Andrew Bailey, chief executive of the FCA, has been appointed as the new governor of the Bank of England. The move is not without controversy, with the FCA being criticised over its supervision of Neil Woodford (formerly fund manager at Invesco Perpetual, since rebranded to Invesco)'s flagship fund which was suspended in June 2019 and eventually closed.
Showing posts with label centralbanks. Show all posts
Showing posts with label centralbanks. Show all posts
Sunday, 22 December 2019
Thursday, 25 April 2019
Bank of England Governorship Up for Grabs
With Mark Carney due to step down, the governorship for the Bank of England is up for grabs.
Names "in the frame" include Agustin Carsens, former Central Bank governor of Mexico who is now general manager of the BIS, and Raghuram Rajan, former Central Bank governor of India.
American economist Jason Furman, who has a PhD from Harvard and is currently a Professor at HKS and was Barack Obama's Chief Economic Adviser for eight years, has also been tipped as being in the race. He has also worked at the CEA (Council of Economic Advisers).
Other names include Andy Haldane, Chief Economist at the Bank of England, whose six-year term at the BoE ends on 11 June 2020. A founder of "Pro Bono Economics" and author of 4 books, he is also a Visiting Fellow at Nuffield College, Oxford. He has a Fellowship of the Academy of Social Sciences (FAcSS). He is also Chair of the UK government's Industrial Strategy Council.
Names "in the frame" include Agustin Carsens, former Central Bank governor of Mexico who is now general manager of the BIS, and Raghuram Rajan, former Central Bank governor of India.
American economist Jason Furman, who has a PhD from Harvard and is currently a Professor at HKS and was Barack Obama's Chief Economic Adviser for eight years, has also been tipped as being in the race. He has also worked at the CEA (Council of Economic Advisers).
Other names include Andy Haldane, Chief Economist at the Bank of England, whose six-year term at the BoE ends on 11 June 2020. A founder of "Pro Bono Economics" and author of 4 books, he is also a Visiting Fellow at Nuffield College, Oxford. He has a Fellowship of the Academy of Social Sciences (FAcSS). He is also Chair of the UK government's Industrial Strategy Council.
Friday, 29 March 2019
Turkish lira weakness prompts fall in EM currencies
The Turkish lira has lost 40% of its value over the last year. With national elections approaching, the central bank prompted the overnight offshore swap rate above 1300pc to defend the lira.
Turkish banks and corporates have become overstretched on short-term lending, having exploited dollar liquidity to push the country's external liabilities $234bn. Of this, about $150bn is short-term debt required repayment or refinancing within 12 months.
Turkey's reserve cover, the ratio of short term debt to net reserves, is now around 500%, the weakest amongst emerging market countries, according to Capital Economics.
One possible response from banks is to shrink their balance sheets and sell off foreign currency assets. This could trigger a credit crunch. CDS on Turkey have spiked 150bp to 454.
Despite the situation being contained in Turkey, traders have responded by trading out of Argentine peso, Brazilian real and South African rand as well.
Turkish banks and corporates have become overstretched on short-term lending, having exploited dollar liquidity to push the country's external liabilities $234bn. Of this, about $150bn is short-term debt required repayment or refinancing within 12 months.
Turkey's reserve cover, the ratio of short term debt to net reserves, is now around 500%, the weakest amongst emerging market countries, according to Capital Economics.
One possible response from banks is to shrink their balance sheets and sell off foreign currency assets. This could trigger a credit crunch. CDS on Turkey have spiked 150bp to 454.
Despite the situation being contained in Turkey, traders have responded by trading out of Argentine peso, Brazilian real and South African rand as well.
Wednesday, 22 November 2017
The Carry Trade Concretised - Uridashi Bonds
Uridashi bonds are bonds sold to Japanese household investors, giving returns in a high-yielding currency such as NZD or AUD, which offers a premium over the historically low domestic interest rates in Japan.
This has the follow risks
- credit risk of the issuer
- FX risk, as the foreign currency coupon payments have to exchanged into JPY
They became popular in the 2000s.
