Foreign Financial Assets Research Articles

Psychological weapons as a tool of the West’s hybrid war against Russia (part two)

The article reveals the structure of the leading economic and non-economic tools of the Western countries anti-Russian hybrid war with an emphasis on informational and psychological weapons. The main component of its widespread use in modern Russia is a cognitive weapon aimed at a radical change in the mentality of the population. In the economic sphere, the use of psychological weapons is associated with the widespread penetration of many purely liberal myths into the public consciousness, such as the myths about the unconditional advantages of private property over state property, the expediency of conscious formation of a budget surplus and, accordingly, the persistent accumulation of the National Wealth Fund in the conditions of resources underemployment, the investment of a significant part of international reserves in foreign financial assets, the counteraction to accelerating inflation by pursuing a purely restrictive monetary policy, the need for the full opening of the domestic economy to the outside world. Closely connecting the imposition of such false theories, designed to form a fake reality, with the destructive actions of the fifth column of pseudo-liberal national traitors, the author makes proposals aimed at the organizational consolidation of patriotic statist economists in modern Russia.

Psychological weapons as a tool of the West’s hybrid war against Russia (part one)

The article reveals the structure of the leading economic and non-economic tools of the Western countries anti-Russian hybrid war with an emphasis on informational and psychological weapons. The main component of its widespread use in modern Russia is a cognitive weapon aimed at a radical change in the mentality of the population. In the economic sphere, the use of psychological weapons is associated with the widespread penetration of many purely liberal myths into the public consciousness, such as the myths about the unconditional advantages of private property over state property, the expediency of conscious formation of a budget surplus and, accordingly, the persistent accumulation of the National Wealth Fund in the conditions of resources underemployment, the investment of a significant part of international reserves in foreign financial assets, the counteraction to accelerating inflation by pursuing a purely restrictive monetary policy, the need for the full opening of the domestic economy to the outside world. Closely connecting the imposition of such false theories, designed to form a fake reality, with the destructive actions of the "fifth column" of pseudo-liberal national traitors, the author makes proposals aimed at the organizational consolidation of patriotic statist economists in modern Russia.

ДОЛАРИЗАЦІЯ ФІНАНСОВОГО РИНКУ УКРАЇНИ: ПРИЧИНИ, ЕВОЛЮЦІЯ, НАСЛІДКИ

The purpose of the article is to assess the level of domestic financial market dollarization, find out the causes of this economic phenomenon, trace its evolution and identify current features, substantiate proposals to minimize the negative consequences for the financial market and the economy in general. The methods of theoretical analysis, synthesis and generalization, analysis of statistical data and its graphical interpretation are used in the research. The results of the research showed that the main reasons for dollarization in Ukraine were high inflation and sharp fluctuations in the exchange rate of the national currency. In general, the dollarization of national financial markets occurs through the following channels: 1) borrowing on the international financial market; 2) the entrance of foreign banks to a domestic market; 3) investing abroad, when a national financial market is not sufficiently developed to create high-quality and highly liquid assets, dollarization provides rapid access to foreign financial assets and optimization of the profitability and risk structure of an investment portfolio; 4) the difference (spread) between interest rates in national and foreign currency. Based on the study of the domestic financial market, the following conclusions are made: 1) the level of Ukraine`s financial market dollarization in the aggregate and in terms of its separate segments is high; 2) this level poses a threat to the stable operation of financial intermediaries and the banking system in case of the national currency devaluation; 3) currency imbalance of assets and liabilities in the banking system has strongly decreased since 2008, but is still significant; 4) foreign currency is widely used by economic agents in the shadow sector of the economy. We consider the current dollarization level dangerous for the development of the country's financial system, and its reduction to a scientifically sound natural level should become one of the main tasks of the National Bank of Ukraine. Achieving the natural dollarization level and effective use of the domestic financial market potential will allow to intensify Ukraine's national economy development and promote integration into the international financial market and the global financial space.

Capital flight: The travel channel

This paper provides evidence for a rarely studied channel for capital flight: traveling. During an unprecedented period of large net capital outflows in 2014–2016, China’s travel expenditure rose to a level that was abnormally high relative to China’s outbound departures data, counterparty statistics, or by the norm of other countries. I estimated a gravity equation model adapted to travel trade for a panel of countries and found that reported travel expenditure by China was significantly above that predicted by the model during this period. The unexplained travel imports, reaching about 1 percent of China’s GDP during this period, were inversely associated with domestic growth and positively associated with renminbi depreciation expectations against the dollar, suggesting that they were less likely to be consumption of goods and services abroad than domestic residents’ acquisition of foreign financial assets. These results suggest that Chinese households, through the travel channel, had exploited China’s more liberalized capital account in recent years to transfer wealth abroad during periods of elevated economic uncertainty.

