World Economic News
China To Call for Measures Against Forex Instability
Chinese Finance Minister Renqing will call for measures to prevent big foreign-exchange fluctuations, when he attends the G-7 finance ministers' meeting in London Feb. 4-5, China Daily reported Jan. 27. This was announced by Finance Ministry International Department head Zhu Guangyao at a Beijing forum, cosponsored by London's Economist Group. "China hopes rich nations will make more of an effort to maintain a stable forex market, as keeping relatively stable exchange rates between major currencies of the U.S. dollar, euro, and Japanese yen is of great significance to the world's economy. We need to limit forex fluctuations to create a favorable external environment for the healthy progress of developing countries, Zhu said."
Finance ministers of India, Russia, and Brazil will also be at the G-7 meeting. Zhu said that due to the "phenomenal changes" in the world since World War II, "finance ministers need to consider how to establish new economic order which can adequately represent the voices and demands of developing countries." He called for discussions of the Chinese currency's exchange rate, "in the context of international co-operation," but stressed that exchange rates "should be decided by the sovereign state." China needs to maintain currency stability at the moment, he said.
Chinese Economist: Dollar No Longer Stable Currency
"The U.S. dollar is no longerin our opinion[seen] as a stable currency, and is devaluating all the time, and that's making trouble all the time," stated well-known Chinese economist Fan Gang at the Davos World Economic Forum in Switzerland Jan. 26.
Fan Gang, who is director of the National Economic Research Institute at the China Reform Foundation, said the issue for China is not whether to devalue the yuan but "to limit it from the U.S. dollar." However, he said the Chinese government is under no pressure to revalue its currency. "So the real issue is how to change the regime from a U.S. dollar pegging ... to a more manageable ... reference ... say, euros, yen, dollarsthose kind of more diversified systems," Fan said. "If you do this, in the beginning you have some kind of initial shock. You have to deal with some devaluation pressures." Under pressure, the government will not change the yuan value against the dollar, he said. "But this time, I think Chinese authorities will not forget [about] it. Now people understand the U.S. dollar will not stop devaluating."
China's Development a Long-Term Process
China's economic development is a long-term process, emphasized Chinese economist Fan Gang at the Davos World Economic Forum in Switzerland Jan. 26. Since modernization began in the early 1990s, some 120 million rural laborers have moved into cities. China has a total of some 800 million rural workers in its 1.3 billion population. Another 200-300 million rural people will have to move to China's cities to spur development, Fan said. "The income disparity is huge, and income disparity will stay with us for a long time, as long as those 200 to 300 million rural laborers stay in the countryside."
Central Banks Turning Away from U.S. Dollar
Central banks are turning away from the U.S. dollar, states a new survey by "Central Bank Publications," which specializes in reporting on central banks. The survey was featured by London's Financial Times as the lead item on Jan. 24. Central bank reserve managers from 65 central banks, controlling $1.7 trillion of assets, participated in the survey. And 70% of the managers said they have replaced some of their dollar holdings by euro holdings within the last two years. The Financial Times comments, that such actions are "likely to undermine the dollar's value on currency markets."
"Central banks are shifting reserves away from the U.S. and towards the euro-zone in a move that looks set to deepen the Bush Administration's difficulties in financing its ballooning current account deficit," the report stated. "Any rebalancing of central bank reserve portfolios has serious implications for the global financial system as the U.S. has become increasingly dependent on official flows of funds to finance its current account deficit, estimated at $650 billion in 2004.... Any reluctance to increase exposure to dollar assets further could cause the greenback to plunge on currency markets." The survey was conducted on the guarantee of anonymity for the banks involved.
German Regulator Files Criminal Probe of Citigroup
The German financial supervision agency BaFin announced Jan. 24 that it had found evidence that Citigroup traders manipulated the German government bond-futures market on Aug. 2, 2004. On that day, Citigroup traders sold 11 billion euros of Euro-zone government bonds within less than two minutes, using the London-based trading platform EuroMTS. According to agreements, every other bank participating in the EuroMTS system automatically had to buy up a specified share of these bonds. As a consequence of the giant purchase, Euro-zone bond prices were falling sharply. Later the same day, Citigroup bought back 4 billion euros of the same paper, now at a much lower price, thereby making some profit.
According to BaFin, Citigroup then was using certain kinds of bond derivatives at the Frankfurt-based Eurex exchange to trigger a rebound of euro-zone government bond prices. A BaFin official noted: "There is concrete evidence that they attempted to push up the price artificially and then take advantage of that." BaFin therefore has now issued a formal request to the Frankfurt state prosecutor to start a criminal investigation into the Citigroup bond case.