Kevin Ng
6 May 2008
opinion
Port Louis — I have not had the pleasure of reading Mr Peter Craig's letter to you of the 26th August 2007 concerning a cheque drawn on an American bank which apparently took 2 months to be credited to his account.
He now adds (5th May 2008) that he has learnt that it takes 5 days for his Mauritian cheque to be cleared vis a vis another local bank.
He asks, quite legitimately "Does keeping this money add to some cash flow benefit for the banks?"
The answer quite clearly is "No".
Whether it be 2 months or 5 days cheque clearing, no respectable bank would, to its own benefit, sit on the cash flow created by the debit of an account with another bank on a particular value date. Actually, in clearing cheques between banks, the beneficiary's bank credits his customer's account on the same value date as the paying party's bank debits his own customer's account.
Mr Ali Mansoor, who Mr Craig calls to task, will surely be able to verify this.
However, what he will not be able to obtain is that an American bank should take less than two months to debit his customer's account and give and confirm a value date to the Mauritian party holding the American cheque. In effect and quite clearly in that case, the local bank derives no benefit. The two months gap benefits either the party issuing a cheque to Mr Craig, or that party's bank, if the latter should debit his customer on date D and quote a value date of (D + a few days) to the beneficiary's bank.
In my own experience, cheque clearing between local banks takes two working days, very rarely three. To get to 5 working days can only mean non working days (eg a week end) are included. Anyway, as per above, the time "delay" faced by the beneficiary is to the benefit of the person who emits the cheque. More modern means of payment (Internet banking and/or payment by credit card) should ensure that the payments reaches the beneficiary faster.
As to Mr Craig's remark that local lending is at 13 to 14% "when the US has cut its rate to 2% and islamic banks are offering development credit at 1%", it must be pointed out that we are not talking of the same kind of money here. There is a local currency, called the rupee; free, independent, sovereign, currently strong and whose value and price is ruled by the Bank of Mauritius and influenced by what goes on in the local economy and which has little to do, at least directly, with what happens to the USD or with petrodollars.
To keep it brief, Islamic banks might simply be offering loans at 1% because they are drowning in money generated by oil sales which are volumetrically the same but which bring in three times more cash flow with a barrel at over 100 dollars, thus making them rather more desperate to recycle the petrodollars! Anyway, I always thought Islamic banks (and Islamic banking) specifically forbade and did not charge interests. How "Islamic" then, is Mr Craig's Islamic bank?
Loans in rupees are more expensive for the good reason that rupee depositors,( whose money the local banks on-lend) get far higher interests on their rupee deposits than their American counterparts( who do not save much anyway). Does Mr Craig know that rupee fixed deposits, which banks need to make term loans, currently cost anything up to 91/2% to 10%? Does Mr Craig realize that local banks cannot, anyway, take dollar deposits, however invitingly cheap, to lend in rupees?
Bad mouthing banks can occasionally be justified.
Not in this case, it ain't!
Peace
D. Pofix
For a truly stable rupee
Is it true that the Chinese are not willing to let the yuan (CNY) appreciate? In nominal terms the CNY has appreciated by about 15 % against the US dollar over the last three years. China-bashing can indeed be so convenient when one runs short of a convincing rationale.
True, France is struggling with the strong euro. Why are German exports booming then? Because German governments have been wise enough to create the conditions to enhance productivity and to rely on premium quality manufacturing without betting on a weak currency to stay competitive.
The same reasoning can also answer the call of Peter Craig, a Marxist turned Heaven knows what, when he laments about the truly high borrowing costs. We cannot have competitive interests rates simply because the market pays a premium for its lack of confidence in a yoyoing rupee with a general sliding bias that, ironically, Peter Craig himself advocates.
Granted that the current steep appreciation can affect earnings. Persistent depreciation also ends up hurting everybody. Instead we must all fight for a truly stable rupee as competitiveness is not a zero-sum game. The whole country must become efficient and productive if we are to keep an edge over our competitors. For that to happen policies must address issues with a holistic manner.
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