Archive for April 8th, 2019

2019 marks 75 years of IMF and 50 years of SDR: time for a truly global currency?

April 8, 2019

José Antonio Ocampo (board member of Banco de la República, Colombia’s central bank) writes in Project Syndicate.

He points how  apart from 75 years of BW institutions such as World Bank and IMF, 2019 also marks 50 years of IMF’s currency Special Drawing Rights.  This makes it good to revamp both SDR and how IMF has been using SDR:

(more…)

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How banking regulatory environments are differing after the crisis?

April 8, 2019

Howard Davies in this Project Syndicate piece says that the crisis impacted banks similarly across developed world. However, the regulatory responses have been different which reflects in their share prices as well:

What is noteworthy in this cycle, however, is that while the impact of the crisis was fairly similar in most developed countries (with some idiosyncratic features in each case), the regulatory pendulum is not swinging back in the same way outside the United States.

In the United Kingdom, banks are only this year implementing new ring-fencing rules enforcing a separation of their investment banking activities from their retail and commercial activities, at a time when the analogous Volcker Rule in the US (which in any case is far less constraining) is being watered down. A new senior managers regime is being introduced in London for banks and insurance companies, tightening up the requirements on directors. In the eurozone, the banking union similarly remains in a re-regulation phase, both centrally and country by country. And earlier this month, the French authorities imposed a new countercyclical buffer – a capital surcharge – at a time when the economy is slowing sharply (if it is not already in recession).

In Europe, there is evidently little or no political appetite for deregulation of the financial sector. European right-wing populists are as hostile to bankers as their left-wing counterparts. In this area, the Trump agenda finds no takers at all.

The markets have noticed this transatlantic difference in regulatory cycles. Most European banks are trading at well below their book value, in some cases below 50%, while US bank valuations have recovered. That no doubt partly reflects the US and European economies’ relative growth rates, and their different interest-rate curves, but expectations of future regulatory requirements are also part of the mix.

And yet this misalignment of regulatory cycles matters less than one might think, because US and European retail and commercial banks do not compete very directly. Global banks – those beasts with a presence in all major markets – are as out of fashion as flared trousers. But there is head-to-head competition in investment banking, with US banks’ market share in Europe rising in the last decade.

Perhaps different societal choices are implicitly being made. European governments have seemingly concluded that hosting large, risky, and volatile financial firms and markets is not worth it, while the US administration still regards the financial sector as a comparative advantage for New York. We will not know for a while yet which side has made the wiser choice.

Hmm..

The rise of corporate market power and its macroeconomic effects

April 8, 2019

IMF has released the analytical chapters of World Economics Outlook for April 2019.

Chapter 2 is based on the hot research topic of today: The Rise of Corporate Market Power and Its Macroeconomic Effects

This chapter investigates whether corporate market power has increased and, if so, what the macroeconomic implications are. The three main takeaways from a broad analysis of cross-country firm-level patterns are that (1) market power has increased moderately across advanced economies, as indicated by firms’ price markups over marginal costs rising by close to 8 percent since 2000, but not in emerging market economies; (2) the increase has been fairly widespread across advanced economies and industries, but within them, it has been concentrated among a small fraction of dynamic—more productive and innovative—firms; and (3) although the overall macroeconomic implications have been modest so far, further increases in the market power of these already-powerful firms could weaken investment, deter innovation, reduce labor income shares, and make it more difficult for monetary policy to stabilize output.

The blogpost explaining the research is here.

Pakistan launches regulations for Electronic Money Institutions and looking to issue digital currency by 2025…

April 8, 2019

State Bank of Pakistan launched regulations for Electronic Money Institutions:

The State Bank of Pakistan (SBP) held today the launching ceremony of regulations of Electronic Money Institutions (EMIs) in Islamabad. Federal Minister for Finance, Revenue and Economic Affairs, Mr. Asad Umar was the chief guest. EMIs are non-bank entities that will be licensed by the SBP to issue e-money for the purpose of digital payments.

Addressing the meeting, the Finance Minister appreciated the launching of this new category of institutions which will complement the efforts of Government of Pakistan in creating an enabling environment to empower stakeholders in trade and commerce. This will help businesses in improving their productivity and contributing towards positioning the nation for global competition.

The Finance Minister said that the Government was determined to transform the country into a knowledge economy by making IT one of the top contributors in Pakistan’s economy and job creation besides producing world-class knowledge workers in sync with international market trends. “It is our government’s policy to encourage the use of e-commerce amongst public through awareness campaigns to promote a culture of e-commerce in the country, which
supports electronic business transactions at national, regional and international levels,” he elaborated. He also highlighted the importance of cyber security which is a growing threat for the financial institutions.

The Finance Minister termed the launching of electronic money institutions as a game changer for promoting e-commerce and digital economy in the country.

