For years there has been pressure on China to allow its exchange rate to be determined by market forces rather than by the central bank. Now that seems closer to happening but it might mean a fall in the RMB, which is not what most of China’s critics wanted. * For years, China held down… Continue Reading
Category Archives: Finance sector
The Chinese stock market mess may have a long term benefit
The Chinese stock market rise and fall is relatively unimportant for the Chinese and global economies but it has harmed the government’s reputation and may set back reform. But it if helps to kill the idea that the market can be controlled it will have some long term benefit. * There is an old joke… Continue Reading
When should we forgive debts?
Debt is a contract but sometimes contracts must be broken, either in the mutual interests of the contracting parties or in the interests of justice. But it’s hard to come up with general rules for this. The long-running arguments about whether to forgive Greek national debt provide an example of the difficulties. * Debt is… Continue Reading
Can a central bank go bust?
Central banks have balance sheets like other banks and in theory their liabilities can exceed their assets, meaning they are insolvent. But they can always create new money so they can settle their debts. So can they really go bust? * A bank (or any other company) is insolvent if its assets are less than… Continue Reading
Too much debt? There is a better way
Pretty much all financial crises involve too much debt. The global financial crisis was triggered by excessive lending for US property purchase. The slow recovery from the crisis is probably because of too much debt. China’s successful plan to insulate its economy from the post-crisis recession has left it with its own debt problem. Those… Continue Reading
Greece repays IMF using the IMF’s own “currency”
Greece this week repaid €750m to the International Monetary Fund (IMF) which it funded by drawing on its SDR account at the IMF. This legitimate but unusual move caught many commentators by surprise and drew attention to the little known SDR. * The SDR – Special Drawing Right – is something of a curiosity in… Continue Reading
Still debating the causes of the world financial crisis
Major world historical events such as the financial crisis that swept much of the world in 2007-09 typically have multiple causes. In 2014 there was an outpouring of new books about the causes of the First World War which started a century before. Historians continue to disagree about why the nations of Europe went to… Continue Reading
How can we tell if a bank is strong?
This week it was reported (*) that the European Commission was investigating some southern EU nations to see if they had unfairly and illegally allowed banks to count deferred tax assets towards their capital. What does this mean and what does it tell us about bank financial strength? We can assess bank strength by asking… Continue Reading
The accidental trillionaire
China’s $3.9 trillion foreign exchange reserves were not planned but arose as a side effect of a strategy, now ended, of keeping the RMB exchange rate lower than the market would have set it. * Last week I visited the home of China’s SAFE – the State Administration of Foreign Exchange. SAFE’s reserve management division… Continue Reading
The changing shape of the asset management industry
The asset management industry is huge, growing in size, especially in Asia, and increasingly dominated by a small number of giant companies. Asset management includes traditional “institutional” investors such as pension funds, insurance companies, mutual funds and money management companies, plus hedge funds. There are economies of scale in asset management: you can manage $1… Continue Reading
Why is it so hard to finance new infrastructure?
There is a great need for infrastructure investment in both developed and developing countries. The former need both refurbishment of old assets and additional capacity. The latter need lots of new capacity, mainly arising from rapid urbanisation. There is also a large pool of savings in pension funds, companies and sovereign wealth funds that is… Continue Reading
Why MFin students are a good fit with central banks
Central banks, which are the most important financial institutions in most countries, have typically employed lots of economcs graduates in the past. They might benefit from adding a few finance graduates in future. Central banks have responsibility for controlling inflation and influencing the wider economy. In some nations they also have responsibility for regulating the financial… Continue Reading
The onward march of the private sector in China
Ahead of a trip next week to Beijing to learn more about the lending business of China Minsheng Bank, I’m encouraged to see that the private sector is already flourishing in China. In December 2013, President Xi Jinping made clear the scope of his refom ambition at the third plenum of the Chinese Communist Party’s 18th… Continue Reading
Could we do without physical money?
Physical money is becoming increasingly unnecessary in everyday life. Could it be heading for extinction and does it matter? I’ve just spent three days on holiday in the wonderful city of Copenhagen, using physical cash only once (when the ice cream seller’s card machine was broken, and the ice cream is really good so I couldn’t… Continue Reading
What is shadow banking?
Shadow banking is a term that was invented by Paul McCulley, the former chief economist of the giant fund manager PIMCO, in 2007. He was one of the first to identify and analyse the growth of chains of financial transactions in the US that had the economic substance of commercial banking but weren’t regulated, and… Continue Reading