Edward Conard

Top Ten New York Times Bestselling Author

  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
Upside of Inequality Oxford Unintended Consequences

AI Summary. Global current account surpluses are concentrated in China, Russia, and the Gulf, with China on track for at least $400bn, Russia $250bn, and the Gulf $400bn or more. Unlike before the global financial crisis, these surpluses are not showing up in official foreign exchange reserves, reducing demand for bonds and euros and making global fund flows harder to track.

Brad Setser @Brad_Setser
Date Posted:
Is Database:
Database

China, Russia, and the Gulf are driving the global current account surplus, with China on track for $400bn, Russia for $250bn, and the Gulf for $400bn or more.

Are large current account surpluses no longer showing up in official reserves?

Core argument: Setser finds the global current account surplus concentrated in China, Russia, and the Gulf, with China on track for at least $400bn, Russia $250bn, and the Gulf $400bn or more.

The global current account surplus is concentrated in China, Russia, and the Gulf, with China on track for at least $400bn, Russia for $250bn, and the Gulf for $400bn or more. Unlike before the global financial crisis, these surpluses are not reflected in FX reserves due to factors like rate differentials and exporters hoarding dollars in China, sanctions in Russia, and Saudi Arabia's shift from SAMA to a sovereign fund. This shift impacts financial flows, reducing demand for bonds and euros, and complicates tracking global fund flows. The reported fall in global reserves is largely due to valuation changes and real selling by EM Asian countries other than China. Despite high surpluses, these countries are neither selling nor adding to reserves, contributing to the decline in reported global reserves. Russia's current account surplus in early 2022 nearly matches China's, driven by high oil prices and low imports.

Takeaways by Macro Roundup® AI

  1. Setser finds the global current account surplus concentrated in China, Russia, and the Gulf, with China on track for at least $400bn, Russia $250bn, and the Gulf $400bn or more.
  2. Unlike before the global financial crisis, these surpluses are not showing up in FX reserves, owing to rate differentials and Chinese exporters hoarding dollars, sanctions on Russia, and Saudi Arabia's shift from SAMA to a sovereign fund.
  3. The reported fall in global reserves stems largely from valuation changes and real selling by EM Asian countries other than China, with high-surplus countries neither selling nor adding to reserves.

Brad Setser, “Brad Sester On Current Accounts Surpluses And FX Reserves,”@Brad_Setser, October 10, 2022, https://twitter.com/Brad_Setser/status/1579659816372666368

“As @BobEUnlimited notes, one big global shift has come from the change in the U.S. petrol balance. I think there has been another: a shift from a world where big current account surpluses show up in fx reserves to one where they don’t. Prior to the global financial crisis — and in the few years after it – reserve growth in China, Saudi Arabia and Russia more or less tracked to their combined current account surplus. That isn’t the case now…”

“… This matters because the global current account surplus today is almost entirely in China (on track for at least $400b), Russia (on track for $250b or so), and the Gulf (on track for $400b or more), and none are showing in any reserve growth. The reasons differ (rate differentials and exporters hoarding dollars for China, sanctions for Russia, the Saudi shift away from SAMA toward a sovereign fund) but the net effect is the same — none are likely to add to their formal reserves in 2022. This matters for financial flows (less demand for bonds, probably less demand for euros too — for strange reasons), but it also simply makes the global flow of funds hard to track. It also has led to a broad misunderstanding about what is driving the big reported fall in global reserves. That fall is mostly from valuation changes – combined with real selling by EM Asian countries other than China. The big surplus countries (China, Russia and Saudi Arabia, which is representative of the Gulf) aren’t selling (unlike in 15), but they also aren’t adding. Their missing accumulation thus is helping to drive the large reported fall in global reserves. Last thought: Russia’s reported current account surplus in the first part of 2022 is almost equal to that of China. That reflects high oil and low Russian oil imports. But it also reflects the big gap between China’s customs surplus and its BoP surplus…”

“…Bottom line: there hasn’t been this kind of surge in the aggregate surplus of the big authoritarian global powers that hasn’t been primarily intermediated through their relatively conservative central banks in recent financial history.”

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