Getting out from between a rock and a hard place: Can china use its foreign exchange reserves to save its banks? |
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| Institution: | 1. School of Business, Shandong University of Technology, No.88 Gongqingtuan Road, Zibo, Shandong 255012, China;2. Department of Economics, University of Western Ontario, London, Ontario N6A 5C2, Canada;3. NBER, United States;4. The Centre for International Governance Innovation (CIGI), Canada;1. Portland State University, Portland, OR 97207, USA;2. Bank for International Settlements (BIS), Centralbahnplatz 2, CH-4002, Basel, Switzerland |
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| Abstract: | Recently, the central bank of China lent part of its enormous reserve of foreign exchange to two of its largest banks in difficulty. This seemed to be a very clever policy response since the capital infusion did not affect the money supply nor sacrifice the currency peg as has traditionally been the case. This paper considers the viability of this policy and asks why other Southeast Asian countries with large reserves of foreign exchange did not adopt a similar approach to combat their bank problems in the 1990s. |
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