Exchange Controls Research Articles

L’Argentine après le défaut : conditions d’accès aux marchés internationaux de capitaux et choix de politiques économiques « non conventionnelles »

Le défaut sur la dette souveraine en 2001 a ouvert pour l’Argentine une période de relations financières complexes avec le reste du monde et riche en changements de politique économique. Raisonnant en termes des déterminants d’offre et de demande de financement externe, cet article montre que l’accès du pays aux marchés internationaux de capitaux a été abordable dans certaines périodes, notamment après la restructuration de la dette en 2005. D’ailleurs certains épisodes de diminution des flux de capitaux entrants nets n’ont pas été dus à des restrictions d’offre mais à une volonté ferme de désendettement des autorités argentines, couplée à la levée de barrières réglementaires. Le renforcement à partir de 2011 de certaines politiques « non conventionnelles », comme la monétisation du déficit et le contrôle des changes, découle certainement de cette pénurie de financement en devises. Or d’autres facteurs plus « structurels » le sous-tendent également : une quête continue d’autonomie dans la politique économique via l’autarcie financière et la « peur » séculaire de dévaluer le peso et de le laisser flotter, de crainte qu’il alimente les anticipations d’inflation. Classification JEL : E58, F30, F32, G01, O54.

A new index for measuring SADC exchange control restrictiveness

This paper addresses the issue of the assessment of foreign exchange and capital controls in the context of the Southern African Development Community's goal of regional integration. It reviews the pros and cons of current and capital account liberalisation and argues that there is a lack of sufficiently refined de jure measures of capital account openness. A new index for measuring exchange control restrictiveness is created based on data from the International Monetary Fund's Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) for the 15 SADC member states. This index is unique in that it employs ordinal measures of exchange control restrictions rather than the binary measures used in previous measures. The new index illustrates the considerable range of variation of exchange restrictiveness within SADC, as well as illustrating SADC's relative exchange restrictiveness compared with other countries, inside and outside of Africa. The new index also correlates with several measures of financial development, certain balance of payment items, and some measures of institutional development, which makes it a useful measure for SADC integration. The paper highlights the challenges for SADC monetary union in the sphere of exchange control.

Restructuring and Forgiveness in Financial Crises A: The Mexican Peso Crisis of 1994-1995

Following a year in which repeated political turmoil sapped investor confidence in Mexico, putting pressure on the peso and draining the country’s foreign exchange reserves, on December 22, 1994 the Mexican government sparked a financial crisis by unexpectedly abandoning its policy of anchoring the peso to the US dollar and instead allowing it to float freely. The resulting collapse of the peso left Mexico with $40 billion to $50 billion in external debt (much of it dollar-indexed) coming due in the near term and almost no foreign exchange reserves. Faced with the prospect that Mexico would either default on its obligations or impose exchange controls (with either scenario being seen by many as likely to result in contagion), officials from both the US and abroad scrambled to craft a response to what had been dubbed “the first financial crisis of the twenty-first century” because of its origins in an emerging market economy within globalized financial markets. On January 31, 1995, an assistance package comprised primarily of funds from the US and the IMF was announced. Backed by $20 billion from the US Treasury’s Exchange Stabilization Fund (ESF) and a $17.8 billion stand-by arrangement from the IMF, Mexico met its immediate obligations, restructured short-term debt into longer-term debt and implemented a strict economic reform plan. While the country experienced significant economic hardship in the immediate aftermath of the crisis, by 1996-1997 the economy had rebounded and by 2000 Mexico had paid back all outstanding obligations under the assistance package.

From Financial Repression to External Distress: The Case of Venezuela

Recent work suggests a connection between domestic debt and external default. We examine potential linkages for Venezuela, where the evidence reveals a nexus among domestic debt, financial repression, and external vulnerability. The financial repression tax (as a share of GDP) is similar to OECD economies, in spite of higher debt ratios in the latter. The financial repression “tax rate” is higher in years of exchange controls and legislated interest rate ceilings. We document a link between domestic disequilibrium and a weakening of the net foreign asset position via private capital flight. We suggest these findings are not unique to Venezuela.

New Constraints on Terrestrial Surface-Atmosphere Fluxes of Gaseous Elemental Mercury Using a Global Database.

