DTN News - CHINA NEWS: As Markets Gyrate, China’s Central Bank Tries to Allay Concern on Tight Credit

DTN News - CHINA NEWS: As Markets Gyrate, China’s Central Bank Tries to Allay Concern on Tight Credit
*China Stocks Recover After Volatile Day

Source: DTN News - - This article compiled by Roger Smith from reliable sources Bettina Wassener and Chris Buckley - The NY Times
(NSI News Source Info) TORONTO, Canada - June 25, 2013: HONG KONG — The Chinese central bank reassured investors worried about a lingering credit squeeze and declared that it had already been selectively supporting bank liquidity, as Chinese stock markets swung wildly again Tuesday after several days of volatility.

The central bank, People’s Bank of China, eager to rein in soaring lending growth and financial risk, initially refrained from intervening as bank-to-bank interest rates soared last week, but then apparently released more money for lenders. Uncertainty over the central bank’s position produced wide trading swings Tuesday, with the main Chinese stock indexes dropping to their lowest levels since early 2009 before recovering most of the day’s losses near the end of trading.

The Shanghai composite index, which tumbled 5.3 percent Monday, slumped more than 5 percent again by early afternoon Tuesday. It recovered almost all of those losses to close down 0.2 percent. The index’s total decline since a peak in early February has been nearly 20 percent.

After China’s stock markets closed, the People’s Bank of China issued a statement apparently meant to soothe investors’ nerves and maintain pressure on banks deemed to be carrying too much risk.

“In recent days, the central bank has provided liquidity support to some financial institutions that meet the demands of macro prudence,” the bank said on its Web site. “Some banks with ample liquidity have also begun to play a stabilizing role in circulating capital into markets.”

On Tuesday the bank pledged that it would apply open market operations — buying or selling securities to manage liquidity and rates — and other methods to offset “short-term abnormal volatility, stabilize market expectations and maintain stability in monetary markets.”

The reassurances were accompanied by a warning to commercial banks to contain risk and to report promptly any “sudden major problems.” Chinese banks that follow government policies in lending practices and risk controls can expect support from the central bank if they have brief capital shortfalls, the bank said. But wayward banks can expect tougher treatment, it suggested.

“For institutions that have problems in their liquidity management, corresponding measures will be taken on a case-by-case basis, while maintaining the overall stability of money markets,” it said.

“The stock markets are continuing to react to the very elevated funding costs,” said Dariusz Kowalczyk, a senior economist and strategist at Crédit Agricole in Hong Kong, referring to the recent surge in interbank lending rates. Those rates determine what banks pay to borrow from each other, often to cover short-term obligations.

Interbank lending rates, which began to decline last Friday, continued to do so Tuesday. The benchmark overnight lending rate, a gauge of liquidity in the financial market, stood at 5.736 percent. That was down from 6.489 percent on Monday and well below the record high of 13.44 percent reached last Thursday.

But with rates still well above where they were in the last 18 months, around 3 percent, anxiety over the effect on the financial system and the economy persisted Tuesday.

The central bank’s stance could help economic conditions in China, many analysts have said, by instilling more lending discipline and reducing the chances of asset price bubbles and loan defaults that have increased with rapid lending growth in the last few months.

In its latest statement Tuesday, the central bank urged commercial banks to “prudently control the excessively rapid expansion of credit and assets that may lead to liquidity risks.”

Still, many analysts contend that the central bank’s tough stance has risks.

“We believe the biggest risk comes from the P.B.O.C. potentially mishandling the situation,” Ting Lu, China economist at Bank of America Merrill Lynch, said Tuesday, referring to the People’s Bank of China. “That being said, we believe the P.B.O.C. and Chinese policy makers will be aware of the potential dangers and take decisive measures to revive the interbank market, to calm investors and to stabilize the economy.”

In the rest of the Asia-Pacific region, the prospect of slower economic growth in China has weighed on markets for months.

