Archive for June 8th, 2021

Money, technology and banking: what lessons can China teach the rest of the world?

June 8, 2021

Michael Chui in this BIS paper:

Technology companies entering the financial services industry have become a global phenomenon over the past decade. This trend is most remarkable in China where two large technology firms (BigTechs) have emerged as important market players, especially in payment services. This paper examines the factors driving this development and whether the Chinese experience could be applied elsewhere.

Several lessons emerge: first, like any company in a network industry, it is important to build and maintain a large user base and that is the key factor behind BigTechs’ expansion into the financial industry. On this basis, these BigTechs can be seen as “accidental financiers” rather than “aggressive invaders”.

Second, these firms are cautious in offering higher-risk financial services as investment losses could lead to an exodus of customers.

Third, Chinese authorities’ regulatory tolerance during the early stage has been a key supporting factor and helped fostering innovation benefits. But that was balanced by the implementation of capital and liquidity rules to keep BigTechs from “excessive” growth, mis-selling of financial products and posing systemic risks.

Fourth, initial conditions and government support matter. The rapid growth has benefitted from China’s large population, the availability of low-cost mobile handsets and heavy investment by the government on mobile communication infrastructure. These may not be easily be replicated elsewhere.

Last, BigTechs’ overseas expansion may require policy coordination between home and host authorities to keep track of emerging risks.

Draghi pivotal as Lagarde/ECB maintains easy monetary policy

June 8, 2021

Draghi is again central to Euroarea fortunes though in a different role as PM of Italy.

Mario Draghi, Italian prime minister, is emerging as Europe’s pivotal politician days ahead of a crucial European Central Bank meeting likely to extend the monetary legacy he laid down as its president in 2011-19.

European statistics compiled by OMFIF show evidence of sharply rising producer prices across the euro area, by as much as 8% year-on-year (Figure 1). Although there are only limited signs of this feeding into permanently higher costs for consumers, much increased energy and other input prices, exacerbated by bottlenecks (Figures 2-4), complicate the ECB’s monetary policy-setting at the 10 June meeting of its governing council.

Despite worries about a worldwide rise in inflation fuelled by the US recovery and President Joe Biden’s massive stimulus, the minority on the ECB council favouring a gradual shift to monetary normalisation shows little appetite for a showdown on Thursday.

Political uncertainty in Germany and France ahead of elections in September and April, coupled with the probability that Draghi will remain Italy’s prime minister until 2023, is highlighting the 73-year-old technocrat’s key position.

 


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