Bank Of Japan To Stockpile Cash For Y2K

07 Apr 1999, 12:07 AM CST

By Martyn Williams, Newsbytes.

TOKYO, JAPAN,

The Bank of Japan has revealed it plans to cope with a possible run on funds from the nation's banks in the run up to the end of the century with an emergency reserve of 40 trillion yen (US$331.40 billion). The cash will be held at its head office and branches across Japan.

While continuing to reassure customers that it believes its settlement and computer systems will have no problems when the year changes from 1999 to 2000, the bank is worried that consumers will attempt to stockpile food, gasoline and hard currency in anticipation of problems with computer systems.

Other measures being drawn up by the central bank include preparations to switch operations to a back-up computer center in the Osaka area in the event of problems in Tokyo and even the fall back to manual processing systems should there be any large scale computer failures.

Since the Japanese new year holiday extends several days during which all banks and the majority of ATM machines are closed, the Bank of Japan will have up to three days to fix any problems that do occur or prepare for manual processing on January 4, when most of the country will go back to business.

Demand for cash routinely grows at the end of the year because of the two or three day closure of banks and most shops.

Exchange rate: $1 = 120.70 yen

Reported By Newsbytes News Network, http://www.newsbytes.com Link

-- Gayla Dunbar (privacy@please.com), April 07, 1999

Answers

This is a mind-boggling number. Has anyone seen any corroboration of this story elsewhere? The reference to "emergency reserve" implies that there might also be a "normal, non-emergency" reserve -- just as the U.S. Fed supposedly has $200 billion on hand for normal liquidity requirements, plus another $50 billion of "emergency reserve" set up to handle Y2K liquidity demands. If this article is suggesting that Japan is going to match our $50 fund with a $331 billion fund of their own, it would make all of us take a deep breath. But I'm not going to lose any sleep over this until I see it confirmed somewhere...

PNG, where are you? We need your commentary on this!

-- Ed Yourdon (ed@yourdon.com), April 07, 1999.

Sounds to me like an admission that maybe their banks aren't in real good shape. April 1 problems starting to surface?

-- @ (@@@.@), April 07, 1999.

Ever since the Japanese govt.'s FSA reported that, as of last December, almost half of Japan's largest 19 banks had completed only 25% of "needed repairs" for Y2K, we've known trouble was coming.

-- Don Florence (dflorence@zianet.com), April 07, 1999.

They must plan on being out of commission for quite a while. That 40 trillion yen works out to the equivalent of $7500 per household, or about $2700 for every man, woman, and child in Japan!

If the Japanese banks are out of commission for more than a few days that pretty much wraps things up for American banks too. I have a feeling our $50 billion isn't going to be enough for very long.

-- @ (@@@.@), April 07, 1999.

While working with some Japanese ATMs several years ago I learned that many Japanese people make a large cash withdrawal at an ATM in the morning, pay a higher proportion of their daily purchases in cash (vs. checks or credit cards) than the average U.S. consumer would, then deposit their leftover cash in an ATM in the evening. For ease of cash deposits, many ATMs in Japan have an cash-counting intake mechanism designed not only to handle coins mixed with paper bills, but also to be able to straighten-out most folded or crumpled paper bills before reading their values.

So the Japanese M1 has always had a higher percentage of currency than the U.S. M1 anyway.

-- No Spam Please (No_Spam_Please@anon_ymous.com), April 08, 1999.

This was reported by the "Nihon Keizai Shimbun" on Tuesday, 7 April, 1999. However, this Newsbytes story may be a little simplistic. Here is some additional information:

First, this is very responsible cash management initiative by the Bank of Japan.

1) The 40 trillion yen figure is correct. One of the biggest reasons is to have cash available should large international and/or domestic commercial transactions be delayed. The Bank of Japan could step in to temporarily assist a financial institution with cash, should a major European , U.S. or Asian institution "electronically default" due to a y2k network or institution failure. This would be a temporary hedge against domino, cash-starvation effects.

2) This entire amount is not intended to guard against consumer bank runs. The stability of institutions is part of this package.

3) Japan consumers and companies use cash for almost all purchases (even automobiles) andrarelyuse credit cards. The American market uses less cash.

Remember...the average Japanese family has approximately 18,000,000 yen ($145,000)in savings. That's one reason they have not suffered as Americans would, should the economic tables be turned...

4) The consumer buying power, not just the exchange rate, must be considered when comparing economies. A reasonable ratio is 200 yen: $1 of consumer buying power. For example, it might cost me 2,000 yen to buy a meal that would cost you $10. So that 2,000 yen feelslike $10 to me, not the exchange rate of $16.

So, the 40 trillion yen is like having $200 billion in the U.S. I don't feel $200 billion is too much of a reserve to have, if you consider how much institutional e-money changes hands on a daily basis.

5) Systems will be in place to test transactions again on 3 January, 2000 prior to businesses reopening on 4 January. Contingency plans are in place to share data transfer among all institutions to keep any with problems from strangling. January, 2000 will not be a time of cut-throat competition among Japanese banks and financial institutions. No one will be smirking at a competitors problems. It will be a time to keep their neighbors and competitors in business because they have so many mutual businesses and customers.

