What is Currency Swap and Forex Swap?
https://shinjukuacc.com/20171214-01/
What is Currency Swap and Forex Swap?2
What is Currency Swap and Forex Swap?1
Foreign exchange reserves are indeed 140 trillion yen!
Although the exact breakdown is not always clear,
foreign currency deposits are approximately 13 trillion yen
(approximately 116,351,711 million US dollars) ,
foreign securities investment is approximately 116 trillion yen
(approximately 1,038 billion US dollars) , It boasts high liquidity.
Japan's currency itself is, by nature, a "hard currency"
widely used in international markets,
so it is not necessary to have such a large amount
of foreign exchange reserves.
However,
the reason why Japan has held so much foreign exchange reserves is
that it often uses foreign exchange intervention
(foreign currency buying intervention) in the past.
Most recently,
a few tens of trillion yen of foreign exchange intervention
has been implemented under the Democratic Party administration,
but as a result of that intervention,
the Japanese treasury has accumulated foreign currency positions
that can not be sold immediately.
And there is an expression "national debt,"
but if this foreign exchange reserve is eliminated,
"national debt" and the like will be eliminated
by 140 trillion yen (approximately 1,253 billion US dollars) .
140 trillion yen, 14 years of consumption tax tax revenue,
exceeding one year's national budget.
And if you want to restructure the finance,
you only need to dismantle the Ministry of Finance
and cancel the foreign exchange conference.
Of course,
if you convert 140 trillion yen of foreign exchange reserves
into Japanese yen right now,
it will not be realistic as it will result in the hyper yen appreciation
in the foreign exchange market.
However, behind the rhetoric of "the country's debt",
there is a deception that the government has not counted
the huge convertible assets.
Japan's "weapon" is financial cooperation!
"Japanese yen" itself is the world's strongest currency,
and Japan has huge foreign exchange reserves.
From here,
it can be assumed that “capital flight from Japan”
will almost never occur.
(* However, there are several other reasons
why capital flight does not occur from Japan,
but today It will omit those explanations).
That means that Japan can support foreign countries with peace of mind.
And in the world of international financial cooperation,
a "currency swap" (which is BSA rather than CCS)
is used to provide a safety net to developing countries.
A list of currency swaps currently concluded
by Japan is shown in Figure 6 below.
Chart 6 List of BSAs currently concluded by Japan (as of October 6, 2017 )
|
Partner country |
Amount limit |
terms of exchange |
|---|---|---|
|
Indonesia (one side) |
Japan → Indonesia: $ 227.6 billion |
US Dollar and Indonesian Rupiah |
|
Philippines (both sides) |
Japan → Philippines: equivalent to $ 12 billion |
US Dollar or Japanese Yen and Philippine Peso |
|
|
Philippines → Japan: $ 500 million |
US Dollar and Japanese Yen |
|
Singapore (both sides) |
Japan → Singapore: $ 3 billion |
US Dollar and Singapore Dollar |
|
|
Singapore → Japan: $ 1 billion |
US Dollar and Japanese Yen |
|
Thailand (both sides) |
Japan → Thailand: $ 3 billion |
US Dollar and Thai Baht |
|
|
Thailand → Japan: $ 3 billion |
US Dollar and Japanese Yen |
([Source] Ministry of Finance website .
However, the contract maturity of each BSA is unknown
as it is not disclosed by Ministry of Finance)
There are currently only four swap countries for these swaps.
In addition, the Philippines, Singapore,
and Thailand have “two-party contracts,”
but it is hard to think that Japan would like these countries
to offer the US dollar .
In fact, it is a swap for Japan to support unilaterally.
However, I have three complaints about this chart.
1. Too little partner country or amount .
China, with Japan in mind, offers many countries and RMB denominated BSA.
Japan can not be compared to China in the field of financial cooperation.
2, not US dollar denominated swap,
You should enter more yen-denominated swaps .
The Japanese yen itself is the currency
that boasts the third largest trading volume in the foreign exchange market.
You should further spread "Yen-denominated BSA"
to be drawn in Japanese yen, not the US dollar.
3. There are too many cases where it is a dual contract .
It 's hard to think that Japan,
which has 140 trillion yen of foreign exchange reserves,
would like to ask the Philippines, Singapore
and Thailand to provide the US dollar.
Based on the fact that BSA is, as a matter of fact,
international financial support,
these contracts should be revised to “university contracts”.
However,
Japan has signed currency swap agreements with more countries
in order to keep China in check,
and by increasing the amount significantly, especially
with Taiwan, Hong Kong, ASEAN, India, Pakistan, the Middle East, etc.
It should be a weapon to strengthen financial cooperation.
Don't forget "forex swap"
The Japanese yen (JPY) is called the world's six major currencies.
This is a kind of "friend group",
like the US Dollar (USD), Canadian Dollar (CAD), British Pound (GBP),
Swiss Franc (CHF), and Euro (EUR). The central banks,
which are the issuers, enter into unlimited exchange swaps.
In addition,
Japan has entered into foreign exchange swaps
with Australia (Australia Dollar, AUD)
and Singapore (Singapore Dollar, SGD) ( Chart 7 ).
