Thursday, May 15, 2014

Of Money Supply and Mattresses

Padding for a cadre’s good night sleep

This entertaining New York Times Op Ed penned by author Yu Hua raises the lid on the variously creative ways that corrupt Chinese officials attempt to conceal their ill-gotten gains. The Op Ed piece is ostensibly an explanation of why the faster growth of China’s money supply relative to its GDP has not resulted in runaway domestic inflation. The hypothesis? That a large proportion of the money supply is in the form of bribe money that is socked away rather than put into circulation. While the intriguing economic theory is not substantiated with empirical data, the inventive means that bureaucrats have used to stash the cash are worth describing here:
- $4 million in a safe deposit box;
- $1.5 million in the bathroom of a new apartment, which subsequently developed a water leak;
- $450,000 in a garbage heap next to his brother’s house;
- $3 million “wrapped in layers of plastic and hidden in a hollow tree trunk, beneath an ash heap, in a rice field and inside a latrine”;
- $200,000 in a rented luxury apartment. Despite wrapping the cash in plastic, it got moldy. Presumably, he should have reinvested part of the booty in a functioning air conditioner;
- $21.5 million (!) in cash and gold hidden away in a bureaucrat’s two houses. He later admitted that hiding the loot was a colossal headache.
It’s commendable that China’s reluctance to create a currency note worth more than RMB 100 ($16) is partially motivated by the desire to make cash-based corruption and money laundering more cumbersome. However, the bigger underlying problem of course is that such graft is still so rampant. And if the growing pile of dirty cash is not stemmed, at some point, inflation will indeed become a real problem. The iconic red RMB 100 notes may even become a cheaper material than cotton and coils for stuffing mattresses.

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