From Forexlive:
- The CNY1 trillion in Pledged Supplementary Lending (PSL) that the People’s Bank of China recently conducted in the market “smacks of quantitative easing”
- The funds which have been relent to China Development Bank are “deliberate and significant expansion of the PBOC’s balance sheet via creating bank reserves/cash”
- He likens the exercise to the UK’s Funding For Lending scheme
- Says that the CDB’s balance sheet reflects the transfer of funds, even if the PBOC’s doesn’tThe CNY1 trillion reported — no details confirmed by the PBOC yet — will end up in the broader economy, will boost demand and “sends a signal that the PBOC is in the mood for quantitative loosening”
- He says that the impact will depend on whether the details are correct and if all the funds have been transferred already, or if it’s just a jumped up credit facility that CDB will be allowed to tap in stages
This is not as radical as it sounds. China has basically been engaged in a form of QE for many years in the management of its fixed exchange rate. The peg is maintained by the PBOC printing yuan and exchanging it for the US dollars pouring into the economy via the trade surplus. This is the driver behind the domestic liquidity, credit and construction boom.
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