Polarisation and schism: neither a happy nor a pretty sight, but one we will have to get used to. The divergence of interest rate policies on each side of the Atlantic, seen in the different thrusts of speeches by the US and European central bank chiefs at the Jackson Hole central banking seminar, has become a primary factor on world capital markets. Graphs accompanying Darrell Delamaide’s round-up of Federal Reserve developments on p.10 illustrate the importance of interest rate differentials in influencing the dollar’s exchange rate against the D-mark and the euro. Mario Draghi, the European Central Bank president, has made clear that he favours a weaker euro to help pull Europe out of a perilous period of stagnation. His September rate cut and announcement of asset-backed securities elide with that goal.
Polarisation of views on monetary and economic policy was highlighted both in a speech at the Advisory Board summer party on 10 July by Ewald Nowotny, governor of the Austrian central bank, and in a series of conversations during OMFIF’s July tour of Asia, described on these pages. The growing international roles of both the renminbi and the yen were a strong feature of these discussions. Other recurring issues are the mechanisms of exit from unconventional monetary policy, elaborated by Philip Turner and Tim Young, and Britain’s view of European Union reform, the subject of a report by Gerard Lyons. Although we point out the danger of splits among Germany, France and Italy, Gabriel Stein unveils a relatively positive perspective on growth in the euro area, resulting from the end-year completion of the first building block of banking union. Joachim Nagel and Christian Erb remind us that monetary policy cannot do everything to guide Europe to a positive path. Niels Thygesen says the ECB may be misguided in its new communications policies, Stewart Fleming ponders Europe’s new leadership team, while John Nugée worries about startling flaws in Scotland’s referendum process. Maria Antonieta Del Tedesco Lins and Jonathan Fenby look at the repercussions of the decision by leading emerging market economies to form the so-called Brics development bank. Celeste Cecilia Moles Lo Turco surveys the growing attraction of African sovereign funds. Lamido Yuguda describes how central bankers are coming to terms with low yields, partly by turning to the Chinese currency. Our book reviewers, Graham Hache, George Hoguet and Sahoko Kaji, reflect on various aspects of world disorder. Russell Silberston outlines the need for international monetary reform – something for which we will have to wait a while.