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on International Finance |
| By: | Joerg Mayer |
| Abstract: | Traditional trust-related de-dollarization motives have gained additional impetus from the declining share of the United States in global output, recent upheaval in dollar bond markets, geopolitical tensions, and a “weaponization†of the dollar. Several institutional innovations by China and the BRICS demonstrate the demand for de-dollarization but do not offer credible alternatives to the dollar’s value characteristics. By contrast, new financial technology, including distributed ledger technology (DLT), and related changes in cross-border payment infrastructure could reduce the network effects that have sustained dollar dominance. By allowing for leaner cross-border payment infrastructures and an easier, cheaper, and more transparent use of non-dollar currencies in cross-border payment and settlement, DLT-based wholesale central bank digital currency (wCBDC) platforms with a foreign-exchange conversion layer may indicate a direction of travel. Pilots of multicurrency wCBDC-platforms indicate how to enable interoperability and reduce exposure to foreign-exchange risk. Regarding institutional (legal, regulatory, and supervisory) frameworks required to fully benefit from infrastructural changes, interlinking common multicurrency wCBDC-platforms among limited numbers of like-minded central banks to form an interoperable hub-and-spoke global wCBDC-system could minimize fragmentation risks while accommodating diverging governance preferences, e.g., concerning data protection and developmental aspirations. By augmenting macroeconomic autonomy and reducing the need for costly dollar reserves, de-dollarization promises greater benefits for countries with non-dominant currencies. These countries should sit at the table when outstanding questions on interoperability and related economic, technical, legal and governance questions regarding multicurrency wCBDCs platforms are answered. |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:102-2024&r= |
| By: | Raphael Auer; Mathieu Pedemonte; Raphael Schoenle |
| Abstract: | Is inflation (still) a global phenomenon? We study the international co-movement of inflation based on a dynamic factor model and in a sample spanning up to 56 countries during the 1960-2023 period. Over the entire period, a first global factor explains approximately 58% of the variation in headline inflation across all countries and over 72% in OECD economies. The explanatory power of global inflation is equally high in a shorter sample spanning the time since 2000. Core inflation is also remarkably global, with 53% of its variation attributable to a first global factor. The explanatory power of a second global factor is lower, except for select emerging economies. Variables such as a broad dollar index, the US federal funds rate, and a measure of commodity prices positively correlate with the first global factor. This global factor is also correlated with US inflation during the 70s, 80s, the GFC, and COVID. However, it lags these variables during the post-COVID period. Country-level integration in global value chains accounts for a significant proportion of the share of both local headline and core inflation dynamics explained by global factors. |
| Keywords: | globalization; inflation; Phillips curve; monetary policy; global value chain; international inflation synchronization |
| JEL: | E31 E52 E58 F02 F41 F42 F14 F62 |
| Date: | 2024–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwq:98253&r= |
| By: | Paduano, Stephen |
| Abstract: | This paper discusses how the United Kingdom can make use of its idle exchange equalisation account to support its global economic objectives in an era of fiscal consolidation — when limited political appetite for further taxing and borrowing, combined with interest rates, have reduced the UK’s ability to finance its international interests. It does so with particular attention to the UK’s $40 billion in idle and illiquid Special Drawing Rights (SDRs). The illiquidity of these SDRs is a hindrance to the “policy-readiness†of the UK’s foreign exchange reserves. This paper discusses how rechanneling those SDRs—e.g., through the purchase of an SDR bond issued by a multilateral development bank—would serve the dual function of boosting the liquidity of the UK’s foreign-exchange reserves (a key objective of the UK’s reserve managers) whilst supporting the UK’s global economic interests (providing additional financing to the MDBs). This paper also draws lessons from how other countries have made use of their idle foreign-exchange reserves to support global economic objectives, such as the United States with its Exchange Stabilization Fund in the 1980s and 1990s. |
| Keywords: | Public debt, sustainability, Private sector, Social outcomes, International Monetary Fund, World Bank, Special Drawing Rights, foreign aid, global development, international financial architecture, United Kingdom, Bank of England |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:notfdl:2309&r= |
| By: | Petry, Johannes |
| Abstract: | The chapter analysis the role of exchanges as infrastructure providers in capital markets. While traditionally regarded as mere marketplaces, neutral spaces facilitating financial transactions, exchanges have evolved into powerful actors in their own right. Over time, exchanges have become complex organisations that enable the functioning of capital markets. While financial markets are used by investors to allocate financial assets, provide corporate financing and facilitate economic growth, certain infrastructural arrangements must exist to enable these transactions: from market data, indices, financial products, trading platforms to clearing, exchanges shape the infrastructures that underpin global capital markets. This chapter explores the commonalities and differences among exchanges, investigating their common role in the provision of financial infrastructures but also emphasizing their embeddedness within institutional environments and hierarchical positioning within the global financial system. Moreover, it addresses emerging challenges and potential contestations, particularly with the rise of exchanges in emerging markets, amidst an increasingly fragmented global economy. |
