Asia prepares for possible run on banks

Asia prepares for possible run on banks

SINGAPORE (AFP): Asian central banks are backing up their calls for calm over the year 2000 Y2K computer problem by ensuring their economies have enough currency to cope with a possible run on banks ahead of the new year, officials said.

Among economies that have already printed or will print money to cope with the computer bug are Hong Kong, Taiwan, Australia, Malaysia and the Philippines, officials said.

Thailand said it will double its cash reserves while the central Bank of Japan was reported to have set aside 40 trillion yen (US$374 billion) to cope with unforeseen cash needs in the transition to the new millennium.

Singapore, Hong Kong, India, South Korea and the Philippines have also put in place temporary changes to the way they provide liquidity into their financial systems to deal with Y2K disruptions, according to Barclays Capital.

The Y2K problem refers to the inability of many older computer systems to differentiate between 2000 and 1900 as they were programmed to read the year only in two figures, like 99 for 1999.

It is feared that the bug, unless addressed in time, could cause computer systems to crash in a host of sectors, including banking where some customers worry their savings accounts could go haywire.

By having extra money in their vaults, central banks in Asia should cope with any panic withdrawal of savings by the public, officials said.

The Hong Kong Monetary Authority said it would increase money supply by 150 percent at year's end.

"This is one of the hypothetical scenarios, but even if the banks' clients withdraw their money, this does not mean that they want to spend it," said Jasmine Fong, spokeswoman for the authority.

The central Bank of Japan (BoJ), based on its sufficient reserves of bank notes, could meet year-end cash demand against any Y2K-sparked run on banks, said its spokesman, Satoru Yamadera.

The BoJ's bank note reserves stood at 39 trillion yen ($364 billion) at the end of March, against a total 56 trillion yen in circulation.

The central Bank of Korea said it had already issued sufficient banknotes while banks had stored enough money to cope with any emergency cash shortage.

Taiwan's central bank said that in addition to the current issuance of some NT$700 billion ($25.02 billion), it has prepared NT$900 billion to cope with any bank rush.

Officials there said the NT$1.6 trillion should be sufficient since it was more than the NT$1 trillion issued by the central bank during the Lunar New Year when cash demand was generally the highest.

The Reserve Bank of Australia said it was printing more money and "lengthening the life" of notes that might otherwise be unfit for circulation.

"We're building up stock such that way so we are in a position to meet conceivable demand," a bank employee said.

He said the bank's message was for people to treat the turn of the century as they would a long weekend.

The Central Bank of the Philippines will also print more peso bills but Governor Rafael Buenaventura asked commercial banks to provide liquidity if there were massive withdrawals and large- scale hoarding of cash.

The Monetary Authority of Singapore has been working with the Board of Commissioners of Currency of Singapore (BCCS) "in the very unlikely event" of a huge surge in demand for cash.

The BCCS maintains a two-year buffer stock of double the amount of cash it keeps in reserve for year-end withdrawals.

"We have a lot of stock because of decreased demand on cash due to the financial crisis," said Napajorn Hemachandra, deputy secretary-general of the BoT Y2K Command Center.