Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy

► US-China imbalances reflect different but complementary policy objectives. ► Reserve hoarding has served GDP expansion and labor mobilization in China. ► Current account deficits reflect high US households' consumption. ► If China starts aiming at higher standards of living, a rebalancing process begins. ► If US monetary policy is too tight, a rebalancing process is more likely to start.