Japan and China must curb massive intervention to depress their currencies or face far-reaching economic consequences, Federal Reserve Chairman Alan Greenspan warned Tuesday.
Combined, the two Asian economies had built up more than US$1 trillion in US assets in a frenetic buying spree: an "awesome" US$650 billion for Japan and US$420 billion for China, Greenspan said.
PHOTO: AFP
Since the start of 2002 alone, Asian central banks -- particularly in China and Japan -- had spent nearly US$240 billion on US assets to cap their currencies and protect exports, he said.
At some point, however, the staggering rate of accumulation of dollar assets by Japan must slow and eventually cease, the 77-year-old central bank chief said.
"As the present deflationary situation abates, the monetary consequences of continued intervention could become problematic," Greenspan warned.
"The current performance of the Japanese economy suggests that we are getting closer to the point where continued intervention at the present scale will no longer meet the monetary policy needs of Japan," he said.
Booming exports helped Japan report annualized GDP growth of 7 percent in the third quarter of last year, its strongest performance in more than 13 years.
Despite the heavy Japanese intervention, the yen appeared to be "elevated" against the dollar because of an extraordinarily heavy Japanese preference for buying yen-denominated assets, he said.
Beijing's massive buying of dollars, meanwhile, threatened to create a glut in the monetary base and a consequent overheating of the Chinese economy, Greenspan said.
Beijing had mopped up some of the excess liquidity created by its purchases of US assets by cutting loans to Chinese commercial banks, selling bonds and requiring banks to keep higher reserves.
But a broad measure of Chinese money supply -- M2 -- had still grown 20 percent last year and a little less so far this year.
"Should this pattern continue, the central bank will be confronted with the choice of curtailing its purchases of dollar assets or facing an overheated economy with the associated economic instabilities," Greenspan warned.
"Lesser dollar purchases presumably would allow the renminbi [yuan], at least temporarily, to appreciate against the dollar," he said.
But China yesterday dismissed Greenspan's warnings.
"We've seen the report," said an official at the People's Bank of China's press office, refusing to specifically address Greenspan's comments.
"We will maintain our consistent monetary policy which is a unified, managed floating exchange rate regime [based on supply and demand of foreign exchange in the market]," he said.
Yi Gang, director of the monetary policy department of China's central bank, added: "The basic point of our monetary policy is to maintain the stability of the RMB [renminbi] and to promote the growth of the Chinese economy.
"Both the starting point and standpoint of our monetary policy is the Chinese economy and in addition we also consider the international balance between income and expenditure.
"I think the Chinese macroeconomy is stable currently and that will be maintained."
Japan also said it would not change its policy of intervening to curb the strength of the yen in response to foreign pressure.
"Japan's policy will not change just because certain people outside of Japan made a comment," said Hiroshi Watanabe, director-general of the Ministry of Finance's International Bureau. "We will change our policy whenever we think it is necessary."
Watanabe said the dollar's recent strength was not due to Japanese intervention alone.
"Unlike the stock market, you cannot say whether ups and downs in the currency market are good or bad. Although the Japanese economy is showing some strength, when the US economy is stronger it is natural to see the dollar rise. It had been declining too fast in the past several months."
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique