Banking in China continued

China financial markets has a post on the RMBs potential as a reserve currency. Pettis correctly points out that this is unlikely in the near future.

What is more interesting is his comment on the state of the banking sector. In this we yet again share the same view. This is a massive problem waiting to happen.

The dollar, the RMB and the euro?

I will write a lot more about this in the next month or so, but for now it is worth pointing out that the Chinese banking system is one of the least efficient in the world when it comes to assessing risk and allocating capital, and would be bankrupt without repressed interest rates and the implicit (and sometimes explicit) socialization of credit risk. Beijing accepts this because of the tradeoff that gives it banking stability

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