Despite 30 years of study, gaseous elemental mercury (Hg(0)) exchange magnitude and controls between terrestrial surfaces and the atmosphere still remain uncertain. We compiled data from 132 studies, including 1290 reported fluxes from more than 200,000 individual measurements, into a database to statistically examine flux magnitudes and controls. We found that fluxes were unevenly distributed, both spatially and temporally, with strong biases toward Hg-enriched sites, daytime and summertime measurements. Fluxes at Hg-enriched sites were positively correlated with substrate concentrations, but this was absent at background sites. Median fluxes over litter- and snow-covered soils were lower than over bare soils, and chamber measurements showed higher emission compared to micrometeorological measurements. Due to low spatial extent, estimated emissions from Hg-enriched areas (217 Mg·a(-1)) were lower than previous estimates. Globally, areas with enhanced atmospheric Hg(0) levels (particularly East Asia) showed an emerging importance of Hg(0) emissions accounting for half of the total global emissions estimated at 607 Mg·a(-1), although with a large uncertainty range (-513 to 1353 Mg·a(-1) [range of 37.5th and 62.5th percentiles]). The largest uncertainties in Hg(0) fluxes stem from forests (-513 to 1353 Mg·a(-1) [range of 37.5th and 62.5th percentiles]), largely driven by a shortage of whole-ecosystem fluxes and uncertain contributions of leaf-atmosphere exchanges, questioning to what degree ecosystems are net sinks or sources of atmospheric Hg(0).

Does Governance Have a Role in Pricing? Cross-Country Evidence from Bitcoin Markets

I investigate the effects of social technologies related to governance on cross-country differences in Bitcoin prices. Investors pay a persistent premium over global prices in countries with less economic freedom, particularly when there exist foreign exchange and capital controls limiting investment freedom. Using the Heritage Foundation’s Economic Freedom Index and associated macroeconomic time-series, I find that a 10 point increase in the index leads to a 7.5 percent decrease in premium. Of the component indices, Financial Freedom has the largest marginal effect in that a 10 point improvement in its value decreases prices by 5.3 percent. From this perspective, Bitcoin can be seen as a disaster asset offering a new channel to evade domestic jurisdiction repression, a process resembling imperfect markets for catastrophe insurance inducing unexpectedly high premiums. Finally, a natural question arises as to whether this finding can be extended to other assets, in other words, whether endogenous social technologies effect systemic risk and manifest in the pricing kernel.

Exchange Rate and Demand for Money in Nigeria

<p>This study is designed to examine empirically the impact of exchange rate on the stability of demand for money in Nigeria where official and black market exchange rates operate side by side due to exchange controls. Variants of money demand model are estimated using monthly data for the period of 2005-2013. Cointegration and system equation techniques combined with CUSUM and CUSUMSQ tests are employed in the data analysis. Results indicate that in all the variants of the money demand model, coefficients of exchange rates variable (official or black market exchange rates) manifest significant <em>t</em> statistics, meaning that the null hypothesis of restricting the coefficients of exchange rates in money demand model in Nigeria is rejected for each variant. This suggests that coefficient of exchange rates variable (OMEXR or BMEXR) belongs to the cointegrating space in all the instances. Judging from the freakiness of the coefficients of the variants of the money demand function and the results of the tests for stability of the models combined, the most appropriate demand for money function for Nigeria appear to be the one that includes M1, the interest rate, inflation rate, and official exchange rate. This implies that in Nigeria, a greater percentage of the foreign exchange demand may be public sector driven and substantial percentage of the private sector foreign exchange needs is sourced from the official exchange rate market due to the substantial disparity between the two rates. This may mean consumers’ easy access to official exchange rate and transparency in the operation of official exchange rate market in Nigeria.</p>

An Econometric Approach to Exchange Control Liberalization and Economic Growth: The Case of Botswana

This study assesses the impact of exchange control liberalisation on economic growth in Botswana. In literature it has been very unclear of how the liberalisation of exchange controls impacts economic growth as there has been mixed results. Botswana liberalised its exchange controls in 1999 and to date there has been no empirical study that assesses how their liberalisation has impacted Botswana’s growth. This study attempts to fill in the gap. It uses quarterly data from 1981 until 2006. Cointegration and VECM methods are used for estimation. The results show that exchange control liberalisation had no impact on economic growth in Botswana for the period studied. Botswana’s government needs to try and develop policies that will promote sectors that spur economic growth. Policies imposed should be in the form which enhance growth such as increasing capital stock and human capital in order to spur economic growth. Keywords : Exchange control, Liberalisation, economic growth, Botswana.

