News & Commentary:

January 2004 Archives


A Wounded United Nations
NYT Jan 2, 2004
Instead of complaining about the U.N., Washington should smooth the path for its return to Iraq.

The WTO’s “peace clause” expires Recommended!
Economist Jan 5, 2004
Nine years ago, members of the World Trade Organisation agreed not to take each other to court over farm subsidies. But the “peace clause”, as this agreement is known, expired on December 31st. Will its end mean the beginning of a trade war?

The Broken Promise of Nafta
Joseph E. Stiglitz (NYT) Jan 6, 2004
In its 10 years of existence, Nafta has shown that a free trade agreement is neither an easy nor an assured road to prosperity.

Second Thoughts on Free Trade Recommended!
Charles Schumer & Paul Craig Roberts (NYT) Jan 6, 2004
The original case for free trade, made two centuries ago, looks a bit weaker in the face of the modern global economy.

A Caucus of Democracies
Max M. Kempelman (WSJ) Jan 6, 2004
How to reform the U.N.: Create a caucus of democracies.

The New Protectionism Recommended!
Neil Hrab (CEI) Jan 7, 2004
By all indications, 2004 should be a banner year for America’s movie, TV show and music producers. DVD players continue to become more popular around the world, and this increases chances for consumers everywhere to enjoy recordings of American TV programs, rock videos, and films. The International Recording Media Association projects global production of DVDs could grow from 2.7 billion discs in 2003 to 7 billion discs by 2008. If that forecast holds true, that means that before the first decade of the 21st century is up, American movie studios, singers, and others could be earning as much as $70 billion per year from global DVD sales alone.

IMF alarmed by U.S. Foreign debt
IHT Jan 8, 2004
The U.S. is running up a foreign debt so large that it threatens the financial stability of the global economy.

Early Days for South Asia's Common Currency Wall Street Journal Subscription Required
Salil Tripathi (AWSJ) Jan 8, 2004
A common currency must overcome many hurdles.

Free Trade Butters
Michael Kinsley (Slate) Jan 8, 2004
"I'm for free trade but" usually means you're not for free trade at all.

Flying high Economist Subscription Required
Economist Jan 9, 2004
Should the European Central Bank try to bring down the rising euro by cutting interest rates?

Dollar war: Is Europe the patsy?
Floyd Norris (IHT) Jan 9, 2004
What happens if the world won't let the dollar fall?

China cannot yield on currency
Milton Ezrati (IHT) Jan 9, 2004
Beijing cannot and will not yield to pressure from the United States or anyone else to let its currency rise against the dollar. China simply has too urgent a need to create jobs for its people to surrender any engine of economic growth, most especially the practice of promoting exports with a cheap currency.

NAFTA at 10
WP Jan 9, 2004
The way most Democratic presidential hopefuls talk about it, you'd think it is easy to judge NAFTA. The North American Free Trade Agreement, which marked its 10th anniversary last week, was supposed to boost prosperity among its three members: Canada, Mexico and the United States. But Rep. Richard A. Gephardt of Missouri is running ads boasting that he was the only candidate to vote against it; Sen. John Edwards of North Carolina and Rep. Dennis J. Kucinich of Ohio hotly protest that they would've if they could've (but weren't in Congress at the time of passage); Sen. John F. Kerry of Massachusetts and former Vermont governor Howard Dean, who happily supported NAFTA 10 years ago, now sidle away from it. Only Sen. Joseph I. Lieberman of Connecticut is sticking to his original support for the treaty.

A Reply to Schumer and Roberts
George Reisman (Mises Daily) Jan 9, 2004
Charles Schumer, the senior senator from New York, and Paul Craig Roberts, an assistant secretary of the Treasury in the Reagan administration, have written an article in The New York Times of January 6, 2004, in which they question the benefits of free trade in conditions in which there is mobility of capital and thus effective mobility of labor, as well as mobility of goods.

China's Currency Challenge Recommended!
WP Jan 10, 2004
Last September the Bush administration appeased the manufacturing lobby by demanding that China abolish capital controls and float its currency, a move that would supposedly cause the yuan to rise, so easing pressure on U.S. producers. This was a bad policy, first, because floating the yuan might have had the opposite effect: Chinese savers might have leaped at the chance to keep some of their money abroad, and the resulting capital outflows might have sent the yuan downward. It was a bad policy, second, because China's rickety banks might not survive a destabilizing flood of foreign capital; the world might have switched, as it has on Japan, from worrying about China's strength to worrying about its financial weakness. Four months later, however, the Bush administration is in danger of making the opposite mistake. China is refusing to revalue its currency -- a move that could be accomplished quite simply, without floating it or liberalizing capital markets. Rather than point out that this refusal is harmful to China and to global stability as well, the Bush administration is tempted to keep quiet.