2015- market size was USD 33bn.
23/11/2017 - Bank of Japan benchmark rate, -0.1%
23/11/2017 - Reserve Bank of New Zealand benchmark rate 1.75%
23/11/2017 - Reserve Bank of Australia benchmark rate 1.5%
23/11/2017 - Swiss National Bank benchmark rate -0.75% (Banque Nationale Suisse)
The official benchmark rate in Switzerland is the "3m LIBOR CHF".
This has the follow risks
- credit risk of the issuer
- FX risk, as the foreign currency coupon payments have to exchanged into JPY
They became popular in the 2000s.
2015- market size was USD 33bn.
23/11/2017 - Bank of Japan benchmark rate, -0.1%
23/11/2017 - Reserve Bank of New Zealand benchmark rate 1.75%
23/11/2017 - Reserve Bank of Australia benchmark rate 1.5%
23/11/2017 - Swiss National Bank benchmark rate -0.75% (Banque Nationale Suisse)
The official benchmark rate in Switzerland is the "3m LIBOR CHF".
Thursday, 2 November 2017
The Fed has a New Future Boss - Jerome Powell
Jerome Powell has been chosen by President Trump to head up the Federal Reserve, replacing Janet Yellen from February 2018 or thereabouts.
The Fed conducts American monetary policy and promotes a stable financial system.
Jerome Powell is a former partner in the Carlyle Group. He is currently a member of the Federal Reserve Board of Governors. His undergraduate degree was in Politics at Princeton. He also has a JD from Georgetown, the second largest law school in the United States.
The Fed conducts American monetary policy and promotes a stable financial system.
Jerome Powell is a former partner in the Carlyle Group. He is currently a member of the Federal Reserve Board of Governors. His undergraduate degree was in Politics at Princeton. He also has a JD from Georgetown, the second largest law school in the United States.
Wednesday, 22 February 2017
No more Tequila - Mexico acts on Trump Slump
The volatility mollification strategy has been dubbed the biggest change in Mexican central banking since the "Tequila Crisis", in which a devaluation of the peso led to a banking crisis.
For those unfamiliar with the "Tequila Crisis" the devaluation occurred in December 1994, which caused half the country's foreign exchange reserves to leave the country.
The peso's fall has been largely due to threats to impose trade barriers on Mexican goods headed to the United States by the Trump administration, which has also sparked currency volatility. It has been dubbed by the media as the "Trump Slump".
Mexico's foreign exchange commission announced the volatility was "not consistent with the country's economic fundamentals".
Mexico has responded to the fall by hiking interest rates over the course of a year. In January 2017, the central bank also reportedly sold around a billion USD to support the peso.
For those unfamiliar with the "Tequila Crisis" the devaluation occurred in December 1994, which caused half the country's foreign exchange reserves to leave the country.
The peso's fall has been largely due to threats to impose trade barriers on Mexican goods headed to the United States by the Trump administration, which has also sparked currency volatility. It has been dubbed by the media as the "Trump Slump".
Mexico's foreign exchange commission announced the volatility was "not consistent with the country's economic fundamentals".
Mexico has responded to the fall by hiking interest rates over the course of a year. In January 2017, the central bank also reportedly sold around a billion USD to support the peso.
Sunday, 14 December 2014
Saturday, 24 August 2013
Governors of Central Banks II
Brazil: Alexandre Tombini, has a PhD in Economics from University of Illinois, and Bachelors in Economics from the University of Brasilia. He is the head of the Banco Central do Brasil. The bank controls the economy via adjusting the SELIC rate (overnight borrowing rate), the SE standing for Sistema Especial.
Russia: The Russian Central Bank is led by Elvira Nabiullina who studied at Moscow State University. Its primary responsibility is to protect the stability of the Russian Ruble. It part-owns the Russian commercial bank Sberbank.
India: Raghuram Rajan (appointed in August 2013, for a three year term). BSc, IIT Delhi, Electrical Engineering, PhD in management from MIT in 1991. He has published a book called "Fault Lines" which won the Goldman Sachs Business Book of the Year Award in 2010. He was the former Director of Research at the IMF. While at the IMF he published a paper entitled: "Has Financial Development made the World Riskier?"
