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Analysis

The Bulletin

OMFIF’s monthly publication, The Bulletin, features in-depth news and commentary on key developments in the financial industry and global capital markets.

Feb B Cover

February 2017 edition

Latin America has been largely out of the headlines. But behind the scenes, the continent is going through a dynamic transition, as illustrated by the collection of articles accompanying this month’s Bulletin cover story.

David Smith writes the inaugural piece in a new OMFIF series on ‘World Leaders in 2017’, presenting the challenges and opportunities for Argentina’s President Mauricio Macri. Reforms and the resolution of corruption scandals will be vital for Brazil, argues Winston Moore, but the economic fundamentals remain sound. Colombia is more exposed to the vagaries of the international economy, argue Ricardo Adrogué, Brigitte Posch and Michael Simpson. President Nicolás Maduro’s demonetisation experiment in Venezuela has brought the economy into chaos. Steve Hanke proposes dollarisation as a potential solution.

This will become increasingly difficult, however, as the dollar gathers further strength. Darrell Delamaide suggests that it is likely that the Federal Reserve will tighten faster than the current dot plots suggest. Donald Trump’s expansionary policies would motivate such an approach, with more investment needed to reinvigorate the country’s infrastructure, argues Meghnad Desai. But, as Marsha Vande Berg reminds us, we should prepare for unintended consequences from changes in policy direction.

The third Focus report in our series on global financial centres profiles Singapore, the location of OMFIF’s Asia office. In an OMFIF interview, Ravi Menon highlights the advantages of Singapore as an international gateway. Ben Robinson and Adam Cotter emphasise its evolving role as a hub for renminbi trading and for Chinese companies looking to finance regional expansion.

Singapore’s appeal hinges on attitudes towards globalisation in Asia and the West. Antonio de Lecea proposes a model for East-West co-operation to promote globalisation while correcting for its distributional effects. China’s President Xi Jinping has emerged as the new proponent of globalisation, writes Adam Cotter. This has caused some to hail China as the new de facto world leader. However, when polled, the majority of our Advisers Network said it was too soon for China to take over from the US in world leadership.

Bank of Thailand Governor Veerathai Santiprabhob draws attention to the impact on inflation from changes in the structure of trade and rising competitive pressures.

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Jan 2017 cover

January 2017 edition

Last year marked the dress rehearsal for major political and economic shifts. In 2017 the curtain goes up for the real show. The UK vote to leave the European Union, the election of Donald Trump, and Italy’s rejection of constitutional reform proposals were serious disturbances. This year the electorates’ decisions take effect.

Emerging markets could be hit next. Ultra-low rates in advanced economies motivated huge capital inflows into emerging markets. But the Fed is changing course and will raise rates at least three times this year, predicts Darrell Delamaide. This creates vulnerabilities in emerging markets both directly, in terms of capital outflows, and indirectly, through dollar appreciation. China’s slowdown and own debt problems bring more uncertainty.

David Mann emphasises the important trade and financial linkages between Asia and the US and suggests that the adjustment to higher US rates will come mainly through exchange rates. Phyllis Papadavid highlights how tighter Fed policy poses difficulties for financing infrastructure projects in Africa. The longer-term outlook for the continent is mixed. Mthuli Ncube points to the huge potential of digital financial services, while Danae Kyriakopoulou explains constraints from Africa’s productivity puzzle.

In the monthly Focus containing the Advisory Board’s 2017 predictions, we opine that many of the biggest shock waves will originate in the US. Tensions in global geopolitics, particularly in Asia and the Middle East, create substantial risks. A shift in the economic mix from monetary to fiscal policy threatens global bond markets and could also be suboptimal for the US economy, notes Steve Hanke.

