Everything depends on what happens next. If the tweak heralds the start of a proper devaluation to boost exports, the world economy will have to adjust to a new China.
The process would be painful.The “nothing to worry about” argument dominated on Tuesday. The People’s Bank of China described the move as a “one-off” and presented its decision as part of the five-year plan to allow more liberal winds to blow in China’s markets.
Investors had thought the yuan should be lower against the surging US dollar; now it will be and, in future, market forces will play a greater role in fixing the value of the Chinese currency. One can understand how the script could develop happily.
Beijing is obsessed with the idea of the yuan becoming one of the International Monetary Fund’s reserve currencies alongside the dollar, the euro, sterling and the yen.
Pro-market reforms might encourage the IMF to give a thumbs-up in November, thereby pulling China closer into a global financial system that Beijing would be less inclined to upset. The alternative theory is alarming.
Maybe the Chinese economy is weaker than indicated by the official statistics, which nobody trusts anyway. Wages are rising, corporate debts are mounting and the struggle to maintain a loose peg with the dollar has caused a loss of competitiveness against Asian rivals.
A classic solution would be to give exporters a shot in the arm by cutting interest rates sharply and allowing the currency to fall. If that were to happen, prepare for upsets.
China’s trading partners in Asia would hate the new terms of trade, commodity prices might fall further and fresh currency wars could break out. September’s likely rise in US interest rates would compound tensions.
For the moment, judging which interpretation of Beijing’s move is correct is a guessing game. It could indeed be a minor and logical policy shift. The trouble is, the scary theory is also simple: the Chinese economy is stalling and Beijing wants its currency to weaken. If that’s right, the story has only just begun.
Co-op Bank’s risky business
“Co-op Bank’s failings stand out both for the duration and seriousness of the risk management and control deficiencies uncovered,” says Andrew Bailey, the chief executive of the Bank of England’s Prudential Regulation Authority (PRA). You bet.
Read the reports by the PRA and Financial Conduct Authority and be astonished by the feebleness of the Co-op Bank’s approach to assessing and managing risks.
In 2009, the bank was, in effect, contemplating betting its future on a merger with the Britannia Building Society.
Surely the bosses would wish to know what they were buying in minute detail; and Britannia’s corporate loan book deserved deep scrutiny given that the UK was in post-crisis recession at the time. Instead, an in-house team spent just two days inspecting only 30 corporate loans representing a small portion of Britannia’s credit exposure.
“This was carried out by a review of files which contained little information, often with no reference to the name of the borrower but to a reference number from which the borrower could not be identified,” says the PRA.
No written report was prepared for the board and “between January 2009 and 1 August 2009, when the merger took place, no further due diligence was carried out in respect of the Britannia corporate loan book”.
Extraordinary. The sorry tale continued all the way to early 2013 when the Co-op Bank reassured bondholders and the market that it had enough capital, a claim the FCA calls “false and misleading”.
The PRA and FCA deem the bank, even today, to be too weak to pay a heavy fine. Fair enough. A censure for the bank will have to suffice for now because, in truth, it is individual culpability that really matters.
That is harder to prove because individuals tend to dispute findings when their reputations are on the line and hefty fines a possibility. But, hurry up, dear regulators, we want to hear where individual blame lies. It would be disgrace if the full account of the Co-op Bank’s horrors takes as long to appear as the postmortem on HBOS.
Retirement planning
When specialist annuity providers Just Retirement and Partnership Assurance came to the stock market in 2013 they were worth a combined £2.5bn. That figure is now £1.6bn and the pair are merging out of desperation. They have little choice, really.
The chancellor, George Osborne, unleashed a popular storm when he removed the obligation on pensioners to buy an annuity. It makes sense for two providers of “impaired” annuities – those for ill pensioners with short life expectancies – to huddle under a single umbrella.
They can cut a few costs and try to win bulk annuity business from corporate defined-benefit schemes. It’s a plan, but it certainly isn’t a quick fix. This deal is the definition of a defensive merger.
theguardian.com
No comments:
Post a Comment