China crisis? Looking for black swans in white snow of Davos

A man walks past a display showing symbols for world currencies on the exterior of a bank in Beijing. The rise of debt in China was among the issues raised at the World Economic Forum in the Swiss reosrt of Davos yesterday. (AP)
Updated 23 January 2018

China crisis? Looking for black swans in white snow of Davos

LONDON: Consumer debt in China, a dirty bomb and an antibiotic-resistant pandemic — all potential candidates for the next “black swan” event.
The annual gathering of global leaders, economists and thinkers in the Swiss alps yesterday looked to predict where the next big global shock would likely emerge.
Speaking at a panel on “The Next Financial Crisis,” Harvard professor Kenneth Rogoff said the Chinese economy was especially vulnerable to shocks caused by a rise in interest rates.
“If interest rates went up, the places that weren’t enjoying as much growth and had a lot of debt — Italy, Japan for example, some emerging markets — they could have a lot of problems. I certainly see China at an earlier stage of this. They didn’t have the financial crisis (in 2008), they did a great job, but they do have a lot of the characteristics of a typical financial crisis building up.”
The sharp rise in household debt in China has been flagged as a potential threat to the global economy, with the IMF recently warning the country’s dependency on credit could be a catalyst for the next financial crisis.
Vice-governor of China’s central bank, Zhu Min, told Reuters on Tuesday that China has little room for raising benchmark interest rates as inflation remains subdued and authorities are trying to reduce the economy’s debt burden.

The world’s second-largest economy expanded 6.9 percent in 2017, accelerating for the first time in seven years due partly to an export-led recovery, defying concerns that intensifying curbs on industry and credit would hurt expansion.
So what should the central bank policy response be if the another financial crisis were to suddenly materialize?

Historically low interest rates worldwide mean there is limited scope for central banks to tackle future financial crises, the session heard.
Still, Professor Rogoff downplayed fears of another big recession, telling the audience that financial crises have a “long afterlife” and that “we’re actually at the tail-end of the last one.”

Speaking on the same panel David M. Rubenstein, co-founder and co-executive chairman at investment firm The Carlyle Group told the audience he was worried about so-called “black swans,” a 9/11 type event that could produce a recession without warning.
He said: “The biggest problem I have is most people think there’s no problem of a recession this year or even next year. Generally when people are very happy and confident, something wrong happens. So I am nervous that the conventional wisdom is that there are no problems.”
Rubenstein also highlighted the high level of US government borrowing as a potential concern for the global economy.

“At some point people will wake up and (see) the US government has 20 trillion dollars of debt,” he said.

Saudi Arabia and UAE launch a new joint cryptocurrency

Updated 20 January 2019

Saudi Arabia and UAE launch a new joint cryptocurrency

  • The cryptocurrency will be limited to banks during its first stages
  • The program will also help the two countries evaluate the monetary policies of a centralized currency

Saudi Arabia and the UAE have launched a joint cryptocurrency during the first meeting of the Saudi-Emirati Coordination council Saturday in Abu Dhabi, UAE’s national press agency WAM said.

The cryptocurrency will be limited to banks during its first stages, until the governments have a better understanding of how Blockchain technology operates cross-borders.

The currency operates on the use of a “distributed database between the central banks and the participating banks from both sides,” aiming to protect customer interests, set technology standards and assess cybersecurity risks. The new program will also help evaluate the impacts of a central currency on monetary policies.

During the meeting, representatives of Saudi Arabia and the UAE also signed the Joint Supply Chained Security Cooperation program, which tests the two countries abilities to provide vital supplies during times of crisis and national emergencies, as well as share expertise and knowledge in the field.

All 16 members of the executive committee of the council followed up on the execution of the initiatives mentioned in the Strategy of Resolve.

Representatives also set five other initiatives to enhance the cooperation between the two countries, such as facilitating the traffic between ports, improving airports to make it easier for people with disabilities to travel, creating a financial awareness program for children aged 7-18, starting a joint platform to support local SMEs, and the integration of civil aviation markets,

The committee was headed by Mohammad bin Abdullah Al-Gergawi, minister of cabinet of affairs and the future of UAE, and Mohammed bin Mazyad Al-Twaijri, minister of economy and planning in Saudi. The committee will also monitor the implementation of the initiatives.