Chart 7 Exchange swap between Japan and central banks in other countries
|
Currency and partner country (bank) |
Credit limit |
Deadline |
|---|---|---|
|
USD and US FRB |
Unlimited |
None |
|
EUR and the European Central Bank (ECB) |
Unlimited |
None |
|
GBP and Bank of England (BOE) |
Unlimited |
None |
|
CHF and Swiss National Bank (SNB) |
Unlimited |
None |
|
CAD and Bank of Canada (BOC) |
Unlimited |
None |
|
AUD and Reserve Bank of Australia (RBA) |
$ 200 / $ 1.6 trillion (approximately $ 14 billion ) ) |
March 17 , 2019 |
|
SGD and Singapore Monetary Agency (MAS) |
S $ 15 billion / $ 1.1 trillion (approximately $ 9.8 billion ) ) |
November 29 , 2019 |
([Source] BOJ website " Cooperation with overseas central banks ")
In other words,
Japan has the means to obtain unlimited currency
such as international hard currency such as USD, EUR, GBP.
However,
unlike currency swaps (BSA), currency swaps do not mean
that the currency authority can obtain
and use the other party's currency freely.
These foreign exchange swaps are a means to supply relevant currencies
to domestic financial institutions through the BOJ.
For example,
when a Japanese bank wants the US dollar,
it applies eligible collateral to the BOJ,
and the BOJ pledges the Japanese yen to the US Fed Bank
(in practice, the New York Fed Bank),
and the New York Fed fund the US Bank of Japan Offer,
and the Bank of Japan lends it to a private bank.
It is impossible for Japan's Ministry of Finance to borrow a dollar
from the Fed in anticipation of a foreign exchange intervention.
This is the biggest difference with currency swap (BSA).
Foreign exchange reserve and exchange intervention
About currency exchange intervention
Our neighboring countries
( China, Korea , Taiwan) sometimes have open exchange interventions .
Repeatedly pointed out in the US Ministry of Finance report,
they themselves admit it .
However,
what we must consider here is that there are two types
of currency intervention.
The first exchange intervention " buying intervention ",
It is a "buying intervention" to curb the oversold of your home currency.
For example,
in the case of a currency crisis, capital flight occurs
from home and the home currency is sold.
If that happens,
the value of the home currency will fall,
and for companies that borrow money from foreign countries,
the debt burden will increase and the economy will be in turmoil.
At that time, buying "home currency"
in the market and selling foreign currency is this "buying intervention".
This "buying intervention" can not be performed without limit.
If their own foreign exchange reserves are exhausted,
then their currencies will fall into a free fall state,
and in the worst case they have to be prepared to rush into the IMF.
Second exchange intervention " sell intervention ",
It is a “sales intervention” to curb over-buying of the home currency.
This is done in order to intentionally lower the value of the home currency,
as the value of the home currency in the foreign exchange market
may become too high for export companies,
and the central bank sells the home currency to the market. ,
Is an operation to buy foreign currency from the market.
This intervention is described in the textbook as "indefinitely possible"
in principle, but it is not actually correct.
If you do "sales intervention",
the supply amount of the home currency will increase
and the asset price will rise (so-called inflation).
So, to curb inflation, central banks need
to sell their currency-denominated assets (so-called sterilization).
The reason why the central bank of Korea is issuing
a large amount of bonds (so-called “currency stable securities”?)
Is probably also
because unreasonable selling interventions have forced
the monetary supply to increase too much
and it is necessary to curb inflation. I will.
What causes "the economy to collapse"?
By the way, countries where the economy collapses have one characteristic.
It does not have the ability to "
determine and operate the rules yourself ".
For example,
in the case of Zimbabwe,
where the economy has collapsed due to hyperinflation,
it is because, in the end, it failed in agricultural land reform ignoring legalism .
Likewise, Venezuela and North Korea,
whose economies are in a state of collapse,
also saw dictatorship destroying the economy
(※ However, in the case of North Korea, the economic sanctions
from the international community seem to be effective ...).
However,
even if it is not the extreme case,
the economy may fall into a state of real collapse.
My focus is on cases in China and Korea .
In China,
the IMF has designated the currency itself as the constituent currency
of the Special Drawing Right (SDR) in October 2016 .
However, since then, the internationalization of the RMB has stopped,
if at all.
Why?
The reason is simple:
if you liberalize capital movement, China could lose a huge amount of capital.
China can no longer promote the internationalization of the RMB.
As for China,
It believe that the domestic currency supply is expanding
and that the inflation phenomenon and the increase
in bad debts are progressing at the same time.
The ballooning of capacity beyond capacity is the same as it would burst,
and eventually the Chinese economy
will be forced to make some adjustments .
In addition, Korea,
which is a self-proclaimed developed country,
is also worried about rising household debt.
In the case of Korea,
there is a problem that the central bank has a hard time
to raise interest rates due to the household debt problem.
However,
as interest rates are expected to continue rising in the United States,
it is almost certain that international funds flows will begin to reverse
from emerging market (EM) countries towards the United States.
If Korea fails to raise interest rates, the possibility
of capital flight from Korea will not be low.