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2. Creating a Euro Area Safe Asset without Mutualizing Risk (Much)
- Author:
- Alvaro Leandro and Jeromin Zettelmeyer
- Publication Date:
- 08-2019
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
- Topic:
- Economics, Sovereign Wealth Funds, Banks, and Risk
- Political Geography:
- Europe and Global Focus
3. Smart Development Banks
- Author:
- Eduardo Fernández-Arias, Ricardo Hausmann, and Ugo Panizza
- Publication Date:
- 04-2019
- Content Type:
- Working Paper
- Institution:
- The John F. Kennedy School of Government at Harvard University
- Abstract:
- The conventional paradigm about development banks is that these institutions exist to target well-identified market failures. However, market failures are not directly observable and can only be ascertained with a suitable learning process. Hence, the question is how do the policymakers know what activities should be promoted, how do they learn about the obstacles to the creation of new activities? Rather than assuming that the government has arrived at the right list of market failures and uses development banks to close some well-identified market gaps, we suggest that development banks can be in charge of identifying these market failures through their loan-screening and lending activities to guide their operations and provide critical inputs for the design of productive development policies. In fact, they can also identify government failures that stand in the way of development and call for needed public inputs. This intelligence role of development banks is similar to the role that modern theories of financial intermediation assign to banks as institutions with a comparative advantage in producing and processing information. However, while private banks focus on information on private returns, development banks would potentially produce and organize information about social returns.
- Topic:
- Development, Industrial Policy, Markets, and Banks
- Political Geography:
- Global Focus and Global Markets
4. The Function Transformation of Central Banks and Commercial Banks under the Application of Digital Fiat Currency
- Author:
- Song Shuang and Liu Dongmin
- Publication Date:
- 04-2019
- Content Type:
- Policy Brief
- Abstract:
- Since the advent of Bitcoin, digital currency and its underlying distributed ledger technology have been spread and applied rapidly around the world. Traditionally, currency issuance and circulation are based on binary tree structure, with the central bank as the highest node, commercial banks in the middle and the public and enterprises at the bottom. However, in the distributed ledger system, all nodes have similar privileges and can transact with each other directly. Hence, the advocators promote the potential of digital currency to subvert the monetary control of sovereign countries and alter the traditional business of commercial banks with the characteristics of decentralization, trust-free intermediary, non-tampering and encryption security. On the other hand, the dissenters believe that transaction nodes in distributed ledger system will be greatly increased, and hence reducing the professionalism of transaction processing and forfeiting the authenticity of original information, which then becomes difficult to play a significant role in the future economy.
- Topic:
- Science and Technology, Economy, Banks, Central Bank, Currency, and Bitcoin
- Political Geography:
- China and Global Focus
5. Navigating Low-Carbon Finance Management at Banks and Non-Banking Financial Institutions
- Author:
- Naoyuki Yoshino and Farhad Taghizadeh-Hesary
- Publication Date:
- 08-2019
- Content Type:
- Working Paper
- Institution:
- Economic Research Institute for ASEAN and East Asia (ERIA)
- Abstract:
- Lack of long-term financing, the existence of various risks, the low rate of return, and lack of capacity in market actors are major challenges for the development of low-carbon projects. This paper attempts to provide guidelines for governments and financial institutions by highlighting practical solutions as enabling conditions of low-carbon finance and investment. Such solutions include increasing the role of public financial institutions, increasing the share of non-banking financial institutions in long-term investments, using the spillover tax to increase the rate of return, developing green credit guarantee schemes to reduce the credit risk, and addressing low-carbon investment risks via financial and policy de-risking. These solutions are analysed in detail and considerations for their implementation are discussed throughout the paper. Tools and instruments for low-carbon investments and a practical example of the implementation of the proposed tools are also provided in this paper
- Topic:
- Climate Change, Infrastructure, Banks, Credit, and Financial Institutions
- Political Geography:
- Global Focus
6. Some Thoughts on International Monetary Policy Coordination
- Author:
- Charles I. Plosser
- Publication Date:
- 06-2018
- Content Type:
- Journal Article
- Journal:
- The Cato Journal
- Institution:
- The Cato Institute
- Abstract:
- It is a pleasure to be back here at Cato and to be invited to speak once again at this annual conference. This is one of the premier ongoing monetary policy conferences, and the participants, both at the podium and in the audience, attest to its prominence. This is a session on international monetary arrangements, and there has already been an interesting discussion. I find myself in substantial agreement with the comments of John Taylor, so I do not wish to repeat his points. What I will try to do is put the rules-based approach to international monetary policy coordination in a context that I hope will help us understand some of the past failures so we might avoid them in the future. In many ways, I will simply be reminding us of some principles we all have known for some time, yet which we seem to forget all too frequently.
