China is sitting on a $6 trillion pile of money, half of which is “hidden,” and that presents a new kind of risk to the global economy, according to Brad Setser.
What advantages does China benefit from hiding a large amount of currency reserve from the rest of the world? Is there any benefit they can derive from this or not, because I don't understand why they would hide such a vast sum of money.
You can read Brad Setser's own thoughts on this here, although he doesn't really go into too much detail as to why he believes China would attempt to "hide" their forex reserves.
Indeed, if you read the full article, you'll find that these reserves aren't so much "hidden" as moved from one department of the Chinese government (the State Administration of Foreign Exchange, SAFE) to other departments (the soverign wealth fund, state-owned commercial banks et al.), although Setser does make vague hints at some kind of shenanigans. The reason a government would do this is that, while some forex reserves can be beneficial, it is usually considered undesirable to hold huge reserves of a foreign currency, and circa $3tn is pretty huge, even by Chinese standards. After a point, it is more attractive to convert that currency into foreign assets, which can yield some sort of return. China has chosen to do this via arms of the government other than the SAFE, which isn't unusual per se.
As a separate point, note that governments usually like to keep the composition of their forex reserves secret. Indeed, the IMF claims that only four of their staff have access to this data at the individual country level. However, this is not what is being alluded to in the article that you have quoted.
Prevent the currencies of their major clients from plunging. Virtual dollars and other currencies bought with virtual renminbis. Not a Ponzi scheme, but close to.
