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Why 'Quantitative Tightening' May Again Become a Problem for Markets

This week's about the Fed, BoJ...and maybe, the PBOC.
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Photographer: Qilai Shen/Bloomberg

In August 2015, George Saravelos thought he had put his finger on one acute source of the financial stress that followed China's depreciation of the yuan.

China's sales of reserve assets to prop up its currency, he said, amounted to "quantitative tightening" — the exact opposite of the money-supply policies central bankers use to try to reflate asset prices in the wake of the financial crisis. Chinese sales of primarily U.S. dollar assets were draining global liquidity and dampening global risk appetite, according to the Deutsche Bank AG strategist, thereby contributing to the selloff in stocks and bonds.