Gold Reserves and Demand

As per World Gold Council statistics, the world official gold holdings as of September 2010 stands as follows.

#	Country	Gold Reserves (Tonnes)
1	USA	8,133.5
2	Germany	3,402.5
3	Italy	2,451.8
4	France	2,435.4
5	China	1,054.1
6	Switzerland	1,040.1
7	Japan	765.2
8	Russia	726.0
9	Netherlands	612.5
10	India	557.7

Please click here to read the entire report on world official gold holdings as of September 2010, released by the World Gold Council.

Please note that the report shows only the gold reserves owned by the governments of these countries and doesn't include the demand for gold jewellery from the people of these countries.

When it comes to the demand for gold for jewellery, India still remains the largest jewellery market in the world, accounting for more than 25% of global gold jewellery demand, which is followed by China. To give an indicative figure for the demand for gold for jewellery, in Q2 2010,

Global gold jewellery demand: 408.7 tonnes
Gold jewellery demand in India: 123.0 tonnes
Gold jewellery demand in China: 75.4 tonnes

Seems the yellow metal's dream run will continue for a long time.

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What is ISIN?

ISIN or International Securities Identification Number is a 12 character alpha-numeric code that uniquely identifies a security, across the world. The securities include shares, bonds, warrants etc. For example, the ISIN of Bharti Airtel is INE397D01024.

ISIN constitutes of three parts. It starts with a two letter country code. In the case of Bharti Airtel the country code is IN (India). The country code is according to the ‘ISO 3166-1 alpha-2’ standard.

The country code is followed by a nine character alpha-numeric national security identification code assigned to a security by the governing bodies in each country. In the case of Bharti Airtel, the national security identification code is ‘E397D0102’. This is followed by a single character check digit, which will validate the ISIN code. The detail of how this validation is done is illustrated here.

In a time when security trading across countries has become rampant, having a unique identifier for a security greatly helps traders as well as brokers in various countries to unambiguously identify and trade a security.

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What went wrong with RBS?

A nice and indepth article that came in The Economist, which describes what went wrong with RBS.

What makes Swiss Bank Accounts safe and secure?

Recently, discussions about Swiss Bank Accounts came into prominence in Indian media further to the revelation that Indian nationals have a whopping 1456 billion US dollars in Swiss Bank accounts. This means Indians have more money in Swiss Bank Accounts than the rest of the world combined. Leaving aside this story, let’s concentrate on Swiss Bank Accounts and what makes them safe and secure.

In many novels and films, we have seen intriguing stories associated with Swiss Bank Accounts, like in Bourne Identity, Da Vinci Code etc. Even though most of these actually don’t happen in a Swiss Bank Account, lots of people consider Switzerland to be a place where they can keep their money safe and secure. There are a few factors that make it so.

The Banking Act of 1934 was passed in Switzerland to prevent Swiss Banks from divulging depositor information to other countries during world war period, with which those countries tried to confiscate the assets owned by the customers of Swiss Banks, especially the Jews, in the name of “the good of state”. But then the Act stayed on and provided enough privacy to depositors of Swiss Bank Accounts.

Switzerland is a very stable country and it maintains a policy of neutrality with other countries. It maintained neutrality in both World Wars, is not a member of the European Union and was not even a member of the United Nations until 2002. That’s why many of the world organizations have their headquarters in Switzerland. Thus the country doesn’t have a need to succumb to pressures from international treaties and obligations. All these make its economy robust and the banking system highly stable.

Also, Switzerland is a tax haven for depositors of other countries. For nonresident depositors of Switzerland there are no taxes if they don’t reside in EU or don’t invest in Swiss companies, making it a promising place to put their money in.

Good Reads
- How Swiss Bank Accounts Work?

What is SWIFT?

Being an NRI (Non Residential Indian), once in a while I sent money to India. Unlike before, nowadays it all happens online and is quite easy. Within the comforts of my home, I just need to login to my internet banking account, do some clicks and money will reach my bank account in India in a couple of days. My bank makes it possible through SWIFT!

SWIFT or the Society for Worldwide Interbank Financial Telecommunication is a worldwide network for financial messages through which its members (i.e. financial institutions such as banks) can exchange messages related to money transfer for their customers. The messages are sent securely and reliably to the target member financial institution of SWIFT.

By the way, SWIFT is just a messaging service and it doesn’t facilitate actual cash transfer between banks. For doing that, the banks that exchange authorization message for money transfer shall have an external banking relation between them and normally they settle the actual cash transfer in parallel.