Japan Buys Dollars and Braces for Higher Yen
David DeRosa (Bloomberg) Jan 11, 2004
It's nice to know someone likes to buy the dollar these days. That someone happens to be Japan, though the reason for this dollar gluttony is really a fear of the yen's strength more than a love of the dollar.

The stakes in Monterrey
David de Ferranti (IHT) Jan 12, 2004
As Western Hemisphere heads of state gather in Monterrey, Mexico, for the Summit of the Americas on Monday and Tuesday, the immediate prospects for Latin America appear encouraging. A global upturn is under way, led by the United States. Many Latin American countries have addressed earlier economic imbalances. Forecasters expect average growth for these countries to improve from 1.5 percent in 2003 to between 3.5 percent and 4 percent in 2004, which would be the best figures in years. But Latin America needs more than a year or two of good economic numbers.

The Triumph of Nafta
WSJ Jan 12, 2004
Ten years later, a stronger continent-wide economy.

Free Trade and Factor Mobility
Robert P. Murphy (Mises Daily) Jan 12, 2004
In a recent New York Times op-ed piece, "Second Thoughts on Free Trade," Senator Charles Schumer and economist Paul Craig Roberts argue that the typical arguments for free trade, while perhaps valid in the days of Ricardo, are no longer relevant in today's economy of multinational corporations and high-speed telecommunications.

Global: False Recovery
Stephen Roach (MSDW) Jan 12, 2004
The Great American Job Machine has long powered the US business cycle. It drives the income growth that fuels personal consumption. That internally generated fuel is all but absent in the current upturn. The US economy is mired in a jobless recovery the likes of which it has never seen. This has profound implications for the economic outlook, the political climate, trade policies, and the global business cycle.

U.S. Following `Mahathir Doctrine' on IMF
William Pesek Jr. (Bloomberg) Jan 12, 2004
A joke is making the rounds among traders here in Asia: Mahathir Mohamad hasn't just gone mainstream, he's gone to Washington.

U.S. pushes to reopen global talks on trade
IHT Jan 13, 2004
Robert Zoellick, the U.S. trade representative, sent letters to more than 140 countries on Monday saying he hoped to push for new global trade talks this year, but the reaction from the European Union was tepid.

A Glimmer of Hope on Trade
NYT Jan 13, 2004
The Bush administration has indicated a desire to revive efforts to make the global trading system fairer to poor countries.

Where Roma Soap Meets Dove
Rossana Fuentes-Berain (NYT) Jan 13, 2004
In Mexico, the results of Nafta sit on the supermarket shelves, where domestic brands now compete with American products.

15 countries in EU are sued over euro
IHT Jan 14, 2004
The decision pits the European Commission against the countries it is meant to serve and sends the Union into uncharted legal territory.

Greenspan hears dollar concerns
IHT Jan 14, 2004
The Bush administration has said it is maintaining a strong dollar policy, even as the currency falls to record lows against the euro.

The politics of the dollar
IHT Jan 14, 2004
The fact that Treasury Secretary John Snow has said the United States wants a strong dollar has eased pressure on exchange rates and stopped the dollar from plummeting. We should take him seriously, but as we might the wolf Red Riding Hood found in her grandmother's bed.

Inviting All Democrats Recommended!
Nicholas D. Kristof (NYT) Jan 14, 2004
The candidates talking about trade policy should come to Cambodia and see how economically naïve their proposals are.

Six Reasons to Give Asian Debt a Good Look
William Pesek Jr. (Bloomberg) Jan 14, 2004
A who's-who of investment banks is schmoozing Indonesia to get in on one of Asia's biggest deals. It's not an initial public offering, but a global bond sale, the nation's first in seven years.

The Buttonwood column: Dollar dilemma Recommended!
Economist Jan 14, 2004
Nobody has a good word to say about the dollar, which may augur well for the battered currency.