*Link for This article compiled by Roger Smith from reliable sources Bettina Wassener and Chris Buckley - The NY Times
*Speaking Image - Creation of DTN News ~ Defense Technology News 
*Photograph: IPF (International Pool of Friends) + DTN News / otherwise source stated
*This article is being posted from Toronto, Canada By DTN News ~ Defense-Technology News Contact:dtnnews@ymail.com 
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DTN News - 2012 BRICS SUMMIT: BRICS Countries Ink Pact To Trade In Local Currencies

DTN News - 2012 BRICS SUMMIT: BRICS Countries Ink Pact To Trade In Local Currencies
*Announce joint working group on common development bank
Source: DTN News - - This article compiled by Roger Smith from reliable sources Nayanima Basu / New Delhi Mar 30, 2012, 00:26 IST - Business Standard
(NSI News Source Info) TORONTO, Canada - March 29, 2012: A major outcome of the fourth BRICS summit, which concluded here on Thursday, was the signing of an agreement on providing credit facility in local currencies. 

This would seek to reduce the demand for fully convertible currencies for trade transactions among BRICS countries — Brazil, Russia, India, China and South Africa. The leaders of these five rapidly emerging economies also agreed to explore ways to establish a development bank for financing projects in these, as well as other developing countries.

Addressing the media after the conclusion of the summit, Prime Minister Manmohan Singh said, “The agreement signed today by development banks of BRICS countries will boost trade among us by offering credit in our local currencies.”

A ‘multilateral letter of credit confirmation facility agreement’ was signed among the five participating banks — Brazil’s Banco Nacional de Desenvolvimento Economic e Social, Russia’s State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank), Export-Import Bank of India, China Development Bank Corporation and Development Bank of Southern Africa.

“We have agreed to examine in greater detail a proposal to set up a BRICS-led South-South Development Bank, funded and managed by the BRICS and other developing countries,” Singh said, adding the five BRICS countries had directed their respective finance ministers to set up a joint working group for an in-depth analysis of the proposal.

The joint Delhi Declaration, issued after the meeting, underscored the concerns of the BRICS countries — “the slow pace of quota and governance reforms in the IMF(International Monetary Fund.” The leaders agreed on giving more powers in the form of greater voting rights to developing economies. The leaders said the process of selecting candidates for the top posts in the World Bank or the IMF should be an “open and merit-based” one. “The new World Bank leadership must commit to transform the Bank into a multilateral institution that truly reflects the vision of all its members, including the governance structure that reflects current economic and political reality. Moreover, the nature of the Bank must shift from an institution that essentially mediates North-South cooperation to an institution that promotes equal partnership with all countries as a way to deal with development issues and to overcome an outdated donor-recipient dichotomy,” the leaders stated.

Earlier, Prime Minister Singh had highlighted the need to prioritise easier business visa norms to take full advantage of such a group. “We should promote greater interaction amongst our business communities. Issues such as easier business visas must be prioritised. As large trading countries, BRICS have a strong interest in removing barriers to trade and investment flows and avoiding protectionist measures,” he said.

The leaders said volatility in commodity prices posed risks, especially in food and energy. They called for improved regulation of the derivatives market to avoid destabilising impacts on food and energy supplies.

The leaders also agreed to make the UN Security Council more effective, efficient and representative.

They said the situation in Iran should not be allowed to escalate into a full-fledged conflict and expressed concern on the human rights violations in Syria.