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OMFIF Bulletin December 2016-cover (3)

December 2016 edition

Central banks are under fire, not for the typical reason of high interest rates, but because of low ones. Following the expected US rate rise in mid-December – only the second formal Federal Reserve credit tightening in 10 years – the heat is not likely to die down, points out Darrell Delamaide. OMFIF’s November edition was dedicated to an international shift to tighter monetary and looser fiscal policy – now apparent after the election of Donald Trump. The December Bulletin focuses on another turning tide: greater constraints on central bank independence.

Central banks are guided not just by statute and practice, but by the power of personality. As David Marsh notes, governments will have an unusual opportunity to stamp their mark on monetary decision-making. In the next three years, governors of the top six worldwide central banks – the Fed, People’s Bank of China, Bank of Japan, European Central Bank, Bank of England, and Germany’s Bundesbank – reach the end of their terms and may be replaced by new faces.

Trump’s criticism of Fed Chair Janet Yellen has generated headlines even before he moves into the White House. Reginald Dale, Brian Reading and John Kornblum, reflect on Trump’s victory and the nature of the presidential campaign.

Andrew Large, former deputy governor of the Bank of England, investigates the problem of central banks’ enlarged mandates. Øystein Olsen, governor of Norges Bank, explains the complications for central banks stemming from lack of support in other policy areas. Mojmir Hampl, deputy governor of the Czech National Bank, discusses how central banks must explain their changing roles to the public. Focus on weakening the exchange rate raises the risk of currency wars, warns Linda Yueh.

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November Cover (2)

November 2016 edition

The world’s centre of economic gravity is shifting east. Following impressive rates of economic development, Asia's influence is now spreading to areas beyond trade and investment, including financial flows, global currency reserves, and banking and capital market supervision and regulation. On 16 November, OMFIF is opening its first overseas office in Singapore. Adam Cotter, OMFIF’s Head of Asia, outlines our forthcoming activities in the region.

October saw the renminbi’s inclusion in the International Monetary Fund’s special drawing right. While the dollar’s dominance will take a long time to fade, as Steve Hanke and Javier Guzmán Calafell note, a move towards a multicurrency system in which the renminbi is a protagonist is inevitable. This month’s Focus Report, with contributions from Le XiaYaseen Anwar, and OMFIF’s own research staff, highlights the growing systemic nature of the renminbi swap network.

The outlook for the renminbi will be driven by China’s economic trajectory. Following fears of a hard landing earlier this year, November’s Advisory Board Poll sets a calming tone: only 6% of Advisory Board members expect China to experience a recession over the coming five years.

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October Bulletin 2016 - Cover

October 2016 edition

Central bankers have responded to the global financial crisis with a mix of unconventional policies, including negative rates and asset purchases. Addressing September’s OMFIF main meeting in Rome, in comments reproduced in this month’s Bulletin, Banca d’Italia Governor Ignazio Visco noted that such policies helped cushion the initial shock, and that subsequent GDP growth and inflation would have been lower without them. But they have hardly provided a panacea. As Visco noted, such policies have distorted markets and created risks for financial stability.

Extraordinarily loose policies have failed to boost growth substantially and created dangerous debt overhangs in many economies. There have been some collateral effects too, examined in the October Bulletin. Charles Goodhart and Geoffrey Wood argue that such measures have hurt bank profitability. Stijn Claessens and Nicholas Coleman of the Federal Reserve Board of Governors, and Michael Donnelly of MIT, consider evidence on the effect on banks’ net interest margins. Ben Robinson presents the findings of an OMFIF report, produced in conjunction with BNY Mellon, showing that unconventional policies have reduced the supply of liquid assets for collateral. Panicos Demetriades, former governor of the Central Bank of Cyprus, highlights the negative consequences for central banks’ credibility and the notion of their independence.

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September Bulletin Front Cover (294 X 380) (1)

September 2016 edition

India tops the bill of the first OMFIF Bulletin after the summer break, with articles by Meghnad Desai, Moorad Choudhry and Balamurali Radhakrishnan. Narendra Modi, the prime minister, has passed a milestone with agreement on the Goods and Services Tax amendment – a major achievement on India’s route towards a more market-orientated economy. The country is now out in front as the fastest growing of the five so-called Brics economies. And the Reserve Bank of India has a new governor, Urjit Patel, a low-key yet well regarded central banker who has to show his spurs in taking over from the mercurial Raghuram Rajan.