Further, the Finance Minister spoke on issuing digital currency:

The State Bank of Pakistan (SBP), the country’s central bank, is considering the launch of a digital currency by 2025.

According to a report from news source Dawn on Tuesday, SBP deputy governor Jameel Ahmad said that the central bank is currently working on the digital currency concept in order to “promote financial inclusion and reduce inefficiency and corruption.”

The central bank is also reportedly planning to make its services “fully digitized and technology equipped” by the year 2030.

In light of the proposed digitization efforts, Pakistan’s finance minister Asad Umar asked the central bank and the country’s Federal Investigation Agency (FIA) to ensure cybersecurity in the banking system, the report adds, as a failure here could cause damage to confidence in the system and the economy.

Hmm..

This city bans cars every Sunday—and people love it: Case of Bogota

April 8, 2019

Interesting article in Nat Geo with amazing pictures:

It’s like falling in love all over again; every Sunday without fail, and holidays too, the inhabitants of the car-choked, noise-filled, stressed-out city of Bogotá, 8,660 feet up in the thin air of the Andes, get to feel that the city belongs to them, and not to the 1,600,000 suicidal private cars, 50,000 homicidal taxis, nine thousand gasping buses, and some half-million demented motorcycles that otherwise pack into the buzzing capital of Colombia.

The weekly miracle occurs at an event you could call the Peaceful Community Gathering on Wheels, but is actually named the Ciclovía, or Bicycle Way. Starting at seven in the morning and until two in the afternoon, vast stretches of the city’s principal avenues and highways are turned over to everyone looking to enjoy a bit of fresh air. All kinds of transportation are welcome—bicycles, roller skates, scooters, wheelchairs, skateboards—as long as they are not motor-driven.

Nice bit..

Ironically, in India we continue to measure cities by width of roads and lengths of cars…

How to develop a “financial Eurosystem” post-Brexit?

April 8, 2019

Mr François Villeroy de Galhau, Governor of the Bank of France in this speech reflects on post-Brexit financial Eurosystem.

In earlier speeches Mr Villeroy de Galhau said that post-Brexit, Paris could be shaped as a financial centre. Now he mentions, a polycentric network of financial centres in Europe:

The unfortunate reality is that Brexit leaves us no other choice: we must now reshape the European financial system and develop its autonomy. The euro area can already build on strong assets: an effective monetary Eurosystem, the legal framework for a single financial market and essential components of a Banking Union. However we do not, as yet, have a “financial Eurosystem”, made up of stronger pan-European financial institutions and market infrastructure. Let’s be clear: there will not be a single City for the continent, but rather an integrated polycentric network of financial centres, with specialisations based on areas of expertise. A polycentric system of this nature can function, as illustrated by the United States: New York’s financial centre is favoured by corporate and investment banks, Chicago’s financial centre handles futures, while Boston specialises in asset management.

Hmm.. This is interesting. So what specialities do European financial centres such as Paris, Frankfurt, Amsterdam etc have?

He then discusses the two unions which will help in this polycentric network:

Starting with the Banking Union, its success depends on the completion of a robust resolution mechanism, probably even more than a full common deposit insurance scheme. Regarding the backstop of the Single Resolution Fund, in the interests of financial stability, we should consider extending the maturities on the credit lines. But we will not achieve an effective and profitable Banking Union without cross-border consolidation in Europe: there are still too many roadblocks and not enough cross-border restructuring. Compared to the US market, the European banking sector remains fragmented: the market share of the top 5 European banks amounts to 20%, compared to more than 40% in the US. So we should aim to create a “single banking market”, as recently proposed by Annegret Kramp-Karrenbauer, where genuine pan European banking groups could operate more effectively and better face foreign competition. 

Together with the Banking Union, a genuine Capital Markets Union (CMU) is essential to strengthening financial integration in Europe: we advocated it strongly with Jens Weidmann, President of the Bundesbank, in a joint paper published yesterday, and it will be a key topic of today’s informal Ecofin, thanks to the Romanian Presidency. Despite some recent achievements, progress on this topic is proving difficult and slow. Let us finally move on from a rhetorical consensus in principle to concrete headways, notably on instruments, access to finance for SMEs, and supervision.

In this respect, I welcome the progress achieved on a Pan-European Personal Pension Product (PEPP): this product is portable across member states and offers consumers a wider range of investment opportunities. We should also make progress towards the harmonisation of insolvency regimes. It should facilitate cross-border investment.

One of the most challenging issues of the CMU is to provide cheaper and easier access to equity for SMEs in order to support their growth. Equity financing is a key driver of innovation: it is better suited to the uncertainty and offers long-term returns associated with innovative projects. The euro area is seriously lagging behind in this respect: equity only accounts for 80% of GDP, compared with 122% in the United States.

Despite setbacks. European policymakers keep talking about more and more unions…It is a one-way club membership..


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