Thatcher: the Myth of Deregulation

New report debunks the idea that Thatcher deregulated financial services. Summary: It is commonly believed that, during the 1980s, Margaret Thatcher presided over a substantial reduction in government regulation of financial services. Indeed, some have blamed this deregulation for the financial crash that took place nearly 30 years after 1979. ‘Big Bang’ in 1986 did remove the restrictive practices and largely private regulation that existed in securities markets. However, this involved the state unwinding systems of private regulation and was not, as such, a simple act of deregulation. Furthermore, not long after Big Bang, investment and financial markets became regulated under the Financial Services Act. This also extended detailed statutory regulation into areas of financial markets which had previously been more-or-less unregulated by the state. Retail financial products also became heavily regulated at the retail level through the Financial Services Act, whereas they had previously been regulated by contract law, professions and industry agreements. Industry agreements that had been effective in reducing ‘mis-selling’, such as the maximum commission agreement, were made unlawful. The FSA (now FCA) have been fighting to deal with the problem of commission-incentivised mis-selling ever since. Overall, from 1979 to 2010 there was an increase from one regulator for every 11,000 people employed in finance to one regulator for every 300 people employed in finance. If the rates of growth of both regulators and people working in finance seen in this period continue, the number of people working in financial regulation will overtake the number of people working in financial services by around 2070. This excludes compliance officers working for financial services firms themselves. Some attempts have been made to estimate the costs of financial regulation. However, most of the costs are indirect and result from reduced innovation and competition and cannot be calculated. In 1986, the direct cost of financial regulation was estimated to be £20m; this rose to around £90m by 1992 and £673m by 2014. In the 1980s, a reasonable estimate of compliance costs was generally thought to be around four times the direct costs of the regulatory bodies; the ‘excess burden’ arising from the reduction in innovation and competition and the distortion of prices was thought to be around four times the compliance costs. Government regulation of employment contracts, which required employers to allow their employees to opt out of occupational pension schemes, led directly to the pensions mis-selling scandal of the late-1980s/early-1990s. Once again, this was not an act of deregulation but the state prohibiting a form of private contractual agreement. Although occupational pensions became much more heavily regulated over time, this did not happen until 1995, under the Major government. Before 1979, there was very little regulation of the activities of life insurance companies. There was then a huge increase in the regulation of insurance companies in the 1980s. This came partly from the regulation of their product sales activities under the Financial Services Act, but also arose directly from the Insurance Companies Acts 1981 and 1982 and the associated regulations. These Acts allowed the Secretary of State to spawn further regulation without proper reference to parliament and led directly to the situation that prevails today of a very heavily regulated life insurance sector. Until 1980, the financial sector was regulated by private institutions, professional codes and a small amount of well-drafted and highly targeted primary legislation. Under Thatcher, private regulatory mechanisms were unwound or prohibited and replaced by state regulation. Since the 1980s, the financial sector has been regulated by statutory bodies developing thousands of paragraphs of prescriptive statutory regulation and has gradually extended its reach into new fields. It is true that Thatcher undertook certain liberalising reforms such as the abolition of exchange controls. However, state regulation of securities and financial markets became much more intrusive. The idea that the 1980s was a period of increasing regulation and not deregulation is not revisionist history. Contemporary accounts argued that, under the regulatory system that developed, the City has ceased to be a place “where you look after yourself according to a code of honour of conduct. It is a tough regulatory system”; that the regulator had a “very tough bunch of powers”; and that “There is a substantial risk, in fact, that we now have massive overkill of the supervisory structure in the financial industry”.

From Financial Repression to External Distress: The Case of Venezuela

The literature on external default has stressed the existence of the so-called debt-intolerance puzzle: developing nations tend to default at debt-to-GDP ratios well bellow those of developed countries. The underestimation or plain omission of domestic debt may account for a fraction of that puzzle. We calculate fiscal revenues coming from financial repression using different methodologies for the case of Venezuela, and look at their correspondence with comprehensive measures of capital flight. In particular, we add to the standard measure of capital flight the over-invoicing of imports, rife in periods of exchange controls. We find that financial repression accounts for public revenues similar to those of OECD economies, in spite of the latter having much higher domestic debt-to-GDP ratios. We also find that financial repression and capital flight are significantly higher in years of exchange controls and interest rate caps. We interpret this as significant evidence suggesting a link between domestic disequilibrium and a weakening of the net foreign asset position via capital flight.

