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Thursday, March 26, 2009

PBOC Zhou Urges Govts To Give Fin Mins Authority To Act Fast

People's Bank of China Gov. Zhou Xiaochuan Thursday
suggested world governments give their finance ministries and central banks
authority to take bold steps to deal with severe crises so that they have the
means to handle such crises when they strike.

He said delays had taken place in the latest crisis.

"To stabilize markets under severe stress, finance ministries and central
banks need to act fast and apply extraordinary measures," Zhou wrote in an
essay published on the central bank's Web site.

"Untimely or delayed response falls behind the curve and would make the
outcome less than desired even if the response is correct and strong," he said.

"Going forward, national governments and legislatures may consider giving
pre-authorized mandates to ministries of finance and central banks to use
extraordinary means to contain systemic risk under well-defined stress
scenarios, in order to allow them to act boldly and expeditiously without
having to go through a lengthy or even painful approval process," he said.

The essay elaborates on comments Zhou made in November, at the meeting of
Group of 20 central bankers and finance ministers in Sao Paulo, Brazil.

In contrast, he said, China has responded "decisively" and quickly to the
crisis, loosening monetary policy and introducing the CNY4 trillion stimulus
plan in November.

"Facts speak volumes and demonstrate that compared with other major
economies, the Chinese government has taken prompt, decisive and effective
policy measures, demonstrating its superior system advantage when it comes to
making vital policy decisions."

The essay, titled "Changing Pro-Cyclicality for Financial and Economic
Stability," also discusses features of the world's financial system that
magnify swings in the market.

Among the examples, the three main ratings agencies tend to give "highly
correlated" ratings, he said.

"Economic upswings produce euphoria and downturns generate pessimism," he
said, adding the rapid downgrades of ratings in the latest financial crisis
drove massive write-downs at financial institutions and "exacerbated downward

-By China Bureau; Dow Jones Newswires; 8610 6588 5848;

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