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China’s currency stock is facing the highest risk in the world
Abstract According to data from the People's Bank of China, as of the end of last year, the country’s broad money supply (M2) reached 97.42 trillion yuan, and it's only a matter of time before it crosses the 100 trillion yuan threshold. This figure accounts for nearly a quarter of the world's total money supply, making it impossible to ignore China's growing influence in global finance. In fact, it's fair to say that China has become the largest currency stock in the world.
This amount is 1.5 times that of the United States, 4.9 times that of the United Kingdom, and 1.7 times that of Japan—more than 20 trillion yuan greater than the entire Eurozone. What makes this number even more impressive is that most of this money was created in just the past few decades.
In 2000, China’s M2 was around 13 trillion yuan, and by 2008, it had not yet reached 50 trillion. However, after the 2008 financial crisis, the growth of M2 accelerated dramatically, crossing the 10 trillion yuan mark every year. In recent years, the increase has been even more pronounced, showing a clear upward trend.
Objectively speaking, this rapid expansion of money supply is not the result of one single department or policy, but rather the outcome of long-term imbalances in China’s economy and persistent trade and capital account surpluses.
The sudden accumulation of large amounts of money can have serious economic consequences. As we know, the U.S. dollar, as the world’s main reserve currency, has caused major problems globally due to its over-supply. Former U.S. Treasury Secretary Connery once famously said: “The dollar is our currency, but your problem.†Unlike the U.S. dollar, however, the renminbi is still not widely used abroad, meaning that the massive liquidity within China could increase risks for the domestic economy.
As former central bank advisor Li Daokui pointed out, having such a huge amount of money is like having a dry lake on your head. Excessive liquidity can lead to issues like inflation, asset bubbles, or capital flight.
In the medium to long term, the rapid rise in M2 also reflects a deepening monetization of the Chinese economy. Currently, the ratio of M2 to GDP in China is approaching 190%, a figure that has been rising sharply compared to previous years. This indicates a significant drop in investment efficiency and highlights the limitations of a growth model based on capital-driven development. It suggests that relying solely on monetary expansion is no longer sustainable, and new approaches are needed to ensure long-term economic stability.