WTO: US Surprise Initiative To Re-start Trade Talks
BRIDGES Weekly Trade News Digest - Vol. 8, Number 1 Jan 14, 2004
US Trade Representative Robert Zoellick sent a letter to the trade ministers of WTO Members on 11 January, proposing to inject momentum back into the flagging trade talks. In his letter, he said he was taking a common sense approach to re-energise the talks and to avoid 2004 becoming a "lost year" for the Doha round. He outlined his approach on the key issues of agriculture, industrial goods, services, special and differential treatment (S&D) for developing countries and the Singapore issues of investment, competition, transparency in government procurement and trade facilitation.

Dispute Settlement: Lumber, Byrd Amendment and DSU Review
BRIDGES Weekly Trade News Digest - Vol. 8, Number 1 Jan 14, 2004
The year began without an immediate rush of new dispute settlement cases, despite the 1 January 2004 expiry of the "peace clause" (a nine-year moratorium on farming disputes at the WTO). Instead, the continuation of existing disputes -- including the Canadian-US softwood lumber case and a probable retaliation request this month on the US Byrd Amendment -- topped the agenda. WTO Members also engaged in discussion of the review of the Dispute Settlement Understanding (DSU) in late 2003.

U.S. Trade Miracle -- Prices Unchanged
Caroline Baum (Bloomberg) Jan 15, 2004
The last thing we need is the designation of another ``New Era'' to characterize every new phenomenon that comes down the pike.

Global: Forget About Global Healing
Stephen Roach (MSDW) Jan 16, 2004
With the world economy rebounding smartly in the second half of 2003, talk of global healing is back in the air. But compared with the circumstances prevailing in late 1998, when the stage was set for a spectacular rebound from the Asian financial crisis, today’s global economy is in a very different place. Despite the hopes and dreams of momentum-driven financial markets, I would attach a slim probability to another bout of global healing.

Currencies: USD -- Income Effect Much More Important Than Price Effect
S. Jen, M. Baker & K. Kimbrough (MSDW) Jan 16, 2004
The USD correction following the Plaza Accord was instrumental in helping normalise the US current account (C/A) deficit in the 1980s. This time, the ‘income effect’ from a recovering global economy will be much more important than the cheaper USD.

Currencies: USD/JPY -- A Steady Grind Lower
Stephen L Jen (MSDW) Jan 16, 2004
Following a recent trip to Japan, I reaffirm our team’s view that USD/JPY will continue to trade lower this year. This downtrend in USD/JPY should be gradual, due to the aggressive stance of the Ministry of Finance (MoF). I continue to believe that USD/JPY is a higher quality trade than EUR/USD, as it has not yet overshot, and therefore is not prone to periodic snap-backs. I believe ¥100 will eventually be broken, but most likely later rather than sooner.

The Age of Personal Communications: "Power to the People" Recommended! Adobe Acrobat Required
Michael K. Powell (FCC) Jan 14, 2004
For six years, I have spoken to you and the nation about the great Digital Migration-our movement from an analog world to a digital world-and the radical transformation that will come with it.

The Curse of the Creative Class Recommended!
Steven Malanga (WSJ) Jan 19, 2004
A New Age theory of urban development amounts to economic snake oil.

Köhler in Monterrey Adobe Acrobat Required
IMF Survey Jan 19, 2004
Plus: Sugisaki exit interview; Assessing FSAPs; Regulatory governance; Exits from pegged regimes; Transparency pays; Can Russia sustain strong growth?

Currencies: G-3 -- Global Flows Positioning Update
Karin Kimbrough (MSDW) Jan 19, 2004
Despite a powerful start to the new year in foreign exchange and equities, our proprietary flows data do not indicate any extremes in positioning. Investors still appear to be short the dollar, but the position is still broadly rather than deeply held and therefore there is still potential for more USD selling. In FX, buying momentum is strongest in the JPY, and we would look for a potential challenges to the BoJ's efforts to protect the USD/JPY on downside to continue. In bonds, investors remain short US bonds and neutral Japanese and euro-area bonds. In equities, only the US market has been consistently long all year. Still, momentum indicates that equity buying pressure could be accumulating in all three regions.

Farming in French Wall Street Journal Subscription Required
WSJ Jan 20, 2004
The American Farm Bureau dabbles in protectionism.

Currency-Regime Change Wall Street Journal Subscription Required
Peter McPherson (WSJ) Jan 20, 2004
Dinars featuring Saddam are now nothing more than souvenirs.

Facing Up to Globalization Wall Street Journal Subscription Required
Hans Eichel (WSJE) Jan 20, 2004
The G-20 must mobilize forces that will drive long-term global economic growth.

