how did the "global savings glut" and "sovereign wealth funds" come about?
Q. I understand that developing countries' current account surpluses create reserves, but how did these reserves pass from private exporters into sovereign wealth funds which the governments themselves then invested in the US,etc? Or have I misunderstood something?
Asked by Marc A - Mon Mar 9 06:30:22 2009 - - 3 Answers - 0 Comments

A. Two ways. First. The money never belonged to private exporters in the first place. This is typical in oil exporting counties where the oil company is 100% owned by the government. Some Chinese manufacturers are owned by the government. In this case cash goes straight to the government just like in the US, fees for government services go straight into the government treasury. Second, private exporters are paid in dollars, which can't be spent in China (for example) so the Chinese government issues Yuan (RMBs) and buys the dollars and adds them to the national financial reserves. They also get money by taxing exporters. This is the way it's always been done. What's different is that countries use to keep their reserves in gold or… [cont.]
Answered by Ted - Mon Mar 9 09:45:03 2009