Upset over US cyber spying!

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There are increasingly strong reactions to revelations that United States agencies are spying on Internet use by Americans and foreigners as well as planning cyber actions on foreign targets.

Weekend News Round-up: US cyber spying whistle-blower revealed; is Snapchat worth US$1bn?

THE revelations of data collection on a massive scale by the United States’ security agencies of details of telephone calls and Internet use of its citizens and foreigners are having reverberations around the world.

Much of the responses have been on the potential invasion of privacy of individuals not only in the United States but anywhere in the world who use US-based Internet servers.

Also revealed is a US presidential directive to security agencies to draw up a list of potential overseas targets for US cyber-attacks.

This lays the Unites States open to charges of double standards and hypocrisy: accusing other countries of engaging in Internet snooping or hacking and cyber warfare, when it has itself established the systems to do both on a mega scale.

The revelations, published in the Guardian and Wall Street Journal, and based on a leak by a former US intelligence official, include that US security agencies have access to telephone data of Verizon Communications, AT&T and Sprint Nextel, as well as from credit card transactions.

They also can access data from major Internet companies – Google, Yahoo, Microsoft, Facebook, AOL, Apple, PalTalk, Skype and YouTube—under the Prism surveillance programme.

Millions of Internet users around the world use the servers or web-based services of the companies mentioned.

Two American citizen groups, the American Civil Liberties Union (ACLU) and the New York Civil Liberties Union, have filed a lawsuit against the US administration.

“Those programmes constitute unreasonable intrusions into American’s private lives that’s protected by the Fourth Amendment (on search and seizure),” said Brett Kaufman of the ACLU, as quoted by IPS news agency.

Governments and people outside the United States are equally upset, or more so, that they apparently are also covered by the massive US surveillance programme.

The European Union’s commissioner of justice Viviane Reding has written to the US attorney general asking if European citizens’ personal information had been part of the intelligence gathering, and what avenues are available for Europeans to find out if they had been spied on.

In China, commentators and opinion makers are citing double standards on the part of the United States.

An article in the China Daily commented that the massive US global surveillance programme as revealed is certain to stain Washington’s overseas image and test developing China-US ties.

An editorial in another Chinese paper, Global Daily, stated: “China needs to seek an explanation from Washington.

“We are not bystanders. The issue of whether the United States as an Internet superpower has abused its powers touches on our vital interests directly.”

In their summit last week in California, United States President Barack Obama reportedly pressed Chinese President Xi Jinpeng to curb cyber-spying by Chinese agencies and companies.

The breaking news about the United States snooping on Internet users must have caused some discomfort to Obama when bringing up this issue.

A Chinese Foreign Ministry spokesperson last week reiterated that “China is also a victim to the most sophisticated cyber hacking”.

Though less publicised, a part of the leaks published in the Guardian, was a 18-page directive from President Obama to his security and intelligence officials to draw up a list of potential overseas targets for US cyber-attacks.

The October 2012 directive states that what it calls Offensive Cyber Effects Operations (OCEO) “can offer unique and unconventional capabilities to advance US national objectives around the world with little or no warning to the adversary or target and with potential effects ranging from subtle to severely damaging”, according to the June 7 Guardian article by Glenn Greenwald and Ewen MacAskill.

The directive says the government will “identify potential targets of national importance where OCEO can offer a favorable balance of effectiveness and risk as compared with other instruments of national power”.

The aim of the document was “to put in place tools and a framework to enable government to make decisions” on cyber actions, a senior administration official told the Guardian.

Obama’s move to establish a potentially aggressive cyber warfare doctrine will heighten fears over the increasing militarisation of the Internet, comments the Guardian article.

It adds that the United States is understood to have already participated in at least one major cyber attack, the use of the Stuxnet computer worm targeted on Iranian uranium enrichment centrifuges, the legality of which has been the subject of controversy.

In the presidential directive, the criteria for offensive cyber operations in the directive is not limited to retaliatory action but vaguely framed as advancing “US national objectives around the world”.

Obama further authorised the use of offensive cyber attacks in foreign nations without their government’s consent whenever “US national interests and equities” require such non-consensual attacks. It expressly reserves the right to use cyber tactics as part of what it calls “anticipatory action taken against imminent threats”.

The Guardian commented: “The revelation that the US is preparing a specific target list for offensive cyber-action is likely to reignite previously raised concerns of security researchers and academics, several of whom have warned that large-scale cyber operations could easily escalate into full-scale military conflict.”