The Earth's life-support system is in peril
Margot Wallström, Bert Bolin, Paul Crutzen and Will Steffen (IHT) Jan 20, 2004
Our planet is changing fast. In recent decades many environmental indicators have moved outside the range in which they have varied for the past half-million years. We are altering our life support system and potentially pushing the planet into a far less hospitable state.

United States: Pass-Through and Trade Adjustment
Richard Berner (MSDW) Jan 20, 2004
In case you hadn’t noticed, the effects — or lack thereof — of the dollar’s long and significant decline against other currencies have left many analysts scratching their heads. From its February 2002 peak, the dollar’s depreciation — 12.2% against a broad basket of currencies and 23.6% against the world’s major currencies — has had no discernible impact on US inflation and only a small effect on import prices. “Core” consumer goods inflation as measured by the CPI has declined from 2.6% to 1.1%, and excluding fuels, import prices have risen a scant 1.3% over the same time period. Moreover, global growth still seems to be tepid in most regions. Yet the US trade gap appears to be narrowing significantly. What factors have promoted this counterintuitive mix of circumstances, and are they sustainable?

Davos Forum faces host of economic uncertainties
IHT Jan 21, 2004
Signs of economic recovery are undermined by worries about the weak dollar and corporate malfeasance.

WHO's Bad Medicine Wall Street Journal Subscription Required
WSJ Jan 21, 2004
The World Health Organization uses drugs it knows don't work on malaria.

Don't Blame the Euro Wall Street Journal Subscription Required
WSJE Jan 21, 2004
The discussion about the euro only distracts from the real problem.

India Leaves Anti-Globalizers in the Dust Wall Street Journal Subscription Required
Salil Tripathi (AWSJ) Jan 21, 2004
India is shining now because it embraced the global economy.

EC GSP Scheme Under Debate And Review
BRIDGES Weekly Trade News Digest - Vol. 8, Number 2 Jan 21, 2004
The EC has recently made some adjustments to its Generalised System of Tariff Preferences (GSP), granting additional tariff benefits to Sri Lanka based on its compliance with international labour standard, and possibly withdrawing similar benefits from Belarus. The EC also recently appealed a WTO panel ruling from last year that had found elements of its GSP related to special arrangements for countries combating illegal drugs inconsistent with WTO rules.

US Trade Policies Reviewed; Bilateral Talks Continue
BRIDGES Weekly Trade News Digest - Vol. 8, Number 2 Jan 21, 2004
The US biannual Trade Policy Review (TPR) at the WTO was completed on 16 January. The report highlighted the transparency and openness of the US trade regime and the efficiency of the US economy, which together helped the country get through the recent global economic downturn. However, concerns were also raised regarding new import regulations and the country's current account deficit. Meanwhile, the US continued to move forward in its bilateral trade deals on several fronts, following several delays in late 2003. The TPR found that the US, which functions as the key engine of the global economy, had continued its liberalisation process. However, in some areas import regulations had increased due to security measures instituted since 11 September 2001, and the US had continued to subsidise certain sectors, such as agriculture and steel. The report raised concern regarding the US current account deficit and bilateral trade imbalances that may lead to protectionist sentiments.

Why the New Protectionism Is Both Wrongheaded And Dangerous
Clive Crook (Atlantic Monthly) Jan 21, 2004
The case for free trade is as strong as ever. Worries about the "flight" of service-sector jobs out of the United States are largely overblown.

Can U.S. sustain a global recovery?
IHT Jan 22, 2004
America is pulling a sluggish global economy forward, but imbalances threaten to derail the world's growth engine.

Currency Wars
Sean Corrigan (Mises Daily) Jan 22, 2004
We have seen the temperature rise along the corridors of power in recent days as finance ministers, central bankers, and others have clamored to have their say on the current disruption in international capital and goods markets. This disruption has its roots in America's Military Keynesianism and the Asian Mercantilist response it has elicited.

Capitalism in the Raw Economist Subscription Required
Economist Jan 22, 2004
Officials from the United States and Costa Rica resumed final talks on a proposed trade accord. They hoped to complete them this month, to allow the Central American Free-Trade Agreement to go to the United States Congress for ratification.

Talk is Cheap Economist Subscription Required
Economist Jan 22, 2004
European Union finance ministers failed to stop the rise of the euro, even though several ministers expressed concern about its effect on their economies. Ministers were at least able to agree that the European Commission should practise more discipline over the EU budget.

U.S. pushes campaign on global corruption
IHT Jan 23, 2004
At the World Economic Forum on thursday, U.S. Attorney General John Ashcroft announced America's new campaign to assail global corruption.