It's been planned all the way down to being able to keep major functions operating manually. That's right...paper and pen will be used if necessary. Someone will run from one bank to the next with a piece of paper, if necessary. You can laugh all you want, but the reason Japanese companies and banks are so bloated with people is because, before personal computers and word processors, all business correspondence was written by hand. There is and was no such thing as a Japanese language typewriter...and PC's only exploded onto the Japanese business scene after the release of Japanese Windows 95.

Will Japanese banks have a problem? Of course. Some have already made plans to outsource data transfer operations to competitors. Some will be equal to the best prepared in the world. At least they're making plans to do something!

I've found that Martyn Williams, the "Newsbytes" person who rewrites stories from the Japanese press, doesn't usually have a good grasp of the essence of the articles that he/she rewrites. But Martyn Williams is read by many and gets paid to do it.

-- PNG (png@gol.com), April 08, 1999.

IMO these 'stockpiles' of cash are not intended for distribution to consumers who stand clamoring at teller windows. They recognize that once bank runs start the ONLY solution is to either limit withdrawls or suspend withdrawls altogether. So what, then, are these 'cash reserves' for? My guess is that they are reserved for the government to use to do business on a cash only basis should that need arise.

-- David (C.D@I.N), April 08, 1999.

I've checked and rechecked this, hope I'm right. You folks are welcome to do the math too, to verify....by all means, please do.

Martyn Williams of Newsbytes (or someone...HTML coder, whomever) also made a mistake in the placement of the decimal point of the $331 billion figure, so that this whole discussion is overblown by a factor of 10.

A trillion is the number 1 followed by 12 zero's....1,000,000,000,000. A million millions; a thousand billions. As defined by Webster's.

To find out how many U.S. dollars are represented by 40 trillion yen, we take the 40 trillion and divide by the exchange rate figure. The Newsbytes article gives an exchange rate figure of US $1 = %120.70

so...

%40,000,000,000,000 w 120.70 --> US $33,140,016,570.01

That's $33.14 billion, not $331 billion, i.e. only 10% as much. A hugely different figure for the Bank of Japan to be putting aside as an emergency reserve, yes? The U.S. Fed is putting aside $50 billion, the Bank of Japan is putting aside $33 billion. A lot more in line, isn't it.

Of course, the exchange rate varies; today's exchange rate stands at 1 US Dollar = 121.110 Japanese Yen (source: http://www.oanda.com/converter/classic?value=1&exch=USD&expr=JPY)

So as of today, 40 trillion yen would be $33,027,825,943.36, or $33.027 billion.

-- Chicken Little (panic@forthebirds.com), April 08, 1999.

woops

-- Chicken Little (panic@forthebirds.net), April 08, 1999.

and by the way, regarding @'s breakdown by person...

the CIA World FactBook gives a July 1998 estimate of Japan's population at 125,931,533

$33,140,016,570.01 w 125,931,533 would come out to $263.16 per person. There's that factor of ten again.

-- Chicken Little (panic@forthebirds.net), April 08, 1999.

Business week is also saying it is 341 billion. Either no one can add, or it is a correct number.

R.

www.businessweek.com/cgi-bin/bwdaily_full?right=/bwdaily/dnflash/apr1999/br90406b.htm

********************************************************************************* The Bank of Japan Prepares a $331 Billion Y2K Emergency Stash

Tokyo--Apr. 6--The Bank of Japan today said it will set aside $331.3 billion (40 trillion yen) in cash at its head office and branches to cope with emergency situations in case the Y2K bug hits computers with the new millennium. These situations would include a sudden surge in demand for funds to stockpile food and gasoline, according to the central bank.

Although the BOJ has reprogrammed its own computer system to eliminate any Y2K problems, it has prepared a package of countermeasures just in case. It is the first central bank among industrial nations to announce such countermeasures.

According to the package, the BOJ will complete tests by December on the transfer of computer operations to its backup center in Osaka. On Dec. 30, the central bank will print out data that may be needed if manual processing of transactions becomes necessary. The institution will also place officials on an overnight shift on Dec. 31 and check key facilities on Jan. 1, 2000. The connection of the BOJ's computer system with those of private financial institutions will be tested on Jan. 2, and if any problem emerges, officials will decide whether to shift to manual processing by the end of Jan. 3, as most Japanese businesses will begin work for the new year on Jan. 4.

By BridgeNews

-- Roland (nottelling@nowhere.com), April 08, 1999.

woops again...and never mind.

The reported numbers are correct. Seems the calculator accessory that comes with the version of Windows 95 on this puter doesn't handle numbers that big very well. (that's what I was using, up until a few minutes ago)

The numbers in the article are correct, as well as the per-person breakdowns @ enumerated.

Sorry for the confusion...yep, those are mind-boggling numbers

-- Chicken Little (panic@forthebirds.net), April 08, 1999.