-Caveat Lector-
Begin forwarded message:
From: [EMAIL PROTECTED]
Date: September 18, 2007 3:01:22 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: Greenspan: Euro could replace U.S. dollar as world's
reserve currency of choice
Greenspan: Euro could replace U.S. dollar
as world's reserve currency of choice
The Associated Press
Published: September 17, 2007
http://www.iht.com/articles/ap/2007/09/17/business/EU-FIN-MKT-
Germany-Greenspan-Euro.php
FRANKFURT, Germany: Former U.S. Federal Reserve chairman Alan
Greenspan said it is possible that the euro could replace the U.S.
dollar as the reserve currency of choice.
According to an advance copy of an interview to be published in
Thursday's edition of the German magazine Stern, Greenspan said
that the dollar is still slightly ahead in its use as a reserve
currency, but added that "it doesn't have all that much of an
advantage" anymore.
The euro has been soaring against the U.S. currency in recent
weeks, hitting all-time high of US$1.3927 last week as the dollar
has fallen on turbulent market conditions stemming from the ongoing
U.S. subprime crisis. The Fed meets this week and is expected to
lower its benchmark interest rate from the current 5.25 percent.
Greenspan said that at the end of 2006, some 25 percent of all
currency reserves held by central banks were held in euros,
compared to 66 percent for the U.S. dollar.
In terms of being used as a payment for cross-border transactions,
the euro is trailing the dollar only slightly with 39 percent to 43
percent.
Greenspan said the European Central Bank has become "a serious
factor in the global economy."
He said the increased usage of the euro as a reserve currency has
led, like in the case of the U.S. dollar, to a lowering of interest
rates in the euro zone, which has "without any doubt contributed to
the current economic growth."
-------------------
Bank of England doubles emergency loans available to British banks
By Julia Werdigier
Tuesday, September 18, 2007
http://www.iht.com/articles/2007/09/18/business/money.php
LONDON: The Bank of England on Tuesday doubled the amount of
emergency loans made available to British banks caught short in the
global credit squeeze - curbing a surge in overnight borrowing
costs but fueling criticism that the bank governor was reversing
his own policy against bailouts.
The central bank lent £4.4 billion, or $8.8 billion, at its
benchmark interest rate of 5.75 percent and said it would offer the
same amount Thursday in seven-day loans to help strengthen
confidence in the financial system.
The step followed a surge in the overnight lending rate that banks
charge each other, to 6.47 percent, the highest level in four
months and a sign that lenders were still unsettled by
repercussions of the U.S. mortgage market turmoil and remained
reluctant to lend. The overnight rate subsided to just over 6 percent.
The action was intended to protect the British economy from choking
on rising borrowing costs. The economy has grown in recent years on
the back of a flourishing financial services market and record
consumer debt.
Pressure on the Bank of England governor, Mervyn King, to act
increased after customers withdrew billions of pounds in savings
from Northern Rock, a British mortgage lender that faced a
liquidity shortage after credit markets had dried up. Shares of
other British lenders, especially those with similar business
models, also started to fall.
"Something had to be done to contain the situation after some signs
of contagion," said Howard Archer, an economist at Global Insight
in London.
But King faced criticism for what some analysts saw as a reversal
of his position, laid out just last week, not to bail out any bank
that falls victim to its own excessive lending policies. Last week,
he distanced himself from the more activist approach taken by the
European Central Bank and the U.S. Federal Reserve and cautioned
against the so-called moral hazard - bailing out banks with risky
lending practices - because it would only encourage more risky
practices in the future.
Then this week the government announced that the Bank of England
would pay back Northern Rock customers all of their deposits should
the private bank collapse, and it offered the same support to any
lender in a similar situation.
"The decisive action we have taken means that the deposits of
Northern Rock customers are guaranteed," Prime Minister Gordon
Brown said Tuesday in his first public comments on the bank's woes,
The Associated Press reported. "It is because of the strength of
our economy that we have been able to take these measures."
Archer said that this offer "does risk opening the floodgates" but
that the step was more intended to "stabilize the situation and
then maybe come up with future regulation or monitoring system to
avoid this ever happening again."
The assurances helped shares in Northern Rock and other banks to
rebound Tuesday. Northern Rock shares rose 8.2 percent on Tuesday
in London after dropping 35.4 percent on Monday. Other banking
shares, including those of Barclays, in London and BNP Paribas, in
Paris, also recovered.
The Financial Services Authority, a British regulator, acknowledged
on Tuesday that lessons needed to be learned from the Northern Rock
situation.
"Clearly, following the events of the last few days the authorities
will be looking at what measures can be taken to ensure that
consumers can have confidence that their deposits in our banks and
building societies are safe," a spokeswoman for the agency said.
Compensation for deposits in British banks is currently limited to
£2,000 and 90 percent of the next £33,000. That compares with a
guarantee of $100,000 under the rules of the Federal Deposit
Insurance Corp. in the United States.
Other economists, including Michael Taylor of Lombard Street
Research in London, said the recent steps signaled just a "small
reversal" of King's statements last week. He said King might not
have wanted to act but was required to do so when it became
apparent that the funding shortage at Northern Rock turned into a
confidence issue for the entire banking system, which the Bank of
England, as a lender of last resort, is there to protect.
Philip Shaw, an economist at Investec Securities in London, said he
was surprised that the Bank of England had not reacted earlier. "If
you have issues with liquidity in the markets you make liquidity
available," he said. "If there is a question mark then it is over
the speed of its response."
Shaw said that he expected other institutions would also be
affected by the difficult market conditions and that such events
could hurt consumer confidence and further dent economic growth in
Britain.
Michael Saunders, an analyst at Citigroup in London, said that even
if the action by the Bank of England and the government succeeded
in stemming the run on Northern Rock, there is "more than enough
restraint on the way via the housing slowdown to produce a marked
economic slowdown next year."
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