Meanwhile, UN Human Rights Council’s Special Rapporteur Frank La Rue issued a report on June 4 on the increasing use of surveillance, warning that unfettered state access to surveillance technologies could compromise human rights to privacy and freedom of expression, as protected by the Universal Declaration of Human Rights and the International Covenant on Civil and Political Rights (ICCPR).

The report warned too against the use of “an amorphous concept of national security” as a reason to invade people’s rights to privacy and freedom of expression, arguing that such an invasion potentially “threatens the foundations of a democratic society”.

Global Trends
By MARTIN KHOR

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New China-US relationship can avoid past traps 
Xi-Obama summit aims to boost ties, aspirations between China and USA 

US Spy Snowden Says U.S. Hacking China Since 2009

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Support: Protesters shout slogans in support of former US spy Edward Snowden as march to the US consulate in Hong Kong
Watch Video:http://www.dailymail.co.uk/news/article-2341451/Whistleblower-Edward-Snowden-smuggled-secrets-everyday-thumb-drive-banned-NSA-offices.html

The United States has hacked hundreds of Chinese civilians since 2009. But its favored hacking technique isn’t to target individual PCs via advanced persistent threat (APT) attacks, in the manner of the Chinese military. Instead, it prefers to compromise foreign network backbones, thus potentially gaining access to hundreds of thousands of systems at once. That revelation was delivered by whistle-blower Edward Snowden, until recently a contractor for the National Security Agency. He emerged from hiding Wednesday to grant an interview to Hong Kong’s South China Morning Post.

“We hack network backbones — like huge Internet routers, basically — that give us access to the communications of hundreds of thousands of computers without having to hack every single one,” he told the Post.

According to NSA documents reviewed by the Post, which haven’t been verified, targets of the NSA’s Prism program have included computers in both mainland China and Hong Kong. People targeted included systems at Hong Kong’s Chinese University, as well as government officials, businesses and students in the region. But the Post reported that the program didn’t appear to target Chinese military systems.

[ Security standoff at recent U.S.-China summit: Read U.S.-Chinese Summit: 4 Information Security Takeaways. ]
 
According to Snowden, he learned of at least 61,000 such NSA hacking operations globally. The Post didn’t specify whether those operations all allegedly occurred since 2009.

Why go public with the NSA’s alleged hacking campaign? Snowden said he wanted to highlight “the hypocrisy of the U.S. government when it claims that it does not target civilian infrastructure, unlike its adversaries.”

“Not only does it do so, but it is so afraid of this being known that it is willing to use any means, such as diplomatic intimidation, to prevent this information from becoming public,” he said.

Snowden first arrived in Hong Kong May 20, and said that the choice of venue wasn’t accidental. “People who think I made a mistake in picking Hong Kong as a location misunderstand my intentions. I am not here to hide from justice, I am here to reveal criminality,” he said, noting that he planned to stay until “asked to leave.” Noting that the U.S. government had already been “bullying” Hong Kong authorities into extraditing him, Snowden said that he would legally fight any such attempt.

How will Hong Kong handle Snowden’s case? “We can’t comment on individual cases,” Hong Kong’s chief executive, Leung Chun-ying, told Bloomberg Wednesday. “We’ll handle the case according to our law.”

Hong Kong is a special administrative region of China, and Beijing could influence the government’s legal thinking. But when asked in a Thursday press conference if the Chinese government had received any requests from Washington related to Snowden’s case, Hua Chunying, a spokeswoman for China’s foreign ministry, said only: “We have no information to offer,” reported The Hindu in India.

Snowden previously said he would prefer to “seek asylum in a country with shared values,” and named Iceland. Asked to respond to a spokesman for Russian president Vladimir Putin recently saying that were Snowden to apply for asylum in his country, authorities would consider his request, Snowden replied: “My only comment is that I am glad there are governments that refuse to be intimidated by great power.”

Snowden said he hadn’t contacted his family since leaving the country, but feared for both their safety as well as his own. He also appeared disinclined to glorify what he’d done. “I’m neither traitor nor hero. I’m an American,” he said. “I believe in freedom of expression. I acted in good faith but it is only right that the public form its own opinion.”

How has China reacted to Snowden’s revelations that the NSA is spying on the Chinese? Chinese foreign ministry spokewoman Hua said in a regular press conference Thursday that the government has been following the revelations of NSA monitoring detailed by Snowden, and she repeated calls from the Chinese government — agreed to in principle at last week’s U.S.-China summit in California — to launch a cybersecurity working group to increase “dialogue, coordination and cooperation” between the two countries.

