Sunday, 20 May 2007

In China, all interest rates must be divisible by 9...

A "divisible-by-nine rule was enshrined in accounting standards issued jointly by the central bank and the Ministry of Finance [of China] in 1993," according to Bloomberg (via Harvard professor Greg Mankiw).

Hence the People's Bank of China's raised its benchmark landing rate by 18 basis points (0.18%) on Friday, May 18, 2007. Central banks in most countries would, of course, deal in quarters or tenths of percents.

Interestingly, on the same day the bank decided that
"Reserve requirements on funds held by banks will be hiked by 50 basis points."
The trading band for the yuan, the Chinese currency, was widened by 50 points on that day as well. Perhaps the rule only applies to the rates for consumers?

The Bloomberg story mentions several motivations for the 'divisible-by-nine rule' (I tried to find nine in the story but only counted six):
- Chinese calendar
- a 360-day financial year
- long considered lucky number
- makes calculation with Abakus counting device easier
- avoid rounding of interest
- nine sounds the same as 'longevity'

Now if so many people believe in this, maybe there is something to it?