But the point is, once the authorization for the release of funds are sent through SWIFT, the target bank can release the money to the end user’s account and the bank is assured of the money from the sending bank. Sometimes, the target bank will have a branch in the sending bank’s country or vice versa and they may settle it within the purview of a single country.

Thus, the end user will receive the money without needing to know the hassles of exchange rate conversion and various other formalities, which happen in parallel between the banks. Also, the user will receive money, irrespective of the time taken for all these.

Over 8,700 banking organizations, securities institutions and corporate customers in more than 209 countries use SWIFT for transferring financial messages, making it the most widely used network for international financial messaging. Each financial institution registered with SWIFT is identified by a bank identifier code popularly known as the ‘SWIFT Code’.

Through SWIFT, transfer of funds to various countries can be completely automated; where the core-banking solution of the bank can directly communicate with SWIFT to do the transfer. This makes the process of money transfer more efficient, secure and with lower cost. Thus, SWIFT makes the process of transferring funds across the globe a lot easier.

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L, V and U Recessions

These are the types of recessions according to economists worldwide; i.e. L-shaped, V-shaped and U-shaped ones.

L-shape recession is a recession that goes down and then stays there for a long period of time without a recovery. It could last for 20 years like it happened in Japan. A V-shape recession goes down pretty fast and recovers in very less time. A U-shape recession goes down slowly and then stays there for a few years before recovering slowly. It could last anywhere from 2-10 years, like in the 70s in US where it lasted for 8 years.

Most of the times, it is the economic policy adopted by a government before recession, which determines what type of recession it is; where wrongly calibrated economic policies leading to L-shape recessions, the worst of all.

Top 10 financial centers of Asia

According to the six-monthly Global Financial Centers Index (GFCI) compiled by Z/Yen Group, the top 10 financial centers of Asia are,

1. Singapore
2. Hong Kong
3. Tokyo
4. Shanghai
5. Taipei
6. Kuala Lumpur
7. Mumbai
8. Bangkok
9. Beijing
10. Seoul

More details here.

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The Great Depression

The Great Depression of the 1930s is the economic slow down that everyone often compares with other economic slumps.

ET has compiled this pictorial ride of The Great Depression. Have a look!

India’s GDP growth slipped to 5.3% in the third quarter

India’s GDP growth slipped to 5.3% in the third quarter (October ~ December 2008) of the financial year.

There were speculations that India would beat China in the third quarter where the latter initially clocked 6.8% GDP growth in the same time period. With that not happened, the message that could have been sent to the investor community that India being the fastest growing big economy didn’t materialize.

Tax

The Internal Revenue Service (IRS), which is the tax collecting authority in the United States, demands that 30 percent of the winning amount on casinos and other gambling establishments by international visitors shall be withheld by these establishments. This amount will have to be submitted as tax to the government.

But residents of certain countries outside the US are eligible to get a refund of tax on such casino winnings as a result of a few tax treaties that have been made with these countries by the US government. Casino tax rebate is an agency who is experienced in this.

They can help an international visitor on US tax recovery and provide assistance for getting a refund from the federal gambling winnings tax withheld by the particular establishment. I guess this would be a service particularly greatly useful for those international visitors planning spend some time in the US casinos.

Legal help for taxation issues

Generally, people tend to see taxation as a meager formality and presume that it is something that is mostly unnoticed by the tax authorities. Due to this, sometimes they end up defaulting on filing tax returns and not taking seriously those initial legal notices from the tax authorities, especially in cases where they are outside the country for a long period for some assignments abroad or for various other reasons. But when the taxmen knock at the doors for a tax returns default, or when a directive comes from the court to appear before a judge, more often than not, they run in to panic.

Thus, taxation, with its intricacies and umpteen formalities, may sometimes turn out of control and result in a life fearful of the tax department (Internal Revenue Service, IRS, in the United States) and the legal proceedings that might follow after that. That is when the professional help from a tax help attorney comes to the rescue of the people who face the legal proceedings. With their proven expertise in the field of taxation and also in dealing with similar cases for a long period of time, they can assist a person to overcome the dilemma of being under the IRS scanner.

Tax Solutions offered by the tax help attorney may vary depending up on the exact situation a person is in. Some issues would be associated with the non-filing of tax returns where as other issues may vary from unpaid payroll taxes, wage or bank levy, audits, asset seizure etc. They maintain a huge collection informational taxation related articles and also have a blog on tax laws through which one gets to read the latest on the area of taxation. Thus, tax help attorney would be able to offer a major helping hand for people in distress due to tax legalities.

