By Joe Montero
Guo Shuqing, the chair of the China Banking regulatory Commission, made a significant public statement last weekend.
In an article for Qiushi, the commission’s online publication, he wrote.
“In an international monetary system dominated by the U.S. dollar, the unprecedented, unlimited quantitative easing policy of the U.S. actually consumes the credit worthiness of the dollar, and erodes the foundation of global financial stability.”
An overtly political statement is unusual from this quarter. This is a good reason to note it.
Guo Shuqing went on to say, “the world may once again be pushed to the verge of a global financial crisis.”
The regulator warned. “After the Black Swan of the pandemic, its asset quality will inevitably deteriorate.”
Current banks loan classifications don’t reflect the true quality of bank profits. They are inflated on paper. This makes sense. The quality of profit is determined, in the longer run, by how much investment results in economic growth. Growth in the real economy, rather than in the world of finance.
When this doesn’t some about, as is the case today in the sluggish economic environment, there is an expanding mismatch. Reliance of the creation of bad credit feeds a growing separation, between finance and the rest of the economy.
The Chinese government has told the banks and other financial institutions to sacrifice $US211 billion in profit this year. This is to help alleviate the impact on China and impact of Covid-19.
The sacrifice is in the form of deferring payments and increasing unsecured loans to struggling small businesses. This is real expansion beneficial to the economy.
In addition, the measure is designed to block speculative bubbles from emerging. This can be achieved by directing funds held by in a positive direction. the banks. The Chinese banking system holds a massive $US41 trillion.
Falling interest rates are a major trigger for speculation, as lenders seek to find new avenues for profit. When this gets out of hand, it eats away at the economy.
China’s finance policy has another dimension. To safeguard China’s financial sovereignty and protect against shock form the U.S. dominated global financial system.
The global banking system is on the edge of a new financial crisis. If the present course continues, the impact will be felt in a devaluing dollar, which will damage the financial system. This will impact on the real economy.
The answer, in part, is to be less dependent on the one dominant currency. For the global economy, it is to not have one dominant currency.
Guo Shuqing had good reason to speaking out.