It's so easy to blame China for everything Recommended!
William H. Overholtz (IHT) Jan 23, 2004
China is becoming the all-purpose repository of the world's hopes and fears - sometimes a scapegoat for economic ills, sometimes the answer to geopolitical prayers.

Global: The New Paradigm Comes to Davos
Stephen Roach (MSDW) Jan 23, 2004
I knew something unusual was in the air when I first entered the Congress Centre, the hub of the World Economic Forum. Prominently positioned just before the security screening stations were signs emblazoned with the shocking message, “Ties Forbidden.” This is unheard of in formal European conference circles — to say nothing of the special ambience of Davos. Borrowing a page straight out of the final days of America’s dot-com mania, the World Economic Forum had reinvented the rules. The intellectual debate was quick to follow suit.

Who Benefits From Free Trade, and How
Robert P. Murphy (Mises Daily) Jan 23, 2004
The Internet has been abuzz lately with arguments over free trade. This most recent outburst of scholarship was sparked by Sen. Charles Schumer and economist Paul Craig Roberts' joint article in the New York Times, "Second Thoughts on Free Trade". In this article, Roberts reiterated his position that "the case for free trade" rests on the assumption that factors of production cannot move between countries (or at least, cannot move as easily as final products can).

Global: The Davos Debate
Stephen Roach (MSDW) Jan 26, 2004
There’s really nothing like it. The annual meeting of the World Economic Forum provides the best medium for an exchange of views on global issues that I know of. For four days, Davos brings together a broad cross-section of businesspeople, academics, politicians, policy makers, religious leaders, artists, and social activists. The discussions are deep and wide-ranging, and there is great passion to the dialog. The stresses and strains of globalization always seem to provide a common thread to the discussions. Yet each year, the context changes as an ever-tumultuous world pushes the debate in different directions. For me, the meetings are invaluable in challenging my perceptions of the key issues likely to shape world financial markets in the year ahead. As I look back on this year’s proceedings, five such themes emerged from the Davos debate of 2004.

Global: Which Way Is the Wind Blowing?
Rebecca McCaughrin (MSDW) Jan 26, 2004
After a three-year-long compression, the global M&A cycle appears to have bottomed out, and there is renewed speculation that potential acquirers are returning to the negotiation table. Mergers can be beneficial when they succeed in bringing wealth gains to distressed firms or capitalize on economies of scale. But they can also destroy value if the projected synergies among the merged firms fail to materialize or if the corporate cultures fail to mesh. That lesson is still fresh and is likely to discourage companies from straying too far from their core competencies. In this note, we take a closer look at the dynamics of the current cycle and the key determinants that are likely to be supportive of a rebound.

Africa won't have a second chance
Cesare P.R. Romano (IHT) Jan 27, 2004
Sunday was a milestone in the history of Africa and the international protection of human rights. It marked the entry into force of the protocol for the establishment of the African Court on Human and Peoples' Rights. After Europe and the Americas, Africa will be the third continent with a regional court to bindingly adjudicate human rights violations.

'Outsourcing' Is Good for America Wall Street Journal Subscription Required
Douglas A. Irwin (WSJ) Jan 28, 2004
A flexible, well-educated workforce will always find employment.

Boomtown China: Opportunity and Crisis Recommended!
Grant M. Nülle (Mises Daily) Jan 28, 2004
As the American economy reels from the consequences of the Federal Reserve's monetary manipulations, a burgeoning sovereign debt, an interventionist foreign policy, as well as a bevy of other no less onerous government-orchestrated distortions in the marketplace, it is fascinating to note the scorn with which the country's legislators, trade unions and manufacturing concerns regard China.

Doha Round Discussed At Davos
BRIDGES Weekly Trade News Digest - Vol. 8, Number 3 Jan 28, 2004
The 21-25 January World Economic Forum in Davos, Switzerland brought together over 2000 world leaders, politicians, scientists and businesspeople from 90 nations around the theme "partnering for security and prosperity". Alongside security topics such as the reconstruction in Iraq, delegates also focused on transatlantic tensions, corporate governance, global warming and world trade. On the sidelines, President of the Swiss Confederation and Federal Councillor of the Economy Joseph Deiss held a meeting with trade ministers in attendance to seek ways to revive the stalled Doha round.