| Date: | 2024–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:5gwte&r= |
| By: | Cohen, Daniel; Harnoys-Vannier, Brendan |
| Abstract: | The recent era of low interest rates and ample liquidity caused a large increase in external indebtedness throughout the Global South. This note documents both the magnitude and the rising diversity of the debt involved, at a time when markets are shutting down. We build upon the latest World Bank International Debt Statistics, recategorizing countries based on their vulnerability before the Covid crisis hit and their level of development. |
| Keywords: | external indebtedness, portfolio diversification, net transfers, DSSI |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpm:notfdl:2303&r= |
| By: | Jaerim Choi (School of Economics, Yonsei University); Masahiro Endoh (Faculty of Business and Commerce, Keio University); Akira Sasahara (Faculty of Economics, Keio University) |
| Abstract: | This study investigates the effects of imports from China and exports to the rest of the world on labor markets using the data from two major trading partners of China: Japan and the US. An analysis shows that imports of final goods from China and exports to the rest of the world have the same effects on manufacturing employment in the two countries: the former effect is negative, and the latter is positive. In contrast, imported inputs are shown to have different effects on manufacturing employment across the two countries: positive in Japan but negative in the US. We show that these contrasting effects relate to the extent to which these countries integrate into global value chains. In particular, we focus on areas specializing in more downstream sectors in the two countries and uncover that cheaper access to Chinese intermediate inputs allow Japanese input buyers to boost manufacturing employment through input-output linkages. However, the US experienced negative employment effects in those areas, suggesting that the US input buyers do not take advantage of the complementary effects of global value chains, especially with China. |
| Keywords: | The China trade shock, imported inputs, exports, global value chains, manufacturing employment |
| JEL: | F14 F16 F66 |
| Date: | 2024–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:keo:dpaper:2024-012&r= |
| By: | Altavilla, Carlo; Burlon, Lorenzo; Hünnekes, Franziska; Begenau, Juliane |
| Abstract: | We construct a novel measure of bank performance, investigate its determinants, and show that it affects bank resilience, lending behaviour and real outcomes. Using confidential and granular data, we measure performance against a market-based benchmark portfolio that mimics individual banks’ interest rate and credit risk exposure. From 2015 to mid-2022, euro area banks underperformed market benchmarks by around e160 billion per year, amid substantial heterogeneity. Structural factors, such as cost inefficiencies, rather than monetary or regulatory measures, were the main driver of bank underperformance. We also show that higher edge banks are less reliant on government support measures and less likely to experience the materialisation of interest rate or credit risk when hit by shocks. Using the euro area credit register and the pandemic shock for identification, we find that higher edge banks originate more credit, direct it towards more productive firms, and support more firm investment. JEL Classification: E52, G12, G21, G28 |
| Keywords: | banking, credit supply, maturity transformation, replicating portfolio |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20242937&r= |
| By: | Ariane Reyns |
| Abstract: | This dissertation explores the potential alternative currencies have as flexible tools to generate resilience. Their flexible nature, because complementary to conventional ones, makes them particularly useful to economic agents as it empowers them to utilize these when needed. Therefore, this thesis asserts that their strength lies significantly in a transitional power, offering a capacity to adapt amid uncertainties and thus creating resilience. This relationship between resilience and alternative currencies is investigated using robust empirical methods. Given vast differences in design and purpose, the study distinguishes between Complementary Currencies (CCs), considered to benefit local sustainability and economic development, and cryptocurrencies. This differentiation is crucial in understanding their varied impacts at different levels of the economic system: CCs influence organizational and potentially regional resilience, impacting local economic dynamics. In contrast, cryptocurrencies, studied for portfolio diversification, may affect overall portfolio resilience at a broader economic level. Key contributions in the initial chapters unveil deliberate and strategic business engagement with CCs, recognizing a distinct economic rationale. Findings suggest this economic rationale manifests as an "insurance" function when CCs actively mitigate the detrimental effects of economic crises. Notably, such dynamics prove most effective for the more vulnerable enterprises. These results further validate our conceptualization of the transitional power of CCs, emphasizing their ability to foster resilience in the face of economic challenges. The last chapter explores parallel dynamics for cryptocurrencies, highlighting Bitcoin's potential in wartime portfolio diversification, serving as an alternative asset. Overall, this research contributes to our understanding of alternative currencies' effectiveness in enhancing resilience, providing timely insights for reshaping economic systems amid contemporary global challenges. |
| Keywords: | Alternative currencies; Complementary currencies; Mutual Credit Systems; Cryptocurrencies; Financial resilience; Regional resilience; Small firms |
| Date: | 2024–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:ulb:ulbeco:2013/373465&r= |