China nudges trading band higher
By Geoff Dyer in Beijing
Copyright The Financial Times Limited 2010
http://www.ft.com/cms/s/0/bf5c0450-7da4-11df-a0f5-00144feabdc0.html
Published: June 22 2010 04:28 | Last updated: June 22 2010 08:57
The Chinese central bank on Tuesday raised the daily reference rate for the renminbi against the dollar in a sign that Beijing might allow further gentle appreciation of the currency this week. However, the currency fell against the dollar in the spot market, a warning to investors who viewed the renminbi as a one-way bet under the new regime.
The People’s Bank of China raised its reference rate by 0.43 per cent from Monday’s rate. The bank sets the renminbi-dollar reference rate daily, and then allows the currency to trade 0.5 per cent below or above that rate.
At the weekend, the central bank said it would introduce a more flexible exchange rate policy, signalling an end to the two-year, unofficial peg to the dollar that had been the subject of mounting international criticism. The announcement was welcomed by many of China’s trading partners, including the US, where lawmakers have stepped up pressure on Beijing against its practice of holding down its currency to boost exports.
On Monday the bank left the reference rate unchanged from Friday but allowed the currency to appreciate within the trading band by 0.42 per cent from its previous close.
Traders said that by setting the new mid-point at 6.7980 on Tuesday – which was close to Monday’s closing rate of 6.7976 – the Chinese authorities were indicating that they would tolerate further appreciation this week in the run-up to the G20 summit in Toronto.
However, the renminbi was last trading at 6.8157 against the dollar, 0.26 per cent lower than the reference rate by mid-afternoon.
There were reports of Chinese state-owned banks heavily buying dollars, which drove down the value of the renminbi in the spot market. Reuters quoted traders as saying the buying was made on behalf of the central bank to avoid direct market intervention.
It would be in Beijing’s interest for the renminbi to temper its rise, as the belief that the currency could only get stronger would attract large inflows of hot money, making it difficult to conduct monetary policy and potentially aggravating inflation.
Richard Yetsenga, an analyst at HSBC, on Monday said the new regime would involve more two-way volatility where renminbi depreciation was also possible.
The central bank has made it clear that it will not allow any big movements in the exchange rate against the dollar, especially as the renminbi has already appreciated significantly against the euro. The single currency was last trading at Rmb8.3724, down 11.7 per cent from a year ago and 0.93 per cent lower than its closing price on Friday.
Investors in the forwards market continued to anticipate a higher renminbi, with the 12-month non-deliverable forwards contracts quoted at Rmb6.6304 to the dollar, 0.2 per cent higher than Monday’s level, implying that traders were expecting an appreciation of 2.7 per cent in the next year, according to Bloomberg.
EU edges towards tougher economic rules
By Tony Barber in Brussels
Copyright The Financial Times Limited 2010
Published: June 21 2010 23:28 | Last updated: June 21 2010 23:28
http://www.ft.com/cms/s/0/8b03926c-7d5a-11df-a0f5-00144feabdc0.html
Eurozone governments are moving gingerly towards an enhanced system of economic governance, uncertain how far they ought to limit national sovereignty in the name of saving their monetary union.
More rigorous surveillance of national budgets, closer attention to debt levels and the development of a scoreboard to monitor trends in competitiveness were all agreed last week at a short summit of European Union leaders in Brussels.
Yet the most difficult decisions remain, and some centre on the time-honoured question of whether European governments will ever have the nerve to punish each other for not obeying economic rules.
The deadline for settling these matters is October, when Herman Van Rompuy, EU president, will present national leaders with his final report on how to improve economic policymaking in the 16-nation euro area.
EU leaders acknowledged last week that the financial and sovereign debt crises had exposed “clear weaknesses in our economic governance”, but agreed only “a first set of orientations” on what steps to take.
Janis Emmanouilidis, an analyst at the European Policy Centre think-tank, said: “EU leaders agreed in principle to strengthen sanctions for countries with excessively high deficits or debt levels.
“But what form these sanctions will take has yet to be agreed, and it is questionable whether it really is the right way forward.”
The communiqué made no mention of a German proposal to suspend for at least one year the voting rights of a country that breaks eurozone rules.
Nor did the summit statement refer to another German idea – that of establishing a procedure for “orderly state insolvencies”, which, according to Berlin, would create incentives for countries to keep their fiscal houses in order and for financial market participants to lend sensibly.