Trade Debated At Mumbai World Social Forum
BRIDGES Weekly Trade News Digest - Vol. 8, Number 3 Jan 28, 2004
The World Social Forum (WSF) -- held in Mumbai, India from 16-21 January this year -- drew up to 100,000 participants from 132 countries, who attended numerous seminars, workshops, exhibitions and cultural displays to voice concerns and hopes for a better world. Key topics included issues as diverse as arms control, tourism, rights of women and indigenous peoples, and international trade. The common thread linking the sessions was social impacts, particularly on weaker and under-privileged groups. The forum ended on 21 January with a street march drawing tens of thousands of anti-globalisation protestors.

IMF Celebrates Brazil's Big Economic Bounce
David DeRosa (Bloomberg) Jan 29, 2004
The market can't get enough of Brazil, something that's quite amazing given the country's recent history. Skeptical investors have to be asking how they could have been so wrong about Brazil, and President Luiz Inacio Lula da Silva.

Capital Exports and Free Trade
J.G. Hülsmann (Mises Daily) Jan 29, 2004
The benefits of the division of labor are widely acknowledged. Even the opponent of the market economy recognizes the fact that the coordination of productive efforts yields material benefits for all parties involved. But only the economists are intellectually consistent enough to draw all the necessary political implications from this insight. In particular, the case for free trade is squarely based on the fact that it makes all parties better off than they would have been without free trade.

News Analysis: Outsourcing's benefits left out of the debate
IHT Jan 30, 2004
Many U.S. computer programmers complain they are losing their jobs to lower-paid workers in India. The trend toward foreign "outsourcing" has become a political flashpoint. But the trend is less frightening and more promising than one might think from the angry talk from unemployed programmers or the scary estimates from consulting firms, argues Catherine Mann, an economist at the Institute for International Economics in Washington. First, the end of the technology boom, the general economic slump and the downturn in manufacturing - not foreign competition - account for most programming job losses. Most estimates, Mann said, compare the peak of the business cycle and technology boom with today's sluggish economy. That is not a valid comparison.

Argentina Plays 'Chicken' With the IMF Wall Street Journal Subscription Required
Mary Anastasia O'Grady (WSJ) Jan 30, 2004
President Kirchner now acts as if he calls the shots.

Europe - All: How Asia Is Also Subsidizing Europe
Eric Chaney (MSDW) Jan 30, 2004
Just before the FOMC communiqué introduced subtle considerations about its patience, long-term interest rates were heading down toward 3.75%, possibly 3.5%. Taken by surprise, bond markets made a U-turn, pushing yields in the opposite direction. However, 10-year government bond yields are still below 4.5% in the US and Europe, despite the ongoing global recovery. As far as US markets are concerned, the factor behind the abnormally low level of bond yields is well known: By buying massive amounts of US Treasuries, Asian central banks are de facto subsidizing US markets. This is now public knowledge. More surprising in my view is that European markets are also benefiting from the Asian manna. I will explain later how this can be measured, but, before that I want to underline that this makes Europe, at least the euro area, more sensitive to the relationship between Asia and the US than policy makers are willing to admit.

Japan: Sterilized or Unsterilized?
Takehiro Sato (MSDW) Jan 30, 2004
During our US investor visits this past week, the MoF has been conducting heavy FX intervention to defend the dollar as usual, while we have been asked a number of similar questions about the intervention mechanism whether it is sterilized or unsterilized. To be honest, the answer is quite ambiguous, however. It can be said to be either sterilized or unsterilized. Such an ambiguity is simply due to the unique characteristics of the domestic money market. Actually, the BoJ is managing the huge inflows/outflows of funds in the market, such as tax settlements or pension payments to and from the government. This adjustment framework is not very different from that of other economies, but it happens quite often that the size of those capital flows amounts to several trillion yen, even larger than that of massive intervention. Therefore, the BoJ is making use of those flows for money market adjustments to keep the current-account balance (mostly private commercial banks’ reserve deposits and excess reserves) within a certain target band (currently ¥30–35 trillion). Hence, in some cases the BoJ does not have to conduct a liquidity-provision operation because the size of the transaction with the government is massive enough to maintain the level of the excess reserves, and the FX transaction is just one of those settlements.

Currencies: Currency Catalysts to Gold Are Slowing
Karin Kimbrough (MSDW) Jan 30, 2004
We see gold as the closest “physical currency” alternative to fiat monies. However, gold has an advantage over the real currencies we do cover in that it has no liabilities. For example, unlike the USD, gold has no current-account deficit and no reliance on Asian savings inflows. No wonder gold has been so attractive, and no wonder prices are still frothy.

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