April 2016: Lagarde’s lead

Christine Lagarde, reselected as managing director of the International Monetary Fund for a second term from July, will be presiding over the spring meetings of the IMF and World Bank in Washington in mid-April with the world economy in a precarious, if not perilous, state. OMFIF has participated in a debate over whether it would be opportune to adopt a candidate from Asia and/or emerging market economies to break the long hold of the Europeans over the post. But in the end, for several reasons (not least because Lagarde had played a deft hand over various efforts to integrate China into the world economy), she received fulsome support and was returned unopposed. The gestation period for a non-European at the helm advances by five years. In the meantime we wish her and the Fund well in helping navigate the world’s economic and financial shoals. We use the opportunity of Lagarde’s reconfirmation to examine the role of women
in central banking, where there has been no notable improvement, and even some slippage, compared with the findings of our last survey a year ago.

As the monthly review for March shows, OMFIF has dedicated many meetings in the past few weeks to the phenomenon of negative interest rates. The Federal Reserve remains in positive territory – although Darrell Delamaide explains how arguments between hawks and doves are again heating up. The European Central Bank lived up to expectations on 10 March by increasing its monthly purchases of government (and now corporate) bonds and cutting negative rates further, although with the firm intention (not for the first time) of finally reaching the floor. José Manuel González-Páramo, a former ECB board member, now at the Spanish bank BBVA, says monetary policy is running out of steam. Barnabás Virág describes how the Central Bank of Hungary has adopted targeted monetary measures to act directly on the real economy. Ezechiel Copic from the World Gold Council says gold has prospered from negative rates as central banks around the world step up purchases. Ben Robinson examines latest IMF data on reserve asset diversification – an area where gold again appears to be playing an increasing role. Paul Tucker, former deputy governor of the Bank of England, expounds his thoughts on geopolitics and the role of the dollar, a further element in OMFIF’s coverage of an emerging multicurrency reserve system. Michael Kalavratinos investigates Latin American sovereign wealth funds as the region grapples with the (for many countries somewhat unusual) task of managing excess reserves. The debate over a possible UK departure from the European Union is occupying an increasing amount of financial market attention – just one more facet of concerns about the political heath of Europe. The results of March’s Advisory Board poll reflect this – more than 80% of respondents maintain that the UK would be safer, more secure and more prosperous inside the EU, whil  49% state that Brexit would promote disintegration in the rest of the EU.

Christian Noyer, former governor of the Banque de France, bluntly warns that London’s preeminent role in euro trading would not survive Britain’s EU departure. Edoardo Reviglio from the Cassa Depositi e Prestiti highlights another major risk – climate change – and says the move towards ‘decarbonising’ financial assets will send out worldwide ripples. One of the greatest risks, of a new financial crisis, has certainly not been dispelled. But it could be, according to a book by Mervyn King, former governor of the Bank of England, extolling the virtues of intensified holdings of collateral by commercial banks. William Keegan, in his review of King’s ‘ambitious work’, throws in his own habitual jibe about the dangers of neglecting the impact of austerity programmes.

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