China’s ‘hidden’ current account deficit; invoicing decisions and liquidity effects on EMs

SUMMARY

  • China’s current account is responsible for a substantial portion of the reserve decline
  • caused by unfavourable changes in export & import conversion ratios and invoicing decisions
  • current account contribution to reserves even more volatile than the capital account
  • the acceptance of CNY/CNH as an invoicing currency in Asia is at risk as trade partners require US $ payments
  • further pressure on EM vendor financing mechanism

 

As another month has come to a close, it’s almost time again to recycle the competitive devaluation and capital flight stories published over the last six months. Although the declining reserve position last year was reported widely, the mechanism of the various flows and their consequences have often been left unexplored. Continue reading “China’s ‘hidden’ current account deficit; invoicing decisions and liquidity effects on EMs”

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China’s ‘hidden’ current account deficit; invoicing decisions and liquidity effects on EMs