Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Outsourcing financial repression to China and insourcing it back

It is well known that financial repression more or less disappeared in advanced economies during the 1980s and 1990s, but has been making a comeback recently. Is it possible that financial repression did not actually disappear, but was simply outsourced to China? And the comeback that we are seeing after the Global Financial Crisis is simply a case of insourcing the repression back?

This thought occurred to me after reading an IMF Working Paper on “Sovereign Debt Composition in Advanced Economies: A Historical Perspective”. What this paper shows is that many of the nice things that happened to sovereign debt in advanced economies prior to the Global Financial Crisis was facilitated by the robust demand for this debt by foreign central banks. In fact, the authors refer to this period not as the Great Moderation, but as the Great Accumulation. Though they do not mention China specifically, it is clear that the Great Accumulation is driven to a great extent by China. It is also clear that much of the Chinese reserve accumulation is made possible by the enormous financial repression within that country.

This leads me to my hypothesis that just as the advanced economies outsourced their manufacturing to more efficient manufacturers in China, they outsourced their financial repression to the most efficient manufacturer of financial repression – China. Now that China is becoming a less efficient and less willing provider of financial repression, advanced economies are insourcing this job back to their own central banks.

In this view of things, we overestimated the global reduction of financial repression in the 1990s and are overestimating the rise in financial repression since the crisis.


4 responses to “Outsourcing financial repression to China and insourcing it back

  1. outsourcing training in dhaka September 29, 2014 at 1:17 am

    Superb site you have here but I was curious about if you
    knew of any message boards that cover the same topics discussed
    here? I’d really love to be a part of community where I can get feedback from other knowledgeable
    people that share the same interest. If you have any suggestions, please let me know.
    Bless you!

  2. airtran October 11, 2014 at 11:26 am

    Hey very cool site!! Man .. Beautiful .. Amazing ..

    I will bookmark your site and take the feeds additionally?

    I am satisfied to seek out so many helpful info right here
    within the publish, we’d like work out extra techniques on this regard, thank
    you for sharing. . . . . .

  3. their October 19, 2014 at 5:45 am

    great submit, very informative. I ponder why
    the other specialists of this sector do not realize this.
    You must proceed your writing. I am sure, you have a huge readers’ base already!

  4. October 20, 2014 at 8:35 am

    Extreme Tactical Dynamics is a onestop shop for Mini
    LED Lightbar and several other items like Flashlights, Deck Lights, police lights, etc.

    The innovation of LED bulbs found see how to avoid bars immediately replaced the previous revolving dome lighting system, and halogen lamps somewhat,
    giving portability and simplicity. Led light bar differences LED stripslights can change the chairs in a very
    dark or candle lit bar into conversation pieces and can really
    give the space a new feel for patrons.

    Light colored granite benches, plaques and sandstone bricks,
    inscribed with all the names of people and companies connected with the
    Granite Industry, surround the statue. The Contact bar on the home screen accommodates lots of phonebook shortcuts.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: