Not quite…….to lower interest rates, the Fed buys more bonds and expands its balance sheet, so it should make more money for the taxpayer, not less.

But I am glad to see someone else taking an interest in monetary policy operations and their implications……I have pointed out in previous comments that the Fed is actually the largest central bank owner of US treasuries. Greenspan could have found part of the answer to his condundrum in the Fed internal telephone directory if he had looked. As far as I can tell, the people who pay are the holders of existing base money, which gets a bit diluted when the Fed supply more, and future buyers of interest bearing assets, who get a lower return because of competition from the Fed.

Quite agree with your point.

But it is silly for the writer of the article to mischaracterize CBs as ‘investors’ per se - they’re risk managers. Nor is there any reason to fault them for running currency mismatches per se - that is the essence of FX reserve management.

The writer is attributing fault to normal function.

Now the massive size of some reserves and the motivation behind such size is something else - there it should be open season on criticism.

(And to stretch one point concerning the writer’s Fed reference, one might instead fault the Fed for earning low CB profits, when it kept rates so low -i.e. lower earnings against a 0 cost monetary base. The incremental cost of running low rates in this sense could be viewed as a type of direct interest rate subsidization to borrowers (at a cost to the taxpayer) somewhat even if vaguely comparable to China’s FX subsidization.)

‘Myths’ 3 and 4 are only in the mind of the writer of that article.

(The first 2 regarding the dollar and bonds are legitimate points).

Your phrase ‘careful consideration’ may be the key.

PBOC is a macro risk manager of FX and domestic monetary policy. Management motivation and policy must be driven by this. To the extent ‘return’ is a factor in assessing management results, it must be a macro interpretation, beyond the isolated result of the PBOC balance sheet.

SIC is an investment manager, constrained by FX and domestic monetary policy parameters, as determined by PBOC. Whatever its balance sheet structure, investment performance can only be measured fairly by focusing on the asset risk and return, ex the complications of FX and domestic monetary policy complications of PBOC policy. It’s investment management effectiveness shouldn’t necessarily measured according to its accounting result.

RE/Guest,
Of course it makes no difference to China as a whole how this thing is set up, but imagine if somehow the PBoC governors and staffs’ salaries are tied to the balance sheet at the PBoC, what kind of policy recommendations do you think will come out of the PBoC then? The SIC will be a separate profit seeking entity, meaning it will not operate out of the state budget. How they earn their money will certainly determine their view and they will have powerful tie to the MOF.

Well put … totally agree.

A separate question — does anyone know of an emerging economy (other than vennie) that reduced its reserves in q1? I am puzzled by the COFER data, and one potential answer is an emerging economy that shifted reserves to an investment co or otherwise did something that lowered the unallocated total below China’s plus 135b.