Economics lecturer Dr Nguyen Vu Hong Thai has published his research on the effects of excess bank reserves in China in three A-ranking academic journals.
Dr Thai, who began his career as a strategist at HSBC, has published in the Journal of International Financial Markets; Institutions and Money; and the International Review of Financial Analysis.
He said the involuntarily amassed excess reserves held by Chinese commercial banks could lead to the ineffectiveness of Chinese monetary policy and encourage the banks to take risks in their lending activities.
“This accumulation of huge reserves in the Chinese banking system has occurred because over the past decades China has focussed too much on exporting, resulting in twin surpluses,” Dr Thai said.
“The reserves will cause problems when the Chinese central bank wants to tighten monetary policy – to withdraw liquidity from the system in order to reduce lending and credit growth.”
The commercial banks involved are large with plenty of reserves and so will not be affected by a tightening monetary policy.
“If these big banks are not affected the policy is ineffectual.”
Dr Thai posits the Chinese government should impose policies to restructure the economy to solve this problem.
“China needs to convert those excess reserves into production, investment and building new companies,” he said.
“It needs to use the money instead of having it sitting idly in the banking system or financing speculative investment.”
In addition the relaxed lending criteria tendencies of banks holding large reserves leads to lending to less credit-worthy borrowers, placing the banking system at risk as large and bad debts accumulate.
Dr Thai has lectured at RMIT Vietnam for almost a year, having previously worked at the Eastern International University in Binh Duong.
He gained his PhD at the University of Nottingham in the UK.
Story: Sharon Webb