“We also think adoption of double standards,” she said, “will bring no benefit to settlement of the relevant issue.”

By  Mathew J. Schwartz
IT finally has its security priorities right, our annual survey shows. Also in the new, all-digital Strategic Security issue of InformationWeek: Five counterintuitive insights on innovation from our recent CIO Summit.

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Malware, ransomware attacks are a growing threat to computer and mobile phone!

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FORGET pickpockets or thieves. The biggest threat to your smartphone now is kidnappers cyber “kidnappers” that is, with their Ransomware.

As the name suggests, ransomware is a malware (malicious software) that will keep your phone or computer a prisoner until you pay a ransom. Only when the specified amount of money is paid will you be able to “free” your device and access data or information.

Although it is not new ransomware is said to originate from Russia in 2005 and has been attacking many computers worldwide since the Symantec Corp Internet Security Threat Report (ISTR) Volume 18 revealed that ransomware is emerging as the malware of choice because of its high profitability for attackers.

Luckily, says Symantec Malaysia’s senior technical consultant David Rajoo, to his knowledge, no cases have been reported here yet.

“However, as the worldwide web has no boundaries and with increasing broadband penetration and as more users are accessing the Internet, Malaysia is certainly exposed to the Ransomware threats,” he says.

Infected machines display messages which demand payment in order to restore functionality. – David Rajoo

Rajoo points out that awareness is key to combat ransomware threat.

As the report highlights, attackers are using deceptive links and poisoned websites to infect unsuspecting users with malicious software and lock their machines.

“The attackers, many of them cybercriminal organisations, then hold users’ machines for ransom. Infected machines display messages which demand payment in order to restore functionality,” he tells.

Recent attacks have also displayed images that impersonate law enforcement.

Consumers on the Android platform are most vulnerable to ransomware and mobile threats, says the report.

Last year, mobile malware increased by 58%, and 32% of all mobile threats attempted to steal information, such as e-mail addresses and phone numbers.

Although Android has fewer vulnerabilities, its threats are higher than any other mobile operating system. Its open platform and the multiple distribution methods available to distribute malicious apps make it the go-to platform for attackers, adds the report.

With malware growing sophisticated every day, Rajoo adds, a mix of intelligence-based technologies can provide optimal security to stop new and unknown malware.

To avoid getting infected, ensure the device’s software and anti-virus definitions are up to date, and avoid suspicious sites, Rajoo advises.

“We also advise users to use more than antivirus for protection. We recommend using advanced reputation security which provides layered defence. Use more than just Antivirus use a full functionality solution which includes heuristics, reputation-based, behaviour-based and other technologies,” he says, stressing that a key strategy is to fend off threats before they infiltrate your computer system.

Symantec Malaysia’s Systems Engineering director Nigel Tan agrees that stopping the threat at the gate is important as cyber criminals continue to devise new ways to steal information from organisations of all sizes.

Staying ahead of attacks

“The sophistication of attacks coupled with today’s information technology complexities require organisations in Malaysia and globally to remain proactive and use “defence in depth” security measures to stay ahead of attacks,” he added.

According to the annual ISTR which analyses the year in global threat activity, Malaysia was ranked 35th on its global Internet security threat profile in 2012.

As it highlights, there was a 42% surge last year in targeted attacks globally compared with the prior year.

These targeted cyberespionage attacks, designed to steal intellectual property, are increasingly hitting the manufacturing sector as well as small businesses, which are the target of 31% of these attacks.

Small businesses are attractive targets themselves and a way in to ultimately reach larger companies via “watering hole” techniques.

In a watering hole attack scenario, attackers compromise a carefully selected website by inserting an exploit resulting in malware infection. Through the compromised website, the attackers will target victims who visit the compromised site and take advantage of their software vulnerabilities to drop malware that will allow them to access sensitive data and take control of the vulnerable system.

As Symantec alerts, 61% of malicious websites are actually legitimate websites that have been compromised and infected with malicious code.

Business, technology and shopping websites were among the top five types of websites hosting infections. The shift of focus from government websites indicates an increase in attacks targeting the supply chain cybercriminals find these contractors and subcontractors susceptible to attacks and they are often in possession of valuable intellectual property.