- Topic:
- International Cooperation, Monetary Policy, and Banks
- Political Geography:
- Global Focus
7. The Monetary Theory of Kalecki and Minsky
- Author:
- Jan Toporowski
- Publication Date:
- 03-2012
- Content Type:
- Working Paper
- Institution:
- School of Oriental and African Studies - University of London
- Abstract:
- The monetary theory of Kalecki and Minsky is usually placed within the Post-Keynesian tradition, deriving from the monetary analysis of John Maynard Keynes. The paper argues that Kalecki and Minsky shared a common inheritance in Swedish and German monetary theory, rather than the Marshallian tradition. Thus the monetary analysis of Kalecki and Minsky emphasises the endogeneity of money through capitalist reproduction, rather than through the mechanisms connecting central bank money to credit creation in the banking system. This provides the link between the monetary theory of Kalecki and Minsky and modern circuit theory.
- Topic:
- Monetary Policy, Banks, Economic Theory, and Keynes
- Political Geography:
- Global Focus
8. A Theory of Capital Rationing
- Author:
- Jan Toporowski
- Publication Date:
- 09-2010
- Content Type:
- Working Paper
- Institution:
- School of Oriental and African Studies - University of London
- Abstract:
- This paper revisits some of the issues originally put forward by the author as the theory of capital market inflation, in the book The End of Finance (Toporowski 2000). The paper makes much clearer the key assumptions and relationships between the operations of the capital market dominated by institutional investors, and the balance sheets of companies. In this way, it presents a theory of how macroeconomic dynamics may be affected by disequilibrium in the capital market. The first part of the paper examines the demand for new equity issues by institutional investors, namely insurance companies and pension funds. In the second part of the paper it is argued that the tendency of pension funds to mature may be a factor in forcing companies into debt and thus discouraging their investment and restricting their cash flow. The tendency towards forced indebtedness may be reinforced by an inelastic demand for capital by banks. The third part of the paper argues that the inelastic supply of capital in the capital market gives rise to processes of capital market inflation or deflation. The first of these may make banks more fragile. The second may contribute to deflationary processes in the macroeconomy. A fourth section argues that further instability is added by international capital market integration.
- Topic:
- Debt, Markets, Banks, and Investment
- Political Geography:
- Global Focus
9. The Macroeconomic Effects of External Pressures on Monetary Policy
- Author:
- Davide Debortoli and Ricardo Nunes
- Publication Date:
- 09-2008
- Content Type:
- Working Paper
- Institution:
- Board of Governors of the Federal Reserve System
- Abstract:
- Central banks, whether independent or not, may occasionally be subject to external pressures to change policy objectives. We analyze the optimal response of central banks to such pressures and the resulting macroeconomic consequences. We consider several alternative scenarios regarding policy ob- jectives, the degree of commitment and the timing of external pressures. The possibility to adopt “more liberal” objectives in the future increases current inflation through an accommodation effect. Simultaneously, the central bank tries to anchor inflation by promising to be even “more conservative” in the future. The immediate effect is an output contraction, the opposite of what the pressures to adopt “more liberal” objectives may be aiming. We also discuss the opposite case, where objectives may become “more conservative” in the future, which may be the relevant case for countries considering the adoption of inflation targeting.
- Topic:
- Finance, Banks, Inflation, and Central Bank
- Political Geography:
- Global Focus