The savings of emerging economies are not the root cause of the global credit bubble, and such rhetoric does not make any sense, an official with the central bank said on Friday.
Xuan Changneng, the head of research institution at People's Bank of China (PBOC) made his remarks at a press conference in response to recent comments by exiting US Treasury Secretary Hank Paulson.
Paulson said earlier that super-abundant savings from fast-growing emerging nations such as China and oil exporting countries "laid the seeds of a global credit bubble".
The speech echoed the accusation that emerging economies' high savings rates had held down the interest rate in the US, which led to over-consumption and the credit bubble.
"The theory is unreasonable as the US savings rate declined long before China's foreign exchange reserve started to grow," Xuan said.
US savings started to decline in 1997, and its saving rate dipped to as low as 2 percent in 1999.
After the burst of the Internet bubble in 2000, the Federal Reserve chopped interest rates 13 times to a record low of 1 percent, which encouraged over-consumption in the US.
However, the rapid growth of China's foreign exchange reserve only started in 2003, two years after its entry into the WTO. China's forex reserve grew only 25 billion yuan from 140 billion yuan in 1997 to 165 billion yuan in 2000, PBOC figures showed.
After the outbreak of the Asian financial crisis in 1997, the IMF suggested that Asian countries should maintain low deficits and keep their interest rates and forex reserves at a high level.
"Some countries should learn the concept of accountability and reflect on their own policy in self-criticism," Xuan said.
At the G20 summit held in Washington in November, leaders concluded that the main factors creating the ongoing financial crisis are the weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage in the US financial market.
In testimony last year before the US House Oversight Committee, former Federal Reserve Chairman Alan Greenspan acknowledged he had made a "mistake" in believing that banks operating in their own self-interest would be sufficient to protect their shareholders and the equity in their institutions.
(China Daily January 17, 2009)