The Exchange Control System under Apartheid

ABSTRACTExchange controls were part of a complex system of maintaining some financial stability during apartheid, particularly as the apartheid economic system began to implode, and the macroeconomy deteriorated. The centrepiece of the system was a complex system of multiple exchange rates, with residents and non-resident transactions taking place under different currency regimes, creating at different periods a ‘blocked rand’, a ‘securities rand’, a ‘commercial rand’ and a ‘financial rand’. Exchange controls appear to have assisted the apartheid regime to maintain macroeconomic stability despite other poor policy choices. However, measured in terms of monetary independence and exchange-rate stability, even this was a mixed success. Much like apartheid itself, short-term economic benefits came with severe long-term political, social and economic distortions. Twenty years later, some of the distortions remain, and, indeed, some of the controls. This highlights the need for ongoing reforms to make the post-apartheid South African economy less distorted and more competitive, and to continue to develop a modernized system for managing external risks.

Catchment-scale stream temperature response to land disturbance by wildfire governed by surface–subsurface energy exchange and atmospheric controls

In 2003, the Lost Creek wildfire severely burned 21,000 hectares of forest on the eastern slopes of the Canadian Rocky Mountains. Seven headwater catchments with varying levels of disturbance (burned, post-fire salvage logged, and unburned) were instrumented as part of the Southern Rockies Watershed Project to measure streamflow, stream temperature, and meteorological conditions. From 2004 to 2010 mean annual stream temperature (Ts) was elevated 0.8–2.1 °C in the burned and post-fire salvage logged streams compared to the unburned streams. Mean daily maximum Ts was 1.0–3.0 °C warmer and mean daily minimum Ts was 0.9–2.8 °C warmer in the burned and post-fire salvage logged streams compared to the unburned catchments. The effects of wildfire on the thermal regime of the burned catchments were persistent and trend analysis showed no apparent recovery during the study period. Temporal patterns of Ts were strongly associated with seasonal variability of surface and groundwater interactions and air temperature. Advective heat fluxes between groundwater and surface water were likely the dominant controls on Ts, though the strength of these advective controls varied among catchments highlighting the importance of simultaneous catchment-scale and process-focused research to better elucidate the physical drivers influencing Ts response to disturbance.

China's Exchange Rate and Financial Repression: The Conflicted Emergence of the RMB as an International Currency

AbstractInstability in the world dollar standard, as most recently manifested in the US Federal Reserve's near‐zero interest rate policy, has caused consternation in emerging markets with naturally higher interest rates. China has been provoked into speeding RMB “internationalization”; that is, opening up domestic financial markets to reduce its dependence on the US dollar for invoicing trade and making international payments. However, despite rapid percentage growth in offshore financial markets in RMB, the Chinese authorities are essentially trapped into maintaining exchange controls (reinforced by financial repression in domestic interest rates) to avoid an avalanche of foreign capital inflows that would threaten inflation and asset price bubbles by driving nominal interest rates on RMB assets down further. Because a floating (appreciating) exchange rate could attract even more hot money inflows, the People's Bank of China should focus on keeping the yuan/dollar rate stable so as to encourage naturally high wage increases to help balance China's international competitiveness. However, further internationalization of the RMB, as with the proposed Shanghai pilot free trade zone, is best deferred until world interest rates rise to more normal levels.

Assessment on RMB valuation – a triangular analysis approach

Purpose– The authors make assessment on RMB valuation and to contribute to the fierce debate on this important issue, which is perceived to have a great effect on the improvement or deterioration in trade balance. A triangular analysis approach is put forward and empirical assessment is made. The paper aims to discuss these issues.Design/methodology/approach– A triangular analysis approach based on no arbitrage conditions for three currencies, and causality and influence analysis.Findings– First, it has been found that the movements in the RMB dollar exchange rate do influence the dollar euro exchange rate and the former do have a causality effect on the latter, in both the long run and the short term. Second, it is implied that the RMB is overvaluedvis-à-visthe US dollar, as the analysis suggests that an overvalued eurovis-à-visthe US dollar would imply a kind of overvaluation of the RMBvis-à-visthe US dollar, and by any conventional measures the euro has appeared to be overvaluedvis-à-visthe US dollar, especially in the months before the last financial crisis.Practical implications– First, the peg of the RMB to the US dollar that undervalues the RMBvis-à-visthe US dollar will not help promote China's overall trade balance or export even if undervaluation of currencies can ever help improve nations' terms of trade. Second, no stability in RMB exchange rates can be claimed by pegging the RMB to the US dollar, as the exchange rate of the RMBvis-à-viscurrencies other than the US dollar would be as volatile as that between the US dollar and the euro and other convertible currencies.Originality/value– A new triangular analysis approach in international finance research. First, there is an advantage to adopt this seemingly simple analytical framework: it is highly reliable; no triangular arbitrage conditions have to be met even under exchange controls, whilst PPP may not hold even with flexible exchange rate regimes. Second, it does away with the thinking confined to small open economies that has dominated academic research for so long and is totally inapplicable to the RMB case.

