The recent collapse of California-based Silicon Valley Bank (SVB) shows the rapid interest rate hikes taken by major developed economies to curb inflation have raised concerns about their impact on the global economy and the possibility of triggering new financial risks, an official with China’s central bank said on Saturday.
"Recent risks exposed by a few banking institutions in the U.S. and Europe indicate that the rapid adjustment of monetary policy in major developed economies has both spill-over effects and internal influences," said Xuan Changneng, deputy governor of the People's Bank of China (PBOC), at the Global Asset Management Forum 2023 Annual Conference.
The long-term low-interest-rate environment in the past has made some financial institutions accustomed to managing assets and liabilities in a low volatility environment, lacking expectations and sensitivity to short-term and large fluctuations in interest rates. The asset-liability characteristics of Silicon Valley Bank made it more sensitive to interest rate changes and ultimately led to risk, said Xuan.
It is still uncertain whether inflation in major developed economies can significantly fall in the short term, and continuing to maintain high interest rates may have adverse effects on the sound operation of the banking and other financial systems, which increases the dilemma faced by monetary policy regulation, he added.
Investment, hedging attributes of Chinese financial assets will be more prominent
While the interest rate level of the major developed economies changes sharply in recent years, China has kept the interest rate level to match the requirement of potential economic growth, and did not make the monetary policy too tight, said Xuan.
"As China's economic growth momentum gradually recovers and the financial market further opens up, we believe that the investment attributes and hedging attributes of Chinese financial assets will become more prominent," he said, citing data that by the end of last year, the balance of foreign entities holding renminbi assets in China was 9.6 trillion yuan ($1.4 trillion), an increase of 1.2 times from 2017.
China's open, stable and developed market provides the world with diversified opportunities and choices in the complex and changing environment, according to Xuan.