Jake's View | China's currency swap deal with Switzerland is just plain dumb
It's a funny thing about the balance of payments: very few politicians understand how it works and yet they love to monkey about with it. The basic rule here is something like the law of gravity, which says that what goes up must come back down.
Switzerland stepped closer to becoming an offshore yuan hub yesterday after it signed a bilateral currency swap agreement with the People's Bank of China... The SNB [Swiss National Bank] also obtained a yuan investment quota, with which it could invest part of its foreign exchange reserves in the Chinese bond market...
It's a funny thing about the balance of payments: very few politicians understand how it works and yet they love to monkey about with it.
The basic rule here is something like the law of gravity, which says that what goes up must come back down.
In balance of payments matters, the law is that what comes in must go back out. Economists mostly express this by saying that payments must balance.
Thus, taking China as an example, last year the figures showed a merchandise trade surplus of US$360 billion. This represents money that came in to pay for goods, which went out. After adjusting for a deficit in services trade and some other inputs, the final surplus of the current account on the balance of payments came to US$182.2 billion.