The attack uses the security weaknesses in the supply chain specifically the small businesses to gain access into larger and more secured companies, adds Symantec.

Case in point is that those in sales became the most commonly targeted victims last year.

Another growing source of infections on websites is malvertisements this is when criminals buy advertising space on legitimate websites and use it to hide their attack code.

Tan urges organisations to continue to take proactive initiatives to secure and manage critical information from a variety of security risks, especially targeted attacks in the manufacturing and small business sectors, mobile malware, and phishing threats.

By HARIATI AZIZAN sunday@thestar.com

New China-US relationship can avoid past traps

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President Xi Jinping of China and President Obama took a walk Saturday on the grounds of the Sunnylands estate in California. 

At the informal meeting between the heads of China and the US on Friday, Xi Jinping expressed China’s confidence that the two nations can avoid repeating history of conflicts between two powers; while Barack Obama welcomed China’s peaceful rise.

This may be the most exciting statement between an existing power and a rising power. As Chinese, we can feel that the Chinese leader was speaking from the nation’s heart, though we do not know if Obama was just trying to assure his guest, or expressing the real feelings of Americans.

This is a reflection of long-term strategic distrust between the two countries. We often doubt whether the real intentions of the US are not as friendly as its leader has stated. On the other hand, the Americans may not really believe what China has declared.

Relations between China and the US are more complicated than ever. There are numerous cases of frictions between the two countries in various areas, which have heavily influenced public opinions on both sides.

China cares about individual issues as much as the US. But it baffles us when the US raises many issues, such as cyber security, to a height closely related to strategic relations between the two countries. Is it a hoax to threaten China, or is it because the US believes each of the issues is more important than anything else?

The US leadership style has changed as each opposing political party takes charge. It appears urgent for each president to solve a particular issue. They have to make sure the handling of the Sino-US relationship is practical and yields tangible results as soon as possible.

It’s unfair to think that China does not want to solve concrete issues. But what the US has demanded is often impossible for China to comply with.

Some of the demands are too selfish, which may require China to compromise its national interests while the US refuses to concede an inch. Other issues, such as intellectual property rights, may simply be too complicated to immediately solve.

The new relationship between the two powers will be based on a restructuring of the two countries’ strategic thoughts as well as approaches in particular issues. It is not going to be easy for either leader to avoid misinterpreting the other side’s intentions.

The new ties will require greater tolerance of each other. China and the US must realize that even a husband and wife can not avoid quarrels and have to tolerate each other.

Although the Sino-US relationship will see ups and downs, we know it would be even more difficult to deal with a major setback, as that would be against this historic momentum – Global Times

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Xi-Obama summit aims to boost ties, aspirations between China and USA

Malaysia needs re-engineering sports, not computer games, junk foods….

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Re-engineering sports in schools

KHAIRY Jamaluddin, our Youth and Sports Minister, wants to transform our country into a sporting nation – he has a daunting task to achieve with many challenges along the path of success.

First and foremost, how much time is allocated to physical education in schools? With more children reportedly facing obesity, we wouldn’t even get to the starting block.

Also, our children are too engrossed with computer games and our fields are being hijacked for commercial development, making our children lazier. Let’s not forget too the unhealthy fast food eating culture.

Physical education classes are irregular in schools and disorganised. PE teachers lack the knowledge in sports science or health science.

Most teachers lack the capability to assess a potential athlete as they cannot even explain the percentage of fast and slow twitch muscle fibres and other aspects related to athletic performance such as physiology, physical ability, technical proficiency and psychological predisposition to performance.

Based on feedback, students are just given a ball to kick around without being given much guidance on ball skills. In many cases, students just laze around the field without proper attire.

The main focus of schools, teachers and parents seems to be for students to score the maximum number of “A’s” in the exams, with sports ranking low in priority among the stakeholders.

The million-dollar question now is how are we going to create a sports culture in schools and sell the idea to parents that sports offers great career progression?

Parents have seen that sports does not pay in the long run, except in a few cases like Datuk Nicol David (squash), Datuk Lee Chong Wei (badminton) and Pandelela Rinong (diving) who are positive role models.

There must be a firm commitment from the Government to prioritise school sports, facilities and space for competitive sports and play.

Khairy, our No.1 sports fan must work closely with the relevant stakeholders to promote a strong sports culture among our youths.

C. SATHASIVAM SITHERAVELLU Seremban

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Bank losses worrisome !

