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Analysis

Storm-tossed currencies

THE OMFIF MONTHLY BULLETIN – Press release

10 June 2016, London

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Bulletin June Cover 294

Each of the world’s major trading and transaction currencies – the dollar, euro, sterling, yen and now the renminbi – is beset by policy uncertainty and doubt. Volatile currency cargoes are heading towards cloudy horizons on storm-tossed seas. The Federal Reserve is on the horns of a familiar dilemma about when to carry out only the second interest rate rise since 2008. Japan and Europe are weighed down by debt worries. Britain’s worries centre on its relationship with the European Union, China’s on whether it can manage the economic slowdown.

Central banks, despite the undoubted costs of maintaining high reserves, believe it is even more costly and unpleasant not to have adequate stocks when times are tough. Demand for, and competition between, reserve currencies will persist.

These themes are covered in the June Bulletin by Gary Smith and John Nugée, two long-standing sovereign asset specialists, and were high on the agenda at a seminar on a looming system of multiple reserve currencies organised by the International Monetary Fund and the Swiss National Bank in Zurich in early May. This month’s edition reproduces some of the introductory thoughts on the challenge to dollar ‘dominance’ spelled out to the meeting by Claudio Borio of the Bank for International Settlements.

On US monetary policy, Darrell Delamaide and George Hoguet weigh up the pressures impinging on the Fed. Ravi Menon of the Monetary Authority of Singapore, Martin Taylor of the Bank of England, James Bullard of the Federal Reserve Bank of St. Louis and Andrea Enria of the European Banking Authority – who along with Chicago Fed chief Charles Evans have all spoken to OMFIF audiences in the past month – expound their views.

Peter Warburton explores the tangled links between ECB policy and European inflation expectations. Mojmír Hampl of the Czech National Bank writes in defence of ‘active central bankers’. Juan Carlos Martinez Oliva of the Banca d’Italia provides some historical parallels to China’s One Belt One Road initiative.

Other highlights of the June 2016 edition:

Eduardo Borensztein explains how Brazil must replace its broken economic model.

Kingsley Chiedu Moghalu urges African policy-makers to shake off the shackles of economic orthodoxy.

Frédéric Samama discusses how a decarbonisation drive among asset managers can support government climate change policies.

William Keegan gives a bittersweet verdict on Gerard Lyons’ book, The UK Referendum: An Easy Guide to Leaving the EU.

Meghnad Desai reviews Tom Bowers’ Broken Vows: Tony Blair – The Tragedy of Power.

The Bulletin is available to OMFIF members, and to non-members on a subscription basis. To subscribe please contact: membership@omfif.org.