The September Bulletin marks the launch of a series of Focus reports on the impact of the UK decision to leave the European Union on financial centres in Europe. The first issue focuses on Luxembourg and how the Grand Duchy is attempting to capitalise on new expansion opportunities. Nicolas Mackel, in charge of Luxembourg financial promotion, says it can realise this aim by working with, not against the UK.

John Mourmouras of the Bank of Greece and John Kornblum, a former US ambassador, provide post-referendum commentaries. In another centrepiece report, David Marsh and Ben Robinson investigate the historical background to the last few years’ shift in central banks’ thinking on gold.

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July Bulletin Cover (294)

July-August 2016 edition

The ripples of the UK’s 23 June vote to leave the European Union are spreading internationally. Sterling, the third most important reserve currency, has fallen by more than 10% against the dollar, interest rate rises everywhere have been put on hold, and one more source of risk is stalking the global economy. Disarray in Britain’s political ranks throws up a 21st century version of The Comedy of Errors.

One important side effect: Theresa May, the quietly confident UK home secretary, is favourite to take over in September from departing Prime Minister David Cameron – joining Angela Merkel, Christine Lagarde and Janet Yellen in a march of female economic power.

The July-August edition of the Bulletin analyses the ramifications of the EU’ biggest setback since it was set up in 1958 as the six-member European Economic Community. Niels Thygesen in Copenhagen, Philippe Lagayette in Paris, Stuart Mackintosh in Washington and Jacques Lafitte in Brussels provide views from Europe and the US. Peter Warburton and Federico Corrado investigate the post-referendum challenge for Swiss monetary policy. Ben Robinson describes how emerging market central banks, in particular the People’s Bank of China, are reacting to European upheavals.

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Bulletin June Cover 294 (1)

June 2016 edition

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.

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, 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 on 10 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.

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May 2016 Bulletin Cover 294 (2)

May 2016 edition

The May Bulletin analyses the key issues confronting the US electorate ahead of November's presidential election. Marsha Vande Berg focuses on wage stagnation and the nation’s desire to resuscitate the American dream. Efraim Chalamish examines Chinese investment in the US, a principal source of fear about outside interference. Darrell Delamaide investigates how the Federal Reserve is signalling allayed concerns about global economic and financial hazards, possibly foreshadowing a rate rise later this summer. Ben Robinson looks at the rising dollar and the effect on emerging market currencies.

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OMFIF Bulletin April 2016 (cover) (3)

April 2016 edition

OMFIF’s annual index of the role of women in central banking, published in the April Bulletin, shows only a slight improvement, and even some slippage, compared with the findings of our last survey a year ago. The index moved up slightly to 2.19 (out of a maximum of 10) at the end of 2015, from 2.07 the year before. With Wendy Craigg of the Central Bank of the Bahamas and Zeti Akhtar Aziz of Bank Negara Malaysia stepping down this year, 2016 may turn out to be a year of setbacks for female prominence in central banking. The April edition puts negative interest rates and the gradual emergence of a multicurrency reserve system under the spotlight, with articles by José Manuel González-Páramo, Barnabás Virág, Ben Robinson and Ezechiel Copic.

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March -2016-01-web

March 2016 edition

The March edition of the Bulletin puts Japanese monetary policies and the economic stance of Prime Minister Shinzo Abe under the spotlight. Haruhiko Kuroda, governor of the Bank of Japan, breached a taboo in January by cutting interest rates into negative territory, introducing a set of exemptions to protect banking profits. This is part of a macroeconomic remodelling – dubbed ‘Abenomics 2.0’, underlining that the first version, including massive purchases of government bonds, has not worked as planned. Our coverage includes articles by Shumpei Takemori, Akinari Horii, Sahoko Kaji, Chris Scicluna and Grant Lewis, and John West.