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It is imperative for banks to have a better prediction of their losses so that their capital position will be better reflected

IT may seem strange to analyse bank losses at a time when major banks, even the taxpayer-owned ones, are profitable.

Moreover, major economies are also said to be turning around. So why would we be so worried about bank losses?

According the analysts at Barclays, this is related to the bank’s risk-weighted assets.

With so much focus on capital and the need to boost capital for the taxpayer-owned banks, it is inevitable that the question on losses would pop up.

That’s when the banks accurately forecast the capital required.

However, if they do not have a fairly accurate idea of the losses they may be incurring, they may not be allocating enough capital buffer for it.

Therefore, the analysis on bank losses should be seen in a positive light as it helps to shed information early on the capital position of the bank.

The startling fact is that the banks themselves may not be able to predict their losses with a fair degree of accuracy, said the Telegraph.

UK, European and Asian banks, on average, forecast losses of nearly 30% higher than those they actually faced, the survey by analysts at Barclays found.

According to the report, Lloyds and HSBC predicted a default rate on their lending portfolios more than 50% above what they actually experienced.

Barclays was found to have been too pessimistic, particularly with assets in its investment bank where it forecast a default rate 78% higher than in reality.

“Most of the time banks’ PDs (predicted defaults) are lower than forecast, suggesting a degree of conservatism,” the analysts said, as quoted by the Telegraph.

“The forecasting errors’ can be massive, which raises questions over both their predictability and hence meaningfulness of the resulting risk weighted assets,” they said.

It is therefore imperative for banks to have a better prediction of their losses so that their capital position will be better reflected.

Banks’ boards of directors are fortifying themselves with new knowledge.

HSBC, the largest British bank, has appointed former director-general of British Security Service, Sir Jonathan Evans, onto its board, with expertise in counter terrorism and cyber threats.

With the accusations of money laundering, these major banks are coughing up a lot of money to engage top guns that can deal with the intricacies of it all.

Before terrorim, it was risk posed by over dabbling in derivatives. Banks engaged armies of risk and compliance oficers

Whether these counterrorism and cyber threat themes really emerge into trends remains to be seen.

A survey by pension fund The Scottish Widow indicated that in 10 years’ time, Britons will have to work till 70.

They do not have enough savings to last through, as they are currently caught up in daily living expenses, it was reported in The Guardian.

That sounds chilling but fast becomig a reality soon in many other countries.

Many will start rushing for health and pharmaceutical products to strengthen themselves while others will just struggle on.

Plain Speaking by YAP LENG KUEN

>Columnist Yap Leng Kuen reckons it’s easier to think positive.

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UK taxpayer-owned banks take harder hit

China calls for peace & stability, patrols in Asian seas legitimate

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East meets West: China’s People’s Liberation Army deputy chief of general staff, Lieutenant General Qi Jianguo (right), welcomes US Navy Admiral Samuel Locklear, the commander of US forces in the Pacific region, to a meeting on the sidelines of the 12th International Institute for Strategic Studies Asia Security Summit: The Shangri-La Dialogue, in Singapore on Sunday. Reuters/Edgar Su

Play Videhttp://english.cntv.cn/program/china24/20130602/103910.shtml

The 12th Shangri-la Dialogue, also known as the Asia-Pacific Security Summit,  has concluded in Singapore. China’s representative has insisted that its development is peaceful and poses no threat to the Asia-Pacific region.

Instead of focusing on conflicts, this year’s Shangri-la dialogue has taken the theme of cooperation. That theme was evident in a speech delivered by Lieutenant General Qi Jianguo, deputy chief of general staff of the People’s Liberation Army of China.

Qi Jianguo, Deputy Chief of General Staff, PLA, said, “China will always follow the road of peaceful development and remain committed to peaceful, open, co operative and mutually beneficial development. China’s development and prosperity is a major opportunity rather than a challenge or even a threat to countries in the Asia-Pacific region. China seeks cooperation and mutual benefit, and just its own exclusive development.”

Qi also said that China encourages dialogue and consultation to resolve disputes in the region, but it will not waiver in its determination to safeguard national interests.

“China’s hope for sustained peace and stability in this region, and its stress on dialogue and consultation for the sake of peace by no means denotes unconditional compromise. Our resolve and commitment to safeguarding core national interests always stands steadfast.”

In 2012, the US officially laid out a strategy of rebalancing its presence in the region. One year on, its relationship with China has become a center of attention at the Dialogue. US Defense Secretary Chuck Hagel said the US welcomes the rise of a powerful and responsible China.