Lessons from the sub-prime crisis

On Tuesday, the US senate passed the $819 billion economic stimulus bill, the second of the rescue package for the drowning US economy. Other governments have also come up with/are coming up with such measures to counter the financial crisis.

Even while issuing such packages, neither the US senate nor the other governments across the world can say with certainty that the financial crisis will be harnessed with these. Such is the size of the crisis and one might wonder how can we ensure that a crisis like this won’t happen again? What are the lessons learnt from the financial crisis?

In the case of sub-prime securities, risks were often under-estimated due in part to product complexity and over-reliance on quantitative analysis, including by rating agencies. Thus early detection and cure, which would have reduced the spill over effects of the crisis, didn’t happen in this case. Financial institutions were trying to cover up their losses till the last moment. The failed ones got uprooted in no time.

A major factor that contributed to the crisis is the use of standard risk assessment models used by risk management professionals by which they underestimated the systematic nature of risks. To put it in simple words, if everyone uses the same techniques, every one will be affected by the same issue. Independent assessment of risks using custom developed models would be one of the key lessons to be learnt from the crisis.

Derived from, Financial Risk Management: Lessons from the Current Crisis ... So Far

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India could soon beat China in GDP growth rate

The current global economic decline and a sharp fall in an export dependant China’s GDP growth rate could make India the fastest growing among large economies, at least for a quarter. China’s GDP growth rate was 6.8% during October ~ December 2008 quarter, well with in India’s reach.

ToI says,

If India achieves a better growth rate than China even for one quarter, the message will go across to the world and help India in wooing foreign capital, waiting to chase growth stories.

The Indian economists are hopeful because of the fact that China’s export constitutes 37% of its economy against 13% in the case of India; which would make India suffer less. India had achieved 7.9% and 7.6% growth in April ~ June and July ~ September quarters, according to provisional numbers and it is expected that the softening of interest rates will stimulate demand and ensure a faster growth rate than China for the quarter October ~ December 2008.

More news here.

Rise in NRI remittances to India

Despite economic recession, Indians working abroad had sent a record $40 billion as remittances to India in just 9 months of calendar year 2008. As the last quarter is a festival period, the total remittances for the year may even exceed $50 billion. This would be way ahead of World Bank’s prediction of $30 billion for India in 2008.

In 2007, with $27 billion as remittances, India was placed as the number one recipient of inward remittances globally by World Bank, with China in close second ($25.7 billion). And the story would be no different this year as well.

Inward remittances (unlike FII) are considered ‘sticky’ as this money is sent to India primarily for savings and family spending, and hence would remain in the economy. Thus it plays a major part in boosting the economy, in particular, during the ongoing recession. Hence, as a policy measure, government is also promoting NRI remittances through higher interest rates on NRI deposits. This could offset the FII outflow to some extent and thus could reduce the dependence of the economy on FII money.

Even though the recession is progressing, remittances had not/may not fall due to the following reasons.

1. The fear of job loss forces people to save more, especially in the safer Indian financial markets
2. Rise in rupee dollar exchange rate would fetch more rupee than ever when transferred to India
3. Rise in interest rates of FCNR and NRE deposits

More details here.

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Online money transfer to India for NRIs

With the advent of SWIFT and other international inter-bank money transfer networks, the importance of other retail value transfer systems such as Western Union etc. have probably come down. As with the case of any internet based systems, online money transfer systems also offer convenience, speed, traceability etc. to its customers. Also, it allows remittances to be done within the comforts of home.

Following is a non-comprehensive list of varoius Indian banks offering online money transfer to India.

AxisRemit – This is a service offered by Axis Bank.

Money2India – This service is offered by ICICI Bank.

QuickRemit – This service is offered by HDFC Bank.

Citi Online Remit - This service is offered by Citi Bank.

Remit2India - This service is offered by Times Money

Most of these banks charge a nominal service fee and allow money to be transferred to any bank in India, not just the bank doing the transfer.

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The Rupee

Here is an interesting statistic of Rupee, the common name of the currencies used in India, Pakistan, Nepal, Sri Lanka, Mauritius, Seychelles, Indonesia and Maldives (I’m ignoring the slight variations in names such as Indonesian Rupiah and Maldivian Rufiyaa as they are cognate words of Hindi Rupiya).

1584 million people (the total population of the above countries) use the currency Rupee for their daily transactions; buying day today stuff and all. This is 24% of the world’s population. That means every fourth person living in this world uses a rupee every day.

