The defining characteristic of the past two years has been the rise in anti-globalisation sentiment, expressed through the UK’s vote to exit the European Union, the support for Donald Trump’s unilateralist agenda, and the introduction of protectionist trade measures at the fastest pace since the 2008 financial crisis. This month’s Bulletin focuses on global flows – of capital, goods and people – looking at how they have developed in the post-crisis environment and analysing the political and economic challenges. Arnór Sighvatsson, deputy governor of the Central Bank of Iceland, discusses Iceland’s experience with capital flows management and presents the benefits of the special reserve requirement as a means for achieving a beneficial composition of flows. Danae Kyriakopoulou reflects on the changed nature of financial globalisation in the post-crisis period, with a greater role for foreign direct investment compared with cross-border lending. The 2008 crisis exposed the difficulty of modelling global financial markets, writes George Hoguet in his review of Richard Bookstaber’s The End of Theory. Ben Robinson discusses the factors affecting the changed relationship between trade and GDP, forecasting a prolonged period of disappointing trade growth. However, it is easy to overstate the negative scenarios for globalisation, warns Gabriel Stein in his review of Stephen King’s Grave New World. In the EU, Brexit and the future of trade dominate the debate. Plutarchos Sakellaris discusses the origins of modern antiestablishment attitudes in Europe, while Szilárd Benk and Péter Gábriel of Magyar Nemzeti Bank examine the impact of intra-EU migration.
On emerging markets, Atish Ghosh, Jonathan Ostry and Mahvash Qureshi present insights from an International Monetary Fund study on proactive macroeconomic management to avoid crises in the face of capital flows volatility. Such volatility and the mismanagement of flows played an important role in the Asian financial crisis of 1997-98. Many of these problems continue to trouble Asia. Gao Haihong examines the challenges for China’s capital controls and exchange rate policies as it seeks to internationalise the renminbi. Bhavin Patel writes about improving financial infrastructure to facilitate the renminbi’s use in cross-border payments, and Kat Usita discusses Chinese investment in Africa.
2017 marks the 10th anniversary of the European Investment Bank’s first green bond issue. However, caution is needed to avoid greenwashing, warns Steve Hanke, who presents a new methodology to measure the sustainability and greenness of production processes. September 2017 commemorates, too, 25 years since ‘Black Wednesday’, the day Britain exited Europe’s exchange rate mechanism. David Marsh presents the lessons from the episode spelled out in the OMFIF Press book Six Days in September: Black Wednesday, Brexit and the making of Europe. Central bankers today have different sets of problems. Darrell Delamaide summarises the discussions at this year’s Jackson Hole meeting, while Gary Smith discusses the implications for monetary policy of the changed relationship between inflation and unemployment. Hervé Le Bihan and Imène Rahmouni-Rousseau, of the Banque de France, present insights from unconventional methods of measuring inflation expectations, concluding that the risk of a long period of ‘lowflation’ remains.
Early discussions have started about who will be at the helm of the European Central Bank once President Mario Draghi’s term ends in 2019. Jens Weidmann, head of the Bundesbank, is the most likely successor, according to this month’s OMFIF Advisers Network poll. This could entrench Germany’s soft power in Europe. In his review of Paul Lever’s Berlin Rules, Robert Bischof discusses the rise of Europe’s ‘reluctant hegemon’ on the world stage.