Chuck Hagel, US Defense Secretary, said, “We have interests here too, just as China and Russia and other nations have interests all over the world. We don’t want miscalculations and misunderstandings. The only way you do that is to talk to each other. You got to be direct with each other. You have to share with each other. I think we are on track with that. We’ve made progress on that. I think we’ve made continued progress and we’ll make more progress.”

The Shangri-La Dialogue was launched in 2002. It aims to provide a platform for Asia-Pacific military and government officials to foster practical security cooperation in the region. – (Source: CNTV.cn)

Chinese patrols in Asian seas legitimate 

Chinese warships will continue to patrol waters where Beijing has territorial claims, a top general said Sunday, amid simmering rows with neighbouring countries over the South China Sea and islands controlled by Japan.

Lieutenant General Qi Jianguo, deputy chief of the general staff of the People’s Liberation Army, defended the patrols as legitimate and said his country’s sovereignty over the areas could not be disputed.

“Why are Chinese warships patrolling in East China Sea and South China Sea? I think we are all clear about this,” Qi told the annual Shangri-La Dialogue security conference in Singapore.

“Our attitude on East China Sea and South China Sea is that they are in our Chinese sovereignty. We are very clear about that,” he said through an interpreter.

“So the Chinese warships and the patrolling activities are totally legitimate and uncontroversial.”

Qi was responding to a question from a delegate after giving a speech in which he sought to assure neighbouring countries that China has no hegemonic ambitions.

“China has never taken foreign expansion and military conquering as a state policy,” he said.

One delegate however said there appeared to be growing regional scepticism over China’s peaceful intentions because it was inconsistent with moves to send naval patrols to waters where other countries also have claims.

China is locked in a territorial dispute with Brunei, Malaysia, the Philippines and Vietnam in the South China Sea.

The four states have partial claims to islands but China says it has sovereign rights to nearly all of the sea, including areas much closer to other countries and thousands of kilometres from the Chinese coast.

China also has a dispute with Japan over the Senkaku islands, which Beijing calls the Diaoyus, in the East China Sea.

“I do hope the statements of the good general today will be translated into action,” Philippine Defense Secretary Voltaire Gazmin told reporters.

He said Qi’s remarks about China having no hegemonic ambitions were “far from what is happening” in the sea.

Manila last month protested at what it called the “provocative and illegal presence” of a Chinese warship near Second Thomas Shoal, which is occupied by Philippine troops.

Among the other moves that have caused alarm were China’s occupation of a shoal near the Philippines’ main island last year, and the deployment in March of Chinese naval ships to within 80 kilometres (50 miles) of Malaysia’s coast.

Competing claims have for decades made the area — home to rich fishing grounds and vital global shipping lanes and believed to sit atop vast natural gas deposits — one of Asia‘s potential military flashpoints.

China and Vietnam fought in 1974 and 1988 for control of islands in battles that left dozens of soldiers dead.

The US-China strategic rivalry also loomed large during the conference, with US Defense Secretary Chuck Hagel on Saturday accusing Beijing of waging cyber espionage against the United States.

But General Qi on Sunday allayed concerns that China had dropped a pledge not to be the first to use nuclear weapons in a conflict.

Omission of the “no-first-use” pledge in a recent defence white paper had created ripples in military circles and sparked speculation that China may have abandoned the policy.

Qi also distanced his government from claims by some Chinese scholars that the Ryukyu Islands, which include Okinawa, do not belong to Japan.

“This is only an article of particular scholars and their views on these issues… it does not represent the views of the Chinese government,” he said.

- Source: AFP France

Currency Wars: the Unloved Dollar Standard from Bretton Woods to the Rise of China

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 A yen for the unloved dollar standard

Tan Sri Andrew Sheng gives analyses the populist and expert views of how the yen measures against the “unloved US dollar standard”.

TRAVELLING around the South-East Asian region last week, the mood was all about currency fluctuation and impact on markets.

Things do look different when the Thai stock market daily turnover touches US$2bil and is higher than that of Singapore. But the headline that Thai growth slowed quarter-on-quarter but still grew 5.3% year-on-year gave rise to fears that export-driven economies in the region are beginning to slow.

