinese holdings that is implied by the sum of TIC flows (That was the case with the june 05 survey, released in 06).

And somehow, I think even the generals in Thailand would view a strategic investment from PIC somewhat differently from capital inflows from London and New York hedge funds. FWIW, GIC/Temasek have made similar noises re: shifting the emphasis to regional equities.

As an aside: do you have any idea what the yield is of the bills that PBOC issues to sterilize its FX intervention? And who buys the stuff? I’m just trying to get an idea of what PBOC/SAFE’s carry is on the reserve portfolio and what the likelihood is that it would ever turn negative.

I don’t quite get how China can dump funds into Asian regional equities — that would drive up the local equity markets and please those long asian equities. but wouldn’t it be a nightmare for their central banks. The Thais for example don’t exactly want huge inflows. Most aren’t running current account deficits and don’t want their currencies to appreciate v. the RMB/$. If they intervene, China’s policies effectively shift reserve growth from China to the rest of asia — passing the dollar hot potato around, but leaving it in Asian hands.

I don’t think anyone believes that China is still seriously diversifying into euros. But then again, they don;t need to to have a huge impact- when your annual reserve growth is bigger than just about anyone else’s stock, then even maintaining portfolio benchmarks is a big deal.

Brad, do you think the banks’ foreign security purchases would show up in the TIC (for dollar purchases, obviously)?

On equities I suspect the impact of CIC or PIC or whatever will be pronounced via regional outperformance. The buzz on the street is that there will be a relatively heavy weight on Asian regional equities, for whom the sorts of sums being bandied about are quite potentially market-moving.

Any idea of what % of Japan’s foreign assets are currently in private sector hands, and how that percentage has evolved over time?