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*Link for This article compiled by Roger Smith from reliable sources Nayanima Basu / New Delhi Mar 30, 2012, 00:26 IST - Business Standard
*Speaking Image - Creation of DTN News ~ Defense Technology News 
*This article is being posted from Toronto, Canada By DTN News ~ Defense-Technology News Contact:dtnnews@ymail.com 
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DTN News: North Korea Worthless Cash ~ Currency Reform May Unsettle North Korean Leadership

DTN News: North Korea Worthless Cash ~ Currency Reform May Unsettle North Korean Leadership *Source: DTN News / BBC By Marcus Noland Peterson Institute for International Economics (NSI News Source Info) HONG KONG - February 7, 2010: North Korea's unexpected currency reforms destabilised its economy - but are they likely to unsettle the country's politics as well? On 30 November 2009 North Korea launched a surprise confiscatory currency reform aimed at cracking down on burgeoning private markets and reviving socialism. The move predictably set off chaos, and now it appears that the government is in retreat, acquiescing in the reopening of markets. Now the question is what impact this episode may have for North Korea's looming leadership transition. During the 1990s the state found it was no longer able to fulfil its obligations under the old centrally planned system. As a result, the North Korean economy was forced to adopt some free market principles. Small-scale social units - households, work units, local government offices, and party organs - and even small-scale military units began acting entrepreneurially to survive. The announcement set off panic buying as people rushed to dump soon-to-be-worthless currency This free-market pressure from below received an enormous push during the famine period of the mid-1990s, when perhaps 600,000-1m people, or roughly 3-5% of the pre-crisis population, died. The regime is extraordinarily insecure about the domestic political implications of economic change. At times it has acquiesced in ratifying the facts on the ground, while at other times has sought to reverse the process. The trend over the past five years has been largely negative, and confiscatory currency reform could be interpreted as the latest in a series of moves designed to re-assert state control over the economy. No warning In principle, currency reforms are not a bad thing. Governments often use them to signal after a period of high inflation that the bad days are in the past, and that they will pursue more responsible macro-economic policies in the future. Typically, a government issues new currency with a number of decimal places or zeroes removed, often linking the nominal value of the new currency to a well-known currency such as the dollar or euro. In recent years countries such as Turkey, Romania, and Ghana have implemented such reforms. The North Korean case is significantly different from the conventional examples in that the move was sprung on the populace without warning, and most critically, enormous limits were placed on the ability to convert cash holdings. In effect this wiped out considerable household savings and the working capital of many private entrepreneurs. Citizens were instructed that they had one week to convert a limited amount of their old currency to the new currency at a rate of 100:1 (that is, one new won would be worth 100 old won). But the limit would not buy much more than a 50kg sack of rice at prevailing retail prices. The announcement set off panic buying as people rushed to dump soon-to-be-worthless currency, buying foreign exchange or any physical good that could preserve value. As the value of the North Korean won collapsed on the black market, the government issued further edicts banning the use of foreign currency, establishing official prices for goods, and limiting the hours of markets and products that could be legally traded. Scapegoat However as social opposition to these moves began to manifest itself, the government was forced to backtrack, offering compensatory wage increases, sometimes paying workers at the old wage rates in the new currency, amounting to a 100-fold increase in money income. The result has been a literal disintegration of the market, as traders, intimidated by the changing rules of the game, withheld supply, reportedly forcing some citizens to resort to barter. Reports - difficult, if not impossible, to confirm - have emerged of civil disobedience, protests, and even physical attacks on government officials trying to enforce the tightened restrictions. In the latest twist, the government appears to be in retreat - easing restrictions on markets and, according to some reports, scapegoating Pak Nam-gi, the Korean Workers Party Director of Finance, for the failed policy. The politics of the episode clearly leave many questions unanswered. Despite the fact that the reform was the year's single biggest economic event, it went unmentioned in the traditional joint New Year's Day editorial of several official publications. Some reports emerging from the diaspora network of North Korean refugees indicated that the policy was being undertaken in the name of Kim Jong-eun, the North Korean leader's third son and purported successor, and was meant to signal his emergence as a major political figure. Now it is an open question whether the fiasco has damaged his succession prospects in what is beginning to look increasingly like a nuclear-capable failing state. Marcus Noland is Deputy Director and Senior Fellow Peterson Institute for International Economics and Senior Fellow East-West Center