China cen­tral bank to Fed: A lit­tle help, please?

The Pak Banker - - COMPANIES/BOSS -

Con­fronted with a plunge in its stock mar­kets last year, China's cen­tral bank swiftly reached out to the US Fed­eral Re­serve, ask­ing it to share its play book for deal­ing with Wall Street's "Black Mon­day" crash of 1987.

The re­quest came in a July 27 email from a Peo­ple's Bank of China of­fi­cial with a sub­ject line: "Your ur­gent as­sis­tance is greatly ap­pre­ci­ated!"

In a mes­sage to a se­nior Fed staffer, the PBOC's New York-based chief rep­re­sen­ta­tive for the Amer­i­cas, Song Xiangyan, pointed to the day's 8.5 per­cent drop in Chi­nese stocks and said "my Gov­er­nor would like to draw from your good ex­pe­ri­ence." It is not known whether the PBOC had con­tacted the Fed to deal with pre­vi­ous in­ci­dents of mar­ket tur­moil. The Chi­nese cen­tral bank and the Fed had no com­ment when reached by Reuters.

In a Reuters anal­y­sis last year, Fed in­sid­ers, for­mer Fed em­ploy­ees and econ­o­mists said that there was no of­fi­cial hot­line be­tween the PBOC and the Fed and that the Chi­nese were of­ten re­luc­tant to en­gage at in­ter­na­tional meet­ings.

The Chi­nese mar­ket crash trig­gered steep de­clines across global fi­nan­cial mar­kets and within a few hours the Fed sent China's cen­tral bank a trove of pub­liclyavail­able doc­u­ments de­tail­ing the U.S. cen­tral bank's ac­tions in 1987.

Fed pol­i­cy­mak­ers started a two-day pol­icy meet­ing the next day and took note of China's stock sell-off, ac­cord­ing the meet­ing's min­utes. Sev­eral said a Chi­nese eco­nomic slow­down could weigh on Amer­ica. Fi­nan­cial mar­ket con­ta­gion from China was one of the rea­sons cited by the Fed in Septem­ber when it put off a rate hike that many an­a­lysts had ex­pected, a sign of how im­por­tant China has be­come both as an in­dus­trial pow­er­house and as a fi­nan­cial mar­ket.

The mes­sages, which Reuters ob­tained through an Free­dom of In­for­ma­tion Act re­quest, show how alarmed Bei­jing has be­come over the deep­en­ing fi­nan­cial tur­moil and of­fer a rare in­sight into one of the least un­der­stood ma­jor cen­tral banks.

The ex­changes also show that while the two cen­tral banks have a col­le­gial rela- tion­ship, they might not share se­crets even dur­ing a cri­sis. "Could you please in­form us ASAP about the ma­jor mea­sures you took at the time," Song asked the di­rec­tor of the Fed's In­ter­na­tional Fi­nance Divi­sion, Steven Kamin in the July 27 email. The mes­sage reg­is­tered in Kamin's ac­count just af­ter 11 a.m. in Wash­ing­ton. Kamin quickly replied from his Black­berry: "We'll try to get you some­thing soon." What fol­lowed five hours later was a 259-word sum­mary of how the Fed worked to calm mar­kets and pre­vent a re­ces­sion af­ter the S&P 500 stock in­dex tum­bled 20 per­cent on Oct. 19, 1987.

Kamin also sent notes to guide PBOC of­fi­cials through the many dozens of pages of Fed tran­scripts, state­ments and re­ports that were at­tached to the email. All of the at­tached doc­u­ments had long been avail­able on the Fed's web­site and it is un­clear if they played a role in shap­ing Bei­jing's ac­tions. Kamin's doc­u­ments de­tail how the Fed be­gan is­su­ing state­ments the day af­ter the mar­ket crash, known as Black Mon­day, pledg­ing to sup­ply mar­kets with plenty of cash so they could func­tion.

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