Re: FT: Critique of US renminbi policy

[Eubulides <paraconsistent@xxxxxxxxxxx>]

----- Original Message -----
From: "Michael Perelman" <michael@xxxxxxxxxxxxxxxxx>



> This article was quite good.  It reinforces my belief that we don't know
> much about international finance.  I tried to stir up a discussion of
> Michael Hudson's book.  No luck here.
>
> Could someone round up Jane d'Arista to see if she could get involved with
> a discussion with Ellen Frank on the subject?
>
> I would also like to know how revaluation would affect US profits in
> general.  I am thinking of Nike, which profits from cheap imports and
> which would never think of producing a single shoe lace in the US.

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[whaddya know, apropos China and the larger region, floating exchange rates
aren't good and capital account liberalization
is.......destabilizing...........]

F I N A N C I A L  S T AB I L I TY  FORUM

Statement by Roger W. Ferguson, Jr. Chairman of the Financial Stability
Forum International Monetary and Financial Committee Meeting 21 September
2003 Dubai

 The Financial Stability Forum (FSF) held its tenth meeting on 10 September
in Paris and focused on three topics: potential vulnerabilities in the
international financial system; progress in addressing weaknesses in market
foundations and corporate governance; and offshore financial centres.

Vulnerabilities in the international financial system

Members took note of the improvement in financial conditions, such as the
rebound of stock prices and the substantial reduction of corporate and
emerging market spreads, and the increasing, if uneven, signs of global
recovery and noted that risks to financial stability are now more balanced
than when the Forum last met in March. Comfort was taken from the fact that
financial institutions had mastered the past wave of shocks, most notably
the mid-June back up in long-term yields, rather well. While some sources of
vulnerability remain, these should not constrain the ability of financial
systems to provide support for a resumption of growth.

Nonetheless, the sustainability of the present financial situation is
dependent to a large extent on developments in economic fundamentals going
forward. Current financial market valuations may prove overly optimistic in
the face of the mixed picture actual data show. And on a longer horizon,
questions remain about the sustainability and robustness of the global
upturn. A renewed economic downturn combined with a fall in asset prices
could expose remaining vulnerability in the insurance sector, and poor
underlying profitability in the banking and corporate sectors of some
countries. The increasing levels of household indebtedness and real estate
lending in many countries also require monitoring.

The Forum will review more fully the risks these pose to financial systems
at its March 2004 meeting. However, the Forum noted that regulators and
policy makers from some jurisdictions remain confident that debt service
burdens are unlikely to pose a problem even as interest rates rise from
current very low levels. In a wider context, large international imbalances
pose a continuing potential for disorderly exchange rate adjustments. The
imbalances reflect several persistent elements, including low savings in the
US, low growth and structural rigidities in Europe and Japan, the desire of
some Asian countries to build reserves and of others to promote growth
through exports. The Forum recognized that China faces complex and difficult
policy choices. In view of current weaknesses in China's banking and
financial system, members considered that full capital account
liberalization and a floating of the exchange rate could have destabilising
consequences, and thought that a gradual and pragmatic approach on both
accounts would be advisable.

Members took note that many emerging market economies (EMEs) have been able
to take advantage of the current favourable financing condition to satisfy
their 2003 official financing needs. At the same time, they noted that many
EMEs remained heavily indebted and vulnerable to shifts in market sentiment.
Therefore, they considered that EMEs should use the present opportunity to
strengthen macroeconomic policy frameworks, including a more proactive
stance on liability/debt management, and vigorously implement structural
reforms.

The Forum reviewed a number of ongoing initiatives to reduce
vulnerabilities, including improved transparency in the reinsurance industry
and work to address credit risk transfer issues. Members encouraged
reinsurance regulators to ensure that expanded information availability
helped strengthen market discipline. Questions remain as to where the credit
risk that banks are shedding via credit risk transfer instruments is ending
up. An unchecked, concentrated accumulation of credit risk is a concern from
a financial stability perspective.

more @:

http://www.fsforum.org/press/IMFCStatement17.09.03.pdf