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Begin New Search Topic Monetary Policy Publication Year within 10 Years

61. Capital Flows and Capital Account Management in Selected Asian Economies

Author:
Rajeswari Sengupta and Abhuit Sen Gupta
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Gross capital inflows and outflows to and from emerging market economies have witnessed a significant increase since the early 2000s. This rapid increase in the volume of flows, accompanied by sharp swings in volatility, has amplified the complexity of macroeconomic management in emerging economies. This paper focuses on capital flows in selected emerging Asian economies, analyzing surge and stop episodes as well as changes in the composition of flows across these episodes, then evaluating the policy measures undertaken by these economies in response to the surge and stop of capital flows. This kind of analysis is highly relevant, especially at a time when emerging economies around the world are facing the repercussions of a potential monetary policy normalization in the United States and continuing quantitative easing measures by the European Central Bank, either of which could once again heighten the volatility of cross-border capital flows, thereby posing renewed macroeconomic challenges for major EMEs.
Topic:
Economics, Emerging Markets, International Trade and Finance, and Monetary Policy
Political Geography:
Asia

62. The Influence of RMB Internationalization on the Chinese Economy: Theory and Policy

Author:
Fan He and Qiyuan Xu
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
With a balance between radicalism and gradualism, renminbi (RMB) cross-border settlement covers all of the items in China's balance of payments (BoP), including financial accounts, although some of these accounts are still controlled by means of quotas and administrative approval. By the end of the first quarter in 2014, the amount of RMB trade settlement had reached ¥11 trillion since the pilot scheme was launched in July 2009. RMB cross-border settlement has become increasingly important for monetary authorities in terms of macroeconomic policy frameworks. This is especially the case with the more sophisticated conditions in global monetary markets, which result not only from the nontraditional monetary policies employed by the European Central Bank and the Bank of Japan, but also the ongoing quantitative easing (QE) tapering by the US Federal Reserve and the spillover effects on emerging economies. It is increasingly important to evaluate the potential influence of RMB internationalization on China's macroeconomy. A framework, which includes monetary supply and demand, was created to analyze the influences of RMB cross-border settlement on China's domestic interest rate, asset price and foreign exchange (forex) reserves. RMB settlement behaves in different ways with the various items in BoP, such as imports, exports, foreign direct investment (FDI), overseas direct investment (ODI), RMB Qualified Foreign Institutional Investor (RQFII), RMB Qualified Domestic Institutional Investor (RQDII) and cross-border loans. It was found that RMB settlement in different items leads to different effects on China's economy. For RMB export settlement, RMB overseas direct investment (RODI) and RQFII at the initial stage, RMB settlement does not affect China's interest rate and asset price. In addition, more favourable to the People's Bank of China (PBoC), foreign exchange reserves increase less with these reforms; therefore, they should be promoted with priority. However, it is necessary to stress that all settlements should be based on real transactions in order to prevent fake exports. For RMB import settlement, RODI and RQDII at the initial stage, these pilot schemes exert influences on China's economy through interest rate changes, causing an additional increase of forex reserves. Although other short-term items in the financial account could also impact the interest rate, the items in this group are either based on real business such as trade and investment or on financial transactions at the initial stage on a small scale. Therefore, this group has a relatively moderate influence on the interest rate. It is important to remember that this negative by-product is a result of the assumption that the PBoC targets exchange rate stability. If the PBoC sets the exchange rate system to be flexible enough, then such pilot schemes will not cause an increase of forex reserves. It is thus essential to advance exchange rate regime reforms to keep up with the steps of RMB internationalization. With the progress in RQDII and RQFII, the endorsement of issuing dim sum bonds for capital backflows and with the increase in lending from the offshore to the onshore market, these types of RMB cross-border settlements will not exert pressure on forex reserves; however, they do have an impact on the money market. If the amount of RMB flowing through these items is large enough, the interest rate and asset price will be significantly affected, and could be in conflict with the intended monetary policy. These types of transactions are the most risky to monetary authorities; therefore, they should be cautious regarding these items. In the short term, RMB settlements in these kinds of items should be regulated with quotas. In the medium to the longer term, these items should be opened in a gradual way.
Topic:
Foreign Exchange and Monetary Policy
Political Geography:
Japan, China, and Europe

63. When Central Banks Surprise: Why It Is Important and What Policy Makers Need to Do about It

Author:
Domenico Lombardi, Pierre Siklos, and Samantha St. Amand
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
There is a risk that positive developments in the US economy and in the US Federal Reserve's monetary policy stance could induce global financial volatility and further exacerbate global economic imbalances. Empirical evidence suggests that global asset prices are responsive not just to US policy actions, but to news events concerning developments in the US economy and to the tones of Federal Reserve statements. Central banks need to continue to be mindful about the potential repercussions of shocking markets through statements and policy actions. The Group of Twenty (G20) ought to work together to implement coordinated, mutually beneficial economic policies. This includes being cognizant of the spillover effects of domestic policies, and seeking to minimize them.
Topic:
Monetary Policy
Political Geography:
United States