Country	Population
India	1140
Pakistan	165
Nepal	28
Sri Lanka	19
Mauritius	1
Seychelles	1
Indonesia	229
Maldives	1
Total	1584

*Data extracted from wikipedia

See how famous the Rupee is! And we thought the Rupee was one of those not so famous currencies in the world?

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WallStreet crumbles

- Lehman Brothers, files for bankruptcy.
- Bank of America to save Merrill Lynch from the same fate by buying it for $50 billion.
- AIG looking to raise capital; also to avoid the same fate.

Complete coverage by WSJ.

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Financial tidbits

As the world economy continues to remain blunt, in the US the subprime mortgage lending crisis is still not over despite statements from the renowned in the field stating it to be over. From this news,

Standard & Poor’s Leveraged Commentary and Data reported this week that the default rate — the percentage of leveraged loans in default — rose to a five-year high of 3.3 percent in August. At the end of last year, the rate was a tiny 0.24 percent, or about one of 400 loans.

Back in India, this news (India’s external debt jumps 30.4% to $221 Bn in FY08), though it appears appalling prima facie, might not be that bad because the increase is on account of increased borrowings by the corporate from outside and weakening of the dollar. In fact, the government’s debt in total external debt has decreased from 28.4% to 25.6%. Increased borrowings by the corporate, also called External Commercial Borrowings (ECB) could indicate an increase in investments done by Indian corporate inside India and abroad, which is actually good for the Indian Business.

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Effects of oil price increase on world trade/globalization

Oil is conquering new heights every day. With 145 dollars a barrel, it is the single largest commodity affecting world economy today. Does its effect confines to an increase in inflation across nations? No. Oil has a much larger impact, especially when it comes to international trade; in a globalized world.

One of the fundamental principles that propelled globalization was a world without boundaries; a world that was seamlessly linked. When we narrow this down, being seamless attributes to low international transportation costs which allowed nations to trade (buy and sell goods) with each other and still have a cost advantage.

The transportation costs were so much low so that there was an incentive to import goods from any corner of the world in spite of the distance it has to be shipped and sell it for less than what is available locally. On the other hand, it also allowed nations to export goods to other countries and sell it for less than the price out there, due to marginal transportation costs. Thus transportation costs had a major hand in the success of globalization.

The increase in oil price has disrupted this pillar of globalization. Transportation costs are increasing world wide due to fuel price increase and it might increase to such a extent that it may not become economically plausible for a country to buy or sell goods outside. The transportation costs may become the deciding factor of the final price of goods and hence would account for an obvious collapse of the cost advantage that nations enjoyed previously.

Thus the oil price increase has a strong impact on the global economy and to globalization. Let’s hope that economies world over would think over it and do something to put an end to growing oil prices.

Inspired by ‘The rebirth of distance’ – Niranjan Rajadhyaksha
Image courtesy: Getty Images

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How India contributes to global oil price increase?

The price hike on petroleum products in India, barring kerosene, seems to have settled down comfortably into Indian minds. But, like I have written previously, the global crude oil price increase has not been completely transferred to a price hike in retail prices of petrol and diesel. Subsidies still rule Indian petroleum retailing!

The actual plunge is softened by the cushion made on the back of oil companies, central government and state governments. They suffer heavy losses through regulatory restrictions and tax cuts to make petrol available cheap for the common populace. As a consumer, one would feel great about the cushioning, but is it good for the global petroleum price? I would say no!

Economics says, whenever there is an increase in price of any commodity, its demand comes down forcing it to be sold at a lower price. That is, the increase in price is brought down by a decrease in consumption. Similarly, in an ideal case, when crude oil price increases, people start using it less making its demand go down, there by decreasing its price.

In India, since the government and companies suffer losses to maintain petrol/diesel prices low, people are not experiencing the actual effect of the price rise. As a result the demand for oil is not coming down (people are not reducing consumption) in the way it should have. For example, if petrol price was 10 rupees more than its current price, more people than now would resort to public transport than taking their own vehicle and the consumption would have come further down. In that case, India would have imported less oil, reducing global demand for oil and hence the price.

Along with the demand problem mentioned above, when you consider the fact that India is a fast growing and highly populated economy, you would know how much impact will it have on global crude oil demand and thus its price.

Reports say that oil products sales grew by 10.9 percent in India for the year ended February 2008, which is funded by an estimated oil subsidy of 200,000 Crore! China, which is a similar economy as India (fast growing and highly populated) had a 7.8 percent growth in oil consumption during the same period. And these two giants could easily contribute to the increase in crude oil prices as the demand supply conundrum is not allowed to happen ‘freely’ in these two countries.