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on International Finance |
| By: | Anusha Chari |
| Abstract: | Over the last two decades, the unprecedented increase in non-bank financial intermediation, particularly open-end mutual funds and ETFs, accounts for nearly half of the external financing flows to emerging markets exceeding cross-border lending by global banks. Evidence suggests that investment fund flows enhance risk-sharing across borders and provide emerging markets access to more diverse forms of financing. However, a growing body of evidence also indicates that investment funds are inherently more vulnerable to liquidity and redemption risks during periods of global financial market stress, increasing the volatility of capital flows to emerging markets. Benchmark-driven investments, namely passive funds, appear particularly sensitive to global risk shocks such as tightening US dollar funding conditions relative to their active fund counterparts. The procyclicality of investment fund flows to emerging markets during times of global stress poses financial stability concerns with implications for the role of macroprudential policy. |
| JEL: | F21 F32 F36 F65 G11 G15 G23 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31143&r=ifn |
| By: | Cham, Yaya |
| Abstract: | Limitations of domestic Monetary Policies in The Gambia highlight the challenges faced by developing countries in managing their domestic economies in the context of bank lending as well as financial globalisation. The high level of financial integration with global markets, brought about by globalisation and advancements in science and technology, means that domestic monetary policies in developing countries have a limited impact on managing the domestic economies, as interest rates and exchange rates are increasingly influenced by global factors beyond the control of domestic monetary and fiscal policies . As such, these countries experience challenges in managing inflation and promoting economic growth. At the same time, scientific advancements and technology have facilitated financial globalisation and made it easier for banks to lend to customers in different countries, but these developments have also raised concerns about the regulation of cross-border lending and the potential for financial instability in the global financial system. It has become increasingly important for affected countries to put in place policies and strategies that shield their economies from these external shocks and influences to allow them to control inflation and promote economic growth. |
| Keywords: | Financial Globalization, Bank Lending, Domestic Monetary Policy and The Gambia |
| JEL: | F6 G2 N1 |
| Date: | 2023–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117026&r=ifn |
| By: | Pape, Fabian; Petry, Johannes |
| Abstract: | Recent IPE scholarship locates the key dynamics of financial globalization in two areas: public money flows between the US and Asia, or private banking flows between the US and Europe. This dichotomy presents the globalization of private finance as firmly anchored within transatlantic, neoliberal financial norms. We argue that this creates a blind spot regarding the growing role of East Asian finance within the global financial system. Combining CPE insights on institutional characteristics of Asian financial systems with a macro-financial analysis of the global financial system, this paper analyzes the global implications of the geographic shift towards East Asia. First, we demonstrate the growing importance of East Asia for global macro-financial flows, actors and markets that goes beyond the rise of China. Second, we explore how the institutional arrangements that underpin Asian financial systems differ significantly from transatlantic finance. By investigating the growing importance of global investors in Asian markets and Asian investors in global markets, we explore how the shift towards East Asia introduces a growing role of developmental characteristics within global finance. This calls for a reconsideration of conventional analyses of the global financial system which often assume its role as a force of neoliberal globalization. |
| Keywords: | comparative political economy; East Asia; global financial system; international political economy; comparative capitalism; developmentalism; global finance; macro-finance; neoliberalism; post-crisis; Warwick T&F agreement |
| JEL: | F3 G3 J1 |
| Date: | 2023–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:118296&r=ifn |
| By: | Simon P. Lloyd; Emile A. Marin |
| Abstract: | How does the conduct of optimal cross-border financial policy change with prevailing trade agreements? We study the joint optimal determination of trade policy and capital- flow management in a two-country, two-good model with trade in goods and assets. While the cooperative optimal allocation is efficient, a country-planner can achieve higher domestic welfare by departing from free trade in addition to levying capital controls, absent retaliation from abroad. However, time variation in the optimal tariff induces households to over- or under-borrow through its effects on the path of the real exchange rate. As a result, optimal capital controls can be larger when used in conjunction with optimal tariffs in specific cases; and in others, the optimal trade tariff partly substitutes for the use of capital controls. Accounting for strategic retaliation, we show that committing to a free-trade agreement can reduce incentives to engage in costly capital-control wars for both countries. |
| JEL: | F13 F32 F33 F38 |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31082&r=ifn |
| By: | Raphael Auer; Marc Farag; Ulf Lewrick; Lovrenc Orazem; Markus Zoss; Raphael A. Auer |
| Abstract: | The phenomenal growth of cryptocurrencies raises important questions about their footprint on the financial system. What role are traditional financial intermediaries playing in cryptocurrency markets and what drives their engagement? Are new nodes emerging? We help answer these questions by leveraging a novel global supervisory database of banks’ cryptocurrency exposures and by synthesising a range of complementary data sources for other types of institutions. We find that major banks’ exposures currently remain at very modest levels. Across countries, higher innovation capacity, more advanced economic development, and greater financial inclusion are associated with a higher likelihood of banks taking on cryptocurrency exposures. We show that substantial activity is concentrated in lightly regulated crypto exchanges. This “shadow crypto financial system” serves both retail and institutional clients, such as dedicated investment funds. An uneven regulatory treatment across banks and crypto exchanges and significant data gaps suggest that a proactive, holistic and forward-looking approach to regulating and overseeing cryptocurrency markets is needed. It should focus on ensuring a more level playing field with regard to financial services provided by established financial institutions and intermediaries in the emerging crypto shadow financial system by introducing more stringent regulatory and supervisory oversight for the latter. |
| Keywords: | cryptocurrencies, decentralised finance, digital currencies, financial regulation, financial supervision, exchange stablecoin, Bitcoin, Ethereum |
| JEL: | E42 G12 G21 G23 G28 O33 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10355&r=ifn |