Meanwhile, calls for tougher financial penalties, such as the suspension or even permanent withdrawal of EU regional aid funds, have run into opposition from countries such as Poland that benefit greatly from the funds and aspire to join the eurozone.
If Germany is finding it hard to convince its partners of the merits of its proposals, France is finding it no less hard to persuade Germany about its own. A French push for regular meetings of eurozone leaders and for the creation of a permanent secretariat has met firm German resistance.
Perhaps the most fundamental question is whether the new system will require changes to the EU’s Lisbon treaty, which came into force last December after eight years of negotiations and political strife.
Germany’s far-reaching proposals, such as the expulsion of chronic fiscal delinquents from the eurozone, could not be put into practice without changing EU treaty law.
But few governments share Germany’s enthusiasm for rewriting Lisbon, and their mood is shared by Mr Van Rompuy and José Manuel Barroso, European Commission president. The two men contend that useful improvements in economic governance are possible under Article 136 of the Lisbon treaty, which deals with budgetary discipline and economic policy.
Certain changes, such as the imposition of interest-bearing deposits on countries that fail to pursue discipline in healthy economic times, can be introduced by means of secondary legislation, without any need for treaty revision, Commission officials say.
If more radical reforms are deemed necessary, it may be possible to incorporate them into the EU’s next accession treaty, which is expected within two years or so when Croatia and perhaps Iceland join the bloc.
Ways to fortify governance
• Political sanctions such as suspension of voting rights for breaking fiscal rules. Germany in favour.
• Extending financial penalties to withholding EU aid. European Commission and Germany in favour. Poland opposed.
• Setting out a procedure for the orderly restructuring of a member-state’s debts. Germany in favour.
• Creating possibility of expelling fiscally delinquent country from the eurozone. European Central Bank and Commission oppose.
Financial reform deal to cut debit card fees
By Tom Braithwaite in Washington and Suzanne Kapner in New York
Copyright The Financial Times Limited 2010
Published: June 22 2010 01:02 | Last updated: June 22 2010 01:02
http://www.ft.com/cms/s/0/248b0908-7d90-11df-a0f5-00144feabdc0.html
Debit card fees charged to retailers could be cut under a deal on financial reform hatched by congressional negotiators that hits banks but protects Visa and MasterCard.
A conference committee of lawmakers will on Tuesday resume its public negotiations over the final shape of the landmark legislation, which is due to be delivered to Barack Obama, US president, as soon as the end of the week to be signed into law.
The “interchange” fees paid by merchants to card issuers would be capped by the Federal Reserve at a “reasonable” level under a provision put forward by Dick Durbin, the Democratic senator from Illinois.
Mr Durbin said on Monday that conferees from the House of Representatives had agreed to accept his measure, which has already been approved by the Senate, with “minor, clarifying changes”.
But, in an important change to the provision, the Fed would be prevented from regulating network fees, which are charged by Visa and MasterCard; they totalled $19.7bn in 2009, or about a third of all interchange fees, according to the Nilson Report.
Shares in Visa rose 5 per cent to $80.90 and MasterCard rose 4.2 per cent to $223.34. Both companies saw their shares fall sharply when the earlier version of legislation – that covered the network fees – was passed by the Senate.
However, banks faced an almost complete defeat. Although they would be able to charge interchange fees to cover fraud-prevention costs, most other such surcharges would be capped. In deciding what fees would be reasonable, Congress instructed the Fed to consider cheques, which are cleared without any transaction fees.
The smallest banks, with assets of less than $10bn, would be exempt from the new rules, as would local, state and federal government programmes that allow people to access benefits with debit cards.
Bank of America, Wells Fargo and JPMorgan Chase, which, according to Nilson issued a combined $550bn in debit cards last year, stand to suffer most from the new rules.
Banks, with the support of a large number of members of Congress, lobbied hard against the legislation, arguing that a similar law passed in Australia in 2003 resulted in higher card fees and fewer benefits, rather than lower costs, to consumers.
In spite of the deal being agreed in principle it will still need to be agreed at a public session of conferees. The final legislative package also faces votes in the House and Senate.
Interchange is one of the last live battles over financial reform and one of several issues that emerged late in the process and are set to be included in the final legislation in spite of objections from banks.
This week the conferees are set to toughen the “Volcker Rule”, which bans banks from proprietary trading and places restrictions on their ownership of hedge funds, and include a provision to force banks into an expensive restructuring of their swaps desks.
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