The guru on the dollar relationship with the East Asian currencies has to be Stanford Professor Ronald I. McKinnon. McKinnon made his name with his first book, Money and Capital in Economic Development (1973), where he took forward the pioneering work of his Stanford colleague, Edward S. Shaw on the phenomenom of “financial repression” the use of negative real interest rates as a tax to finance development. His second book, The Order of Economic Liberalization: Financial Control in the Transition to a Market Economy (1993), was an influential textbook on how to get the sequencing of financial and trade reform right.

McKinnon’s second area of expertise is the international currency order, explaining the macro-economics of the US dollar and its relationship with other currencies, particularly the yen and other East Asian currencies. The trouble was that his analysis did not “jive” with the populist policy view that “revaluing the other currency” would reduce the US trade deficit.

This began with the concern in the 1970s that the US-Japan trade imbalance was due to the cheap yen relative to the dollar. The Plaza Accord in 1985 was the political agreement to strengthen the yen and depreciate the dollar. From 1985 to 1990, the yen appreciated from 240 yen to 120 yen per dollar, followed by a huge bubble and two lost decades of growth.

In his important new book, McKinnon explains some uncomfortable truths with regard to what he called The Unloved Dollar Standard: From Bretton Woods to the Rise of China, Oxford University Press. The dollar standard is unloved because of what one US Treasury Secretary told his foreign critics of US exchange rate policy “our dollar, your problem”.

McKinnon argues that US monetary policy has been highly insular, despite globalisation making such insularity obsolete. He thinks that three macroeconomic fallacies were responsible the Phillips Curve Fallacy; the Efficient Market Fallacy and the Exchange Rate and Trade Balance Fallacy. In the 1960s, the US belief in the Phillips Curve that higher inflation generated lower unemployment resulted in the US pushing the Europeans and the Japanese to appreciate their currencies. When they refused, Nixon broke the link with gold in 1971.

In the Greenspan era (1987-2008), there was a strong belief in Efficient Markets, which encouraged global foreign exchange liberalisation, despite high volatility. But the most enduring fallacy is the belief that the exchange rate’s role is to correct trade imbalance, hence the Japan bashing in the 1980s and the China bashing in the 21st century in order to push for their exchange rates to appreciate in order to reduce the US trade deficit.

McKinnon considers the third fallacy as the most pernicious conceptual barrier to a more internationalist and stable US monetary policy. Chapter 7, which is written by his student Helen Qiao, gives a robust argument why the third fallacy is wrong. She argues that while a depreciation of an insular economy with no net foreign liability may result in improved trade balance, it is not clear whether the depreciation of the dollar with a large net global liability is to the benefit of the United States.

In the case of Japan, a rising yen since the 1970s did not “cure” the Japanese trade surplus with the US. Between 2005 to 2007, when the yuan appreciated, the Sino-US trade surplus doubled. Qiao worries that China could follow Japan’s steps into deflation and even a zero-interest rate liquidity trap if the yuan continues to appreciate.

The central thesis of this book is that the US should recognise that the dollar standard is actually a global standard, with many privileges and responsibilities. Depreciating the dollar is not to the US advantage, because it would only lead to future inflation. Instead, the US should concentrate on improving its competitiveness and manufacturing prowess. This requires having positive real interest rates.

The logic of the McKinnon thesis is irrefutable, although his American colleagues may find the conclusions somewhat unpalatable. The logic is that whoever maintains the dominant currency standard must maintain strong self-discipline, because the benchmark standard cannot be on shifting sands. If the dollar is weak because the US economy is weak, then all other currencies will be volatile, because they float around an unsteady standard.

For small open economies that maintain large trade with the US, having dollar pegs require them to keep their economies flexible and they must maintain fiscal and monetary discipline. This is the experience of the Hong Kong dollar peg.

Flexible exchange rates have not resulted in countries adjusting their overall competitiveness. What happened instead is that flexible exchange rates often allow governments to run “soft budget constraints” and try to depreciate their way out of the lack of competitiveness.

It is the refusal to make structural reforms that cause overall competitiveness to decline and these economies then go into a vicious circle of over-reliance on the exchange rate to keep the economy afloat. This is not sustainable, since if everyone tries to devalue their way out of trouble, rather than making structural adjustments, then the world will enter into a collective deflation.

The solution to this requires the US and China to work cooperatively at the monetary and exchange rate levels. This makes a lot of sense, which is why perhaps presidents Barack Obama and Xi Jinping are meeting soon to achieve rapport.

Anyone who wants to understand currency wars must read this book. It is an honest and frank appraisal of how we need common sense to get out of the current fragile state of global currency arrangements.

