In 2006 China shocked the world by adding $247bn to what was already the largest hoard of foreign currency reserves. In 2007, if correctly counted, China took in more than twice that amount. So far this year it is on track to double yet again.

It is increasingly clear that this level of reserve accumulation is not sustainable. Besides the strains it places on the global balance of payments, the biggest problem it causes is within China itself. The People’s Bank of China, China’s central bank, has to purchase these soaring reserves by issuing a combination of local currency and central bank bills. The ensuing monetary creation is fuelling rising inflation, systematic overinvestment and an overextended banking system.