Back in April, nervousness about external debts reached its peak when highly-respected economists Carmen Reinhart and Kenneth Rogoff suggested emerging economies with less than a AAA credit rating be offered a moratorium on all their external debt service payments.
Although such a proposal might make sense if emerging economies were actually facing any serious shortage of access to foreign exchange, it is a difficult case to make. What we should worry about is not the external debt of emerging economies, but rather the large increases in government debts denominated in their own currencies.
In the first six months of 2020, borrowers from emerging economies issued more than $400 billion of Eurobonds to international investors, up by one-fifth over the same period in 2019.… Seguir leyendo »
There were several notable achievements during last week’s Spring meetings. The Fund’s frank set of forecasts for world GDP growth are a grim but valuable reminder of the scale of the crisis we are facing, and the Fund’s richer members will finance a temporary suspension on payments to the IMF for 29 very poor countries.
Most importantly, a boost to the Fund’s main emergency facilities – the Rapid Credit Facility and the Rapid Financing Instrument – now makes $100bn of proper relief available to a wide range of countries. But the core problem is that the vast bulk of the Fund’s firepower is effectively inert.… Seguir leyendo »
The renminbi seems to be back in business as a Chinese tool of retaliation against US tariffs. A 1.5 per cent fall in the currency early this month in response to proposed new US tariffs was only a start. Since the middle of August the renminbi has weakened further, and the exchange rate is now 4 per cent weaker than at the start of the month. We may well see more of a ‘weaponized’ renminbi, but there are four good reasons why Beijing might be wise to think before shooting.
The first has to do with how China seeks to promote its place in the world.… Seguir leyendo »
It is nearly 30 years since Rudiger Dornbusch and Sebastian Edwards published a seminal book, The Macroeconomics of Populism. Their conclusion back then was that the economic policies of populist leaders were quintessentially irresponsible. These governments, blinded by an aim to address perceived social injustices, specialised in profligacy, unbothered by budget constraints or whether they might run out of foreign exchange.
Because of this disregard for basic economic logic, their policy experiments inevitably ended badly, with some combination of inflation, capital flight, recession and default. Salvador Allende’s Chile in the 1970s, or Alan García’s Peru in the 1980s, capture this story perfectly.… Seguir leyendo »
So, the Chinese economy does have a pulse after all. Credit extension by banks and bond issuance by local governments are supporting some kind of revival in infrastructure investment, and a 30 per cent rise in the Chinese equity market since the start of this year is helping to lift the intensely pessimistic mood that paralysed Chinese spending in the latter part of 2018.
The stimulus policies that China started to introduce last summer, and intensified more recently, now seem to be reviving the patient. From the rest of the world’s point of view, all this is greatly to be welcomed, since China’s last round of stimulus, which lasted from late 2015 until late 2017, did something amazing to the global economy.… Seguir leyendo »
‘Great powers,’ says the Nobel-laureate economist Robert Mundell, ‘have great currencies.’ So where is China’s?
In the years following the 2008 financial crisis, things seemed to be looking up for the renminbi. By the middle of 2015, almost 30% of China’s trade was being settled in renminbi; Hong Kong banks were holding some RMB 1 trillion worth of yuan-denominated deposits; and there was life in the dim sum bond market, with issuance running close to the equivalent of $10 billion per month.
That year was also the year the International Monetary Fund (IMF) announced that the renminbi would become one of currencies that underpin its own reserve asset, the special drawing right (SDR).… Seguir leyendo »
Chinese leaders do like their slogans, and where foreign policy is concerned there are two that have reflected Beijing’s thinking in recent years. The first is tao guang yang hui, usually rendered into English as ‘hide your light and bide your time’, which guided Chinese policy for decades from the 1980s when Deng Xiaoping first established it as a principle of caution in foreign affairs. In late 2013, though, a new slogan was coined by President Xi Jinping to define a more assertive, muscular approach to foreign policy: fen fa you wei or, as it is commonly translated, ‘strive for achievement’.… Seguir leyendo »
One could be forgiven for having missed the fifth birthday last month of China’s Belt and Road Initiative (BRI).
Celebrations were notably mute, for two obvious reasons. One is the increasingly audible grumbling among recipient countries about the effects of what Malaysian prime minister Mahathir Mohamad has called a ‘new colonialism’ — a phrase that captures the idea that the BRI has led to the accumulation of debt on receiving countries’ balance sheets to pay for projects of uncertain value, built mostly by Chinese contractors on opaque terms, allowing China’s regional influence to grow in ways that are out of proportion to the benefits that countries can expect to enjoy.… Seguir leyendo »
The Chinese currency has lost more value in the past eight weeks than during any eight-week period since 1994.
That’s not saying much, mind you: the exchange rate is still a bit stronger than it was just over a year ago, and considerably stronger than it was in the 2000s. So although the renminbi has depreciated, it is difficult to say that it’s weak. There might be plenty of room for it to fall further.
The simplest way to think about China’s desire to see its currency weaken is that it is somehow part of Beijing’s armoury to meet the threats of trade and economic conflict coming out of Washington.… Seguir leyendo »