Yen decline could spark currency war

Updated 26 January 2013
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Yen decline could spark currency war

KUWAIT CITY: The decline of the yen could spark a currency war in southeast Asia, Badr Al-Saad, the head of Kuwait’s sovereign wealth fund, said in comments aired yesterday.
The Chinese economy will grow between 7.7 percent to 8 percent over the next two years, far better than developed economies, Al-Saad, the managing director of Kuwait Investment Authority (KIA), told pan-Arab network Al-Arabiya at the World Economic Forum in Davos, Switzerland.
“The only fear is the decline of the yen. The decline of the yen could trigger a currency war in the countries of southeast Asia, this is the only fear we have at the moment,” he said.
The Japanese currency has weakened to about 90 per dollar from 80 since November on expectations Prime Minister Shinzo Abe will force the central bank to ease monetary policy to combat deflation.
KIA has been seeking to invest more in China and China’s foreign exchange regulator recently increased the amount which the KIA can invest directly in local securities markets to $ 1 billion.
Al-Saad said that KIA has been investing in private equity funds where the returns are good and is shunning bonds because interest rates are so low.
“We have been investing in private equity funds lately ... the returns are good,” he said in rare public comments about the KIA’s investment strategy. He named Texas Pacific Group and CBC as two of the funds the KIA has been investing in.
He said the fund wanted to invest in upcoming infrastructure projects in Europe and the US.
“We think that these countries need to develop their infrastructure. We think that investments in infrastructure will be big in the next five years,” he said.
The KIA manages two main funds. Its Future Generations Fund invests abroad and had assets under management worth 73.63 billion Kuwaiti dinars at the end of March 2012, according to media reports, or $ 261 billion at the current exchange rate.
The KIA, which does not officially disclose assets under management, also manages a general reserve fund, which acts as the main treasurer for the government and receives all revenues.
Also yesterday, Japan’s economy minister hit back at critics of Tokyo’s new economic policies, saying they did not call into question the independence of its central bank.
Speaking at the World Economic Forum in Davos, Akira Amari said the Bank of Japan had “voluntarily” decided with the government to introduce a new inflation target in a bid to boost the world’s third-largest economy.
The new government in Tokyo, led by Prime Minister Shinzo Abe, has pushed the Bank of Japan (BOJ) to be more aggressive in its actions to battle nearly two decades of deflation and sluggish growth.
The BOJ on Tuesday unveiled a new inflation target of two percent and a massive program of asset purchases to pump money into the economy, sparking accusations that central bank independence had been compromised.
No less an authority than German Chancellor Angela Merkel told Davos on Thursday that she was “not without concern” about Japan’s actions.
“As regards the new proposal, you might say that it might undermine the independence of the BOJ. In the case of Japan so far, there has not been any undertaking to share the inflationary targets with the central bank,” Amari said.
“This time for the first time, we came to an agreement of a two-percent inflation target that is around the international level,” the minister added.
The policy has also led to a steady decline in the value of the yen against other currencies — boosting exports — but other countries have expressed concern that Tokyo is pursuing a beggar-thy-neighbor approach.
Amari declined to comment on the current level of the yen, which has fallen steadily since the new policies were unveiled, saying that it was “for the markets to decide” the exchange rate.
The head of Organization for Economic Cooperation and Development (OECD), Angel Gurria, told the same panel that it was a “fine line” to walk between defending your currency and putting trading partners at a disadvantage.
He noted that countries like Japan — he also mentioned Brazil, South Korea, Mexico, Chile, China and India — were places that attract investors during periods of uncertainty on the financial markets.
This causes the currency to rise, sometimes requiring action to bring it back to a more normal level, Gurria said.
“There is a certain legitimacy in terms of trying to defend yourself from the onslaught,” the OECD chief said.
“The only question is where do you draw the line between what is genuine self-defense and then something that would be a beggar-thy-neighbor policy? This is a thin line and it’s a difficult line to walk,” he added.
Mark Carney, governor of the Bank of Canada, hit back at this interpretation, saying that the group of seven leading industrialized countries had agreed not to intervene to affect the level of their currencies.
“There is an understanding within the G7 that has existed for the benefit of the global economy that there is not unilateral currency intervention,” he insisted.
Christine Lagarde, the head of the International Monetary Fund, was more circumspect, saying the IMF was “very interested by those policies.”
However, she added: “We certainly would like them to be complemented by a medium-term plan that includes how that debt will be reduced going forward.”


Iran sanctions shadow falls on smaller German banks

Updated 27 May 2018
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Iran sanctions shadow falls on smaller German banks

  • Some German companies plan to press on with Iran dealings
  • German exports to Iran rose 15.5 percent last year

Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.

There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.

But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.

“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.

The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.

German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.

Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.

Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.

Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.

Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.

What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.

One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.

Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.

DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.

Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.

Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.

Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.

Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”

Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.

“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.

Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.

German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”

KCI’s Melfi said time is running out for EU governments to act.

“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.

On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.

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