UK: Mark Carney, also Chairman of the Financial Stability Board (FSB), has a PhD in Economics from Nuffield College, Oxford and was formerly Governor of the Bank of Canada.
China: (People's Bank of China), Zhou Xiaochuan, since 2002. His wife, Li Ling, is a senior member of China's Ministry of Commerce. He has introduced reforms to recruit "sea turtles" (overseas Chinese with experience of real capitalist markets).
Russia: The Russian Central Bank is led by Elvira Nabiullina who studied at Moscow State University. Its primary responsibility is to protect the stability of the Russian Ruble. It part-owns the Russian commercial bank Sberbank.
India: Raghuram Rajan (appointed in August 2013, for a three year term). BSc, IIT Delhi, Electrical Engineering, PhD in management from MIT in 1991. He has published a book called "Fault Lines" which won the Goldman Sachs Business Book of the Year Award in 2010. He was the former Director of Research at the IMF. While at the IMF he published a paper entitled: "Has Financial Development made the World Riskier?"
UK: Mark Carney, also Chairman of the Financial Stability Board (FSB), has a PhD in Economics from Nuffield College, Oxford and was formerly Governor of the Bank of Canada.
China: (People's Bank of China), Zhou Xiaochuan, since 2002. His wife, Li Ling, is a senior member of China's Ministry of Commerce. He has introduced reforms to recruit "sea turtles" (overseas Chinese with experience of real capitalist markets).
Wednesday, 6 February 2013
The BUNDESBANK wants its gold BACK
The German Bundesbank, second largest holder of gold in the world after the United States, has decided at least half its gold should be in its own vaults. Part of this comes with pressure from the German Precious Metals Association. Apparently, last year the U.S. Federal Reserve had refused to allow Germans to verify their gold held in US vaults (reported in Der Spiegel).
Saturday, 2 February 2013
The Incoming Governor of the Bank of England
Ex-Goldman Sachs Mark Carney will become Governor of the Bank of England on July 2013. He studied at both Harvard and Oxford. As Governor of the Bank of Canada, he explained that his "fundamental priority" was to ensure "low, stable and predictable inflation".
Saturday, 13 October 2012
How 3Rs Impact the Global Currency Markets
Statutory versus Voluntary Reserve Ratios
Some countries have Required Reserve Ratios (RRRs) that are statutorily enforced whilst other countries have voluntary reserve ratios.
Required reserves apply to commercial banks and usually take the form of cash or deposits made with a central bank. If a bank holds more than the required reserve, it is said to hold excess reserves.
Variation by Country
The Bank of England used to have a reserve ratio but abandoned it in the early 1980s. Canada also has no reserve ratio requirement. The US Federal Reserve has a reserve ratio that operates in tranches.
Relationship between Reserve Ratio and Inflation
The greater the reserve ratio (and correspondingly the greater the reserves held at the central bank) the less money there is for individual banks to loan, leading to lower money creation and potentially higher purchasing power of the money in circulation.
All things being equal, there is an inverse relationship between the Reserve Ratio and Inflation.
Bigger RR -> potentially lower inflation
Lower RR -> potentially higher inflation
Reserve Ratios for Inflation Control
The People's Bank of China (PBC or PBOC) alters the reserve ratio in order to control inflation. Standard Chartered anticipates a RRR cut due to "easing headline inflation" and recommends USDCNH puts. The Reserve Bank of India also controls the Cash Reserve Ratio (CRR) to control the money supply and therefore inflation.
Central Bank Slang: Near Money or Quasi Money
Reading central banking websites you will come across many unusual economic terms, such as near money or quasi-money - which refers to stuff that's not cash, but very close to cash,
They mean one and the same thing, namely highly liquid assets that can be easily converted into cash.
The IMF and World Bank do surveys of money and quasi-money in the world financial system.
