Edward Conard

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Upside of Inequality Oxford Unintended Consequences

Brad Setser @Brad_Setser
Date Posted:
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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.

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.

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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