China's Exchange Rate and Financial Repression: The Conflicted Emergence of the Renminbi as an International Currency

China has been provoked into speeding renmnibi internationalization. But despite rapid growth in offshore financial markets in RMB, the Chinese authorities are essentially trapped into maintaining exchange controls — reinforced by financial repression in domestic interest rates — to avoid an avalanche of foreign capital inflows that would threaten inflation and asset price bubbles by driving nominal interest rates on RMB assets down further. Because a floating (appreciating) exchange rate could attract even more hot money inflows, the People’s Bank of China should focus on tightly stabilizing the yuan/dollar exchange rate to encourage naturally high wage increases for balancing China’s international competitiveness.

Overview of International Financial Instruments in Argentina

The phenomenon of the lack of financial development in Latin America might be attributed to several causes. While some of them are rooted in macroeconomic and political nature, some others should be attributed to inadequate regulation and enforcement, tax treatment and tax administration, foreign exchange controls, barriers to trade in financial services (mainly in restrictions to capital flows), among many others. This guide is purported to address this last set of causes with focus on the jurisdictions of Argentina to be regarded as a reference.

WHAT HINDERS CROSS-BORDER PORTFOLIO INVESTMENT IN EAST ASIA?

We examine statistical importance of a number of institutional factors, which have been alleged by market investors and policy commentators as significant barriers on cross-border portfolio investment in East Asian economies, but never been put to empirical tests yet. Taking advantage of the novel data set constructed by the ABMI-GoE, we empirically investigate the explanatory power of such institutional factors as market access-hindering regulations, foreign exchange controls, credit controls, taxation and inefficient post-trading infrastructure. We find that these alleged barriers indeed have significantly negative impacts on cross-border portfolio investment in East Asian economies. In addition, we find some support for the "pecking order" hypothesis in barriers on cross-border portfolio investment in the sense that barriers on post-trading efficiency and cost barriers are not effective unless barriers on market access are significantly lowered.

Real exchange rate appreciation, resource boom, and policy reform inMyanmar

Over the six‐year period 2006‐11, the real exchange rate of theMyanmar kyat appreciated 200 per cent, resulting in the value of theUSdollar inMyanmar falling to one‐third of its pre‐2006 level. While the resource boom is suspected to be the source of the real exchange rate appreciation, administrative controls on foreign exchange and imports had much more impact. Foreign exchange controls limited the convertibility of the kyat to foreign currencies and spurred negotiated transactions of foreign exchange outside the banking sector, hampering the foreign exchange market interventions of the government andCentralBank. Import controls repressed imports, aggravating excess supplies of foreign exchange. Relaxation of administrative controls is necessary for moderating currency appreciation.

NEW PERSPECTIVES ON PIUS XII AND VATICAN FINANCIAL TRANSACTIONS DURING THE SECOND WORLD WAR

ABSTRACTThe debate about the political allegiance of Pius XII and the Vatican during the Second World War remains unresolved. As more documents become available, they enable historians, detractors and defenders alike, to develop a more nuanced view on this contentious issue. Files recently released by The National Archives1 come within this category. They reveal that during the Second World War the British government systematically intercepted, monitored, and recorded in detail the financial transactions listed in the bank statements of the main financial agencies of the State of Vatican City from 1941 to 1943. These documents provide a detailed, if occasionally incomplete, day by day and month by month record of the Vatican's sources of income, expenditure priorities, investment strategies, and movements of money throughout its global network under the difficult wartime conditions of foreign exchange controls, blocked sterling and dollar accounts, Freezing Orders, and Trading with the Enemy restrictions imposed by the belligerent parties. This article examines the light they shed on Vatican finances throughout that period and what new insights they provide into the role of Pius XII and the Vatican during the Second World War, and, in particular, into the question of where their sympathies lay throughout the duration of that conflict.

Argentina: Back to Peronism

Argentina: Back to Peronism