THINK ASIAN By TAN SRI ANDREW SHENG
■ Tan Sri Andrew Sheng is president of the Fung Global Institute.

Wishing all a blessed Wesak…

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All our dreams can come true, if you have the courage to change and pursue them

- Walt Disney

Today marks three important events in Siddhartha Gautama’s life – his birth, enlightenment and death. Two thousand years after his parinirvana, Gautama’s teachings still thrives because in one’s darkest hours and bleakest moments, his wisdom gives hopes, strength and joy to the sorrowful heart and tormented soul. Such is the greatness of this prince we called Buddha or the Enlightened One. Have a blessed Wesak.

May 24, 2013 by Ipohgal

Racist Malay groups boycott Chinese businesses will be self-defeating

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The call by pro-Umno bloggers and Muslim groups for a boycott of Chinese businesses is racist and will harm the country’s economic growth, according to businessmen from the community – The Malaysian Insider

PETALING JAYA: Boycotting products made by Malaysians, regardless of their race, is self-defeating, said a local business group.

Small and Medium Industries Association president Teh Kee Sin said the workforce of these companies are made up of all races and so are their shareholders.

If Malaysians started boycotting these products, it would also affect their export potential and both local businesses and consumers would lose, he said.

“Boycott doesn’t make sense as it would hamper the chances for Malaysian businesses to compete at a global level.

“The current business market is very competitive thus local businesses should complement each other to make our products more competitive,” he said when contacted yesterday.

Teh was commenting on calls by certain non-governmental organisations for the Malays to boycott Chinese traders and their products.

Prior to that there was a campaign in social media forum urging the Chinese to boycott certain products produced by a Malay company.

Teh said that the biggest losers as a result of such boycott were not just the consumers and the producers, but also the workers of the companies due to the spill-over effect.

The chain reaction from such boycott would also affect the suppliers, distributers, traders and shopkeepers.

Teh explained local businesses should instead prepare themselves for the Asean Economic Community initiative.

“The initiative presents a lot of opportunities provided we are ready.

“If we are not ready and squabble among ourselves, then we stand to lose,” he said.

He said one of the benefits of the AEC was less red-tape in starting businesses overseas.

“For example, one can set up a company in Malaysia and run a business in Thailand.

“In short less bureaucratic procedures in doing business,” he said adding that the competitiveness level would surely increase.

Teh urged groups calling for boycotts to cease immediately as it would only lead to huge losses for the nation.

“We should focus on working together rather than against each other,” he said.

By FARIK ZOLKEPLI farik@thestar.com.my

 

Mustapa against call to boycott products of Chinese firms

By NICHOLAS CHENG and P. ARUNA
newsdesk@thestar.com.my

PETALING JAYA: International Trade and Industry Minister Datuk Seri Mustapa Mohamed sa

“I can understand why some of my Malay friends have reacted in such a manner. However, as the dust is settling down and as we lead our normal lives once again, I am confident that the spirit of 1Malaysia will return,” he said through SMS yesterday.

He was commenting on reports that some groups had called for Malay consumers to boycott products by certain Chinese companies, which they alleged had funded Pakatan Rakyat’s campaign during the general election.

The products involved in the call for boycott include several brands of cooking oil, tonic drink, food outlets and bread.

It appears to be a retaliation against an earlier boycott called by Chinese groups against a brand of wheat flour and bread produced by a Malay company.

Muslim Wholesalers and Retailers Association (Mawar) president Amanullah Mohd Maideen said the boycott would be a double-edged sword and advised its 700 members to stay clear of politics.

“If it continues, the affected businesses will lose customers, but the groups which boycott them will also lose public support,” said Amanul-lah.

Domestic Trade, Co-operatives and Consumerism Minister Datuk Hasan Malek said the ministry also did not approve of the call to boycott Malaysian Chinese shops and companies.

Selangor Indian Chamber of Commerce and Industry president P. Muguntha said the call to boycott the products was pointless.

“Malaysian consumers are more intelligent than that. I don’t think anyone will listen to this call for boycott,” he said.

Malaysian Institute of Economic Research (MIER) executive director Dr Zakariah Abdul Rashid said it is counterproductive to segregate the market based on political affiliation.

Commnent: Unless steps were taken to strongly “discourage” the instigators of the boycott, investors still wary over the “politicisation of businesses” may choose to explore opportunities elsewhere and this would affect Malaysia’s foreign direct investment (FDI)
  
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