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February 2016 Cover

February 2016 edition

The February 2016 Bulletin focuses on China and the effects of a series of challenging transitions. The world’s second-largest economy is moving towards a more market-driven approach and opening its capital markets at a time of uncertainty over renminbi policy. This coincides with the Communist party’s struggle to maintain its hold over an increasingly wealthy, internationally mobile and politically astute population. These trends are dissected by Jonathan Fenby, Ben Robinson, John Adams, Ben Shenglin, Marcello Minenna, Edoardo Reviglio and Willem Middelkoop.

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Jan 2016 cover (1)

January 2016 Edition

OMFIF has declared 2016 the ‘Year of the Multicurrency System’, with diverse currencies competing for status and clout in a crowded and chaotic monetary world. As different monetary authorities set out on diverse policy courses, the January Bulletin describes the tensions besetting the currencies that from 1 October will make up the International Monetary Fund’s special drawing right – the dollar, euro, sterling, yen and renminbi. We focus on the trials facing the European single currency.

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December Bulletin Cover (no Banner)

December 2015 Edition

In the December Bulletin, OMFIF explores the rise of populist parties and the return of strong leaders across Europe and neighbouring regions as a result of international political and security challenges. Our writers are sceptical whether this phenomenon will provide ‘strongman returns’ for investors. Across many countries the desire for physical security may trump concerns over freedom and liberty, with important consequences.

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Cover Of The Bulletin Nov 2015

November 2015 Edition

OMFIF writers examine the delicate geopolitical and financial relationship between the US and Saudi Arabia over Riyadh’s attempts to keep oil prices low and squeeze out high-cost producers. Saudi Arabia is running down its foreign exchange reserves and increasing borrowing to maintain spending on domestic infrastructure projects, but the International Monetary Fund has warned that it may be depleting its savings too fast. As the November editorial says, ‘In seeking stability elsewhere, Riyadh may be opening itself up to destabilisation.’

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

Last year marked the dress rehearsal for major political and economic shifts. In 2017 the curtain goes up for the real show. The UK vote to leave the European Union, the election of Donald Trump, and Italy’s rejection of constitutional reform proposals were serious disturbances. This year the electorates’ decisions take effect.

Emerging markets could be hit next. Ultra-low rates in advanced economies motivated huge capital inflows into emerging markets. But the Fed is changing course and will raise rates at least three times this year, predicts Darrell Delamaide. This creates vulnerabilities in emerging markets both directly, in terms of capital outflows, and indirectly, through dollar appreciation. China’s slowdown and own debt problems bring more uncertainty.

David Mann emphasises the important trade and financial linkages between Asia and the US and suggests that the adjustment to higher US rates will come mainly through exchange rates. Phyllis Papadavid highlights how tighter Fed policy poses difficulties for financing infrastructure projects in Africa. The longer-term outlook for the continent is mixed. Mthuli Ncube points to the huge potential of digital financial services, while Danae Kyriakopoulou explains constraints from Africa’s productivity puzzle.

In the monthly Focus containing the Advisory Board’s 2017 predictions, we opine that many of the biggest shock waves will originate in the US. Tensions in global geopolitics, particularly in Asia and the Middle East, create substantial risks. A shift in the economic mix from monetary to fiscal policy threatens global bond markets and could also be suboptimal for the US economy, notes Steve Hanke.

Despite rising inflation, US-style tightening is unlikely elsewhere. As John Mourmouras argues, central banks are independent but they are also interdependent with other areas of policy and may be obliged to overreact to shocks when decisions elsewhere move in different directions.

One way to boost the effectiveness of unconventional monetary policy would be to abolish cash. Danae Kyriakopoulou reviews Kenneth Rogoff’s proposal in The Curse of Cash. We mark the passing of Hans Tietmeyer, the former Bundesbank chief, a political technocrat who negotiated and presided over the demise of the D-mark.