How Foreign Central Banks Create Credit

Banks are far less important in the credit creation process now than they used to be, it's really the non-bank financial sector as well as foreign central banks that are creating a lot of the credit. The People's Bank of China first creates its own currency, that's step one. They just created this money from thin air. And so it is money creation by foreigncentral banks that results in this build up in foreign exchange reserves. So it's much like everyone's now familiar with quantitative easing where the Fed creates dollars and buys government bonds and pushes up the price of government bonds in the US.

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