Examples of quasi money would be savings accounts, money market accounts, bonds near their redemption date, government T-bills, foreign currencies (especially widely traded ones like USD, JPY and EUR).
Some countries have Required Reserve Ratios (RRRs) that are statutorily enforced whilst other countries have voluntary reserve ratios.
Required reserves apply to commercial banks and usually take the form of cash or deposits made with a central bank. If a bank holds more than the required reserve, it is said to hold excess reserves.
Variation by Country
The Bank of England used to have a reserve ratio but abandoned it in the early 1980s. Canada also has no reserve ratio requirement. The US Federal Reserve has a reserve ratio that operates in tranches.
Relationship between Reserve Ratio and Inflation
The greater the reserve ratio (and correspondingly the greater the reserves held at the central bank) the less money there is for individual banks to loan, leading to lower money creation and potentially higher purchasing power of the money in circulation.
All things being equal, there is an inverse relationship between the Reserve Ratio and Inflation.
Bigger RR -> potentially lower inflation
Lower RR -> potentially higher inflation
Reserve Ratios for Inflation Control
The People's Bank of China (PBC or PBOC) alters the reserve ratio in order to control inflation. Standard Chartered anticipates a RRR cut due to "easing headline inflation" and recommends USDCNH puts. The Reserve Bank of India also controls the Cash Reserve Ratio (CRR) to control the money supply and therefore inflation.
Central Bank Slang: Near Money or Quasi Money
Reading central banking websites you will come across many unusual economic terms, such as near money or quasi-money - which refers to stuff that's not cash, but very close to cash,
They mean one and the same thing, namely highly liquid assets that can be easily converted into cash.
The IMF and World Bank do surveys of money and quasi-money in the world financial system.
Examples of quasi money would be savings accounts, money market accounts, bonds near their redemption date, government T-bills, foreign currencies (especially widely traded ones like USD, JPY and EUR).
Thursday, 11 August 2011
SNB on Intervention Spree as EURCHF heads to 1.0
The SNB has needed to intervene in currency markets to halt appreciation of the Swiss franc (CHF in ISO-speak, or "Schweizerfranken" / "Franken"). Amongst other things, it makes Swiss exports less competitive ("menacing for the export sector" might be one way to express it), detracts tourism (or at least deters tourists from spending) and reduces the value of the SNB's reserves in Swiss francs.
The cause for the recent appreciation has been capital flight into "safe haven" CHF, owing to the US downgrade. The Greek crisis also spurred the acceleration of the CHF.
SNB in 1978 purchased 10.6bn CHF (6.6% of GDP) of foreign currency to weaken the franc, following which the CHF relaxed - a resounding success. At the time, the bank had an explicit exchange rate target against the Deutschmark.
The cause for the recent appreciation has been capital flight into "safe haven" CHF, owing to the US downgrade. The Greek crisis also spurred the acceleration of the CHF.
SNB in 1978 purchased 10.6bn CHF (6.6% of GDP) of foreign currency to weaken the franc, following which the CHF relaxed - a resounding success. At the time, the bank had an explicit exchange rate target against the Deutschmark.
Tuesday, 22 June 2010
Governors of Central Banks
Central Bank Governors generally have PhDs.
1. People's Bank of China: Dr Zhou Xiaochuan. PhD from Tsinghua University
2. Reserve Bank of India: Dr Subbarao. PhD from Andhra University. He did his BSc. Physics from IIT Kharagpur in 1969, MSc. IIT Kanpur. He also has a Masters degree in Economics from Ohio State. He became Governor in September 2008.
3. Bank of England: Dr Mervyn King. Honorary Doctorate from Cambridge (now ex-Governor).
1. People's Bank of China: Dr Zhou Xiaochuan. PhD from Tsinghua University
2. Reserve Bank of India: Dr Subbarao. PhD from Andhra University. He did his BSc. Physics from IIT Kharagpur in 1969, MSc. IIT Kanpur. He also has a Masters degree in Economics from Ohio State. He became Governor in September 2008.
3. Bank of England: Dr Mervyn King. Honorary Doctorate from Cambridge (now ex-Governor).
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