Archive for August 27th, 2018

The global financial crisis of 1825 foreshadowed the problems of emerging markets today

August 27, 2018

Superb piece by Gwynn Guilford.

He revisits the economic situation in 1820s and how it fuelled the global bubble then leading to an eventual crash:

Indeed, nearly two centuries later, not a lot has changed. In his review of the 1825 disaster and the dozens more that followed, Pettis draws an important distinction between two types of global financial crises.

On one hand are those that hit in the middle of a globalization cycle, when international financial centers are still in the process of whipping up liquidity. These types of financial crises can certainly be disruptive and dramatic—think the 1994 Mexican Tequila crisis and the Asian financial crisis of 1997. But they’re seldom catastrophic. Thanks to the steady global demand for big debt issues, financing strains tend to be temporary and markets recover swiftly.

Then there are those that break out at the end of a globalization cycle, exemplified on a tiny scale by the events of the 1820s. Triggered by a sudden scarcity of capital, these long-term liquidity contractions are the ones that wind up devastating local economies for years to come, crippling global growth in the process.

The current moment looks more like the latter: the twilight of an era of easy money and frenzied financial globalization. Already Argentina is already in financial shambles, with Turkey hot on its heels. Will the crisis spread from there? Maybe not: The slow-building threat of US tightening has given emerging-market leaders plenty of time to build reserves, limit reliance of dollar-denominated sovereign debt, and rein in budget deficits.

But if the lessons of history are anything to go by, the deeper their ties to global financial centers, the less control smaller countries have over their own monetary systems—which means there may be more shakeups ahead.

Lot more in the piece..

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Amravati 2018 bonds listed on BSE…

August 27, 2018

Indore Municipality recently raised bonds on NSE.

There has been talk of Government of Andhra Pradesh raising money for building its proposed capital of Amravati via bonds. The bonds were issued on 14 August and got listed on BSE today:

Andhra Pradesh CM Nara Chandrababu Naidu on Monday rang the opening bell to mark the listing ceremony of ‘Amaravati Bond 2018’ at Bombay Stock Exchange (BSE). The bond was issued by Andhra Pradesh Capital Region Development Authority (APCRDA) for the construction of the state capital, Amaravati. 

The platform was launched on July 1, 2016, to facilitate online bidding for private placement of debt securities. Since then, 120 issuers have garnered Rs 4.86 lakh crore through the exchange mechanism, reports PTI.

“On August 14, 2018, APCRDA successfully raised Rs 2,000 crore by issuing bonds on private placement basis using BSE BOND platform,” the exchange said in a statement.

“Amaravati Bond 2018 has created history by over-subscription raising Rs 2,000 crore and is the testimony of investors’ confidence in Andhra Pradesh and Amaravati. This will help in developing Amaravati as smart, sustainable and happy city and as a global destination of people, jobs and investments,” Andhra Pradesh CM Chandrababu Naidu said.

Interesting developments in history of bond finance in India. It also tells us that old-age competitive rivalry between BSE and NSE could move from equity to debt space as well. NSE has been the clear winner in equity space and it will be interesting whether BSE can create some competition in the debt space…

Update:

This piece raises concerns on the bonds – 10.32%-  being on the higher side

The long road to building an Indian banking union: Learning history backwards from European Banking Union

August 27, 2018

My new piece in Mint.

One usually does historical research by going into past and try figure evolution and make sense of the world today. There is another way where we look at evolution in current terms in some economy and try & figure whether and how we could apply these ideas to some economy in the past.

The case of ongoing developments in European Banking Union belongs to the second category. As the members of Europe try and build a banking union, it gives us this rare opportunity to look at banking union in other countries as well.

This piece in Mint looks briefly at how banking union gradually developed in India as well. The comparisons are fascinating and striking…

 


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