Rubin's support for yen means it's time to take bank deposits seriously
WHAT does US Treasury Secretary Robert Rubin's massive intervention to support the Japanese yen have in common with your bank-savings account? Both represent a position in the currency markets.
Say what? A puny bank account in the same league as the central banks? Well, not in a quantitative sense, but certainly in a qualitative one.
People who keep their funds in the bank tend to be conservative - or naive - and it rarely occurs to them that such a passive investment could actually carry weight.
It is a fact that is easy to forget, particularly for an individual whose entire cash flow is denominated in one currency.
'People don't seem to take their bank deposits that seriously,' said Graham Bibby, managing director of financial adviser Richmond Asset Management. 'It's part of the financial-planning process that people don't have examined. But they should.' Take, for example, a person who plans some day to live in the United States, but in the meantime is working in Singapore and socking away his savings in a local bank account.
Not only is the interest rate not particularly attractive - 3.46 per cent as of March - but the local currency is depreciating relative to the greenback, slipping more than 6 per cent from January to May.
'Even though on paper they see interest being added, in real terms they're losing money,' Mr Bibby said.
The Singapore dollar has gained ground since early May, but the days are over when it could serve as a safe-haven currency for people throughout the region.
'People would be a lot safer having their money in US dollars or sterling,' he said.
Richmond's range of clients take a more-or-less active interest in their money. The raciest among them are into currency futures and seek high annual returns of more than 25 per cent.
Middle-of-the-roaders come for cash-management services; their money is kept in money-market accounts, preferably in the world's strongest currencies.
Some come for multicurrency mortgages, hoping to shrink their debt by moving into a depreciating currency with a low interest rate.
In contrast with the popular view of currencies, Mr Bibby said he did not see them as being particularly volatile. 'We look at long-term trends - we've basically been short on the yen since 1995, and our position has not changed - because you make the most money in long-term trends,' he said.
Last week's mammoth intervention was principally designed to slow the yen's drop, not reverse it, he said.
Some currency traders had got their wrists slapped by the co-ordinated US-Japanese action, which he said made him think the yen would consolidate at current levels.
But that would not last, and the Japanese currency would end the year at 160 yen to the US dollar, down from Friday's 137.
The Australian dollar has been treading a similar downward track to the yen, and Mr Bibby forecast this would continue. But when the consolidation occurred, the aussie would pick up first. 'Right now, the Australian dollar's got nothing going for it, because we see all commodity prices falling. But at some stage . . . commodity prices will bottom out,' he said.