GEORGIA IN THE WORLD OF CORONOMICS: THREATS AND CHALLENGES

So far, much has been written and discussed about the rapid variability and complex predictability of the global economy, and different countries have more or less successfully dealt with the challenges they face. However, the global threat posed by the world in the form of COVID-19 puts the methods and approaches to combating economic crises completely upside down. What should be the strategy and tactics of the countries to start recovering the economies as quickly as possible under such kind of circumstances? In such a situation, it should be the best way to “hurry up slowly,” that is, to be thoroughly consistent so that short-term emergency measures do not harm long-term goals. Given the conditions of coronomics and the lessons the world has learned from it at this stage, recovery of the economics, in the earlier sense of the term, should be completely ineffective. We are accustomed to the fact that in the post-crisis period, economic recovery in a sense implies a more or less back-off to what was before the crisis. Given that this time a completely different “crisis” is occurring, essential structural changes and important transformations in many areas of the economy are needed to overcome its consequences. One of the clear lessons that must to be learned from Coronomics is that returning to what was already before would not be the right course of action for the economies focused on the sustainable development. Georgia is a small open economy, and the fate of such economies has already been decided in advance: they will not be able to influence the global economy, and their efforts must be directed to protect themselves from the negative effects of the ongoing processes in the world. What are the priorities for such countries on this path if traditional sectors are vulnerable to certain types of crises and fail to cope with the task of generating revenue in extreme situations that are necessary, on the one hand, to balance their demands and, on the other hand, to meet external obligations? This is the reality that Georgia has faced in the face of coronomics. How did the Georgian economy meet the shock of COVID-19? 2019 will be a turning point in many years for assessing economic outcomes, not just in Georgia. What are the dynamics of macroeconomic indicators and do they give a positive signal according to the data of this period? This article deals with the external economic aspects of these indicators. The current account deficit as of 2019 was $ 900.5 million, or 5.1 percent of gross domestic product. Historically, this is the best indicator in the history of independent Georgia. On the other hand, historically, the country›s external liabilities, which amount to $ 34.5 billion, are 1.9 times higher than Gross Domestic Product and 3.2 times higher than the country›s foreign financial assets; The country›s external debt was 1.1 times higher than GDP at the end of 2019, while imports accounted for 40.8 percent of total consumption (intermediate and final). Thus, Georgia›s positioning on the challenges of COVID-19 is completely unfavorable and critical. This article aims to discuss the main aspects of the country›s foreign sector accounts, the profitable and deficient articles of the balance of payments that traditionally determine the state of the current account, and how vulnerable these items are to external factors and shocks. The focus on this issue is to explore the ways in which it is possible to reduce the degree of dependence of the country›s economy on foreign shocks and achieve external economic stability. However, it should be noted that the format of the article is not sufficient for in-depth discussion of a number of causeand-effect issues, for the evaluation of perspectives, and for deeper and more substantiated reasoning. Therefore, it can be said that the paper forms the main postulates on the issues under consideration, which together and each of them deserves in-depth research, but not in terms of fragmentary time and content, but in a complex and permanent mode.

How Much Can the Swiss National Bank Contribute to the Financing of the Swiss Old Age Insurance (AHV)?

The monetary base is the most important monetary policy tool of the Swiss National Bank (SNB) in order to achieve the statutory objective of price stability. The SNB can control the monetary base through the purchase and sale of gold, foreign exchange and domestic debt securities. A purchase of these assets leads to an increase in the monetary base and a sale to a reduction. The attached balance sheet shows the assets acquired by the SNB as part of its monetary policy. At the end of 2017, the SNB owned gold for CHF 42.5 billion; CHF 794.6 billion in foreign exchange; and CHF 4 billion in securities denominated in Swiss francs. The foreign exchange position involves foreign financial assets, including debt securities and shares, while the Swiss franc securities include domestic and foreign debt instruments. The SNB is not active in the domestic stock market, as this would lead to undue state influence on Swiss companies. The liabilities side of the balance sheet shows the financing of the SNB’s investments. Banknotes in circulation amounted to CHF 81.6 billion at the end of 2017 and sight deposits held by domestic banks with the SNB totaled CHF 470.4 billion. Together this results in a supply of central bank money or monetary base of CHF 552 billion. Foreign liabilities, liabilities in foreign currency and the other sight liabilities are not added to the monetary base. The surplus of assets over liabilities results in equity capital. At the end of 2017, the equity ratio of the SNB, which sets equity in relation to total assets, was 16.3 percent.

Russia's Balance of Payments in Q2 2020

In Q2 2020, Russia’s positive trade balance plunged due to a decrease in quantum shipments and export prices on commodities exported by Russia. In April-June, net outflow of capital was observed on the back of priority growth of foreign financial assets of non-oil and gas sector, as well as contraction of banks’ foreign liabilities. Measures adopted by the monetary authorities in spring 2020 aimed at maintaining financial sustainability translated into keeping the ruble’s exchange rate close to equilibrium values. As a result, in Q2 2020 the exchange rate averaged Rb72 per USD.

新时代我国对外金融资产与负债结构研究

新时代我国对外金融资产与负债结构研究

Reporting Large Foreign Financial Assets, IRS Form 8938

During the last year, the Internal Revenue Service (“IRS) has announced several compliance campaigns designed to verify a taxpayer’s compliance with the Foreign Account Tax Compliance Act (“FATCA”). These campaigns encourage better tax compliance from U.S. taxpayers, banks, and other financial organizations subject to U.S. taxation on their income and assets. Among FATCA’s reporting requirements is section 6038D of the Internal Revenue Code (“Code”). This section provides that taxpayers holding financial assets outside the United States must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets. It also imposes penalties for noncompliance. This Article will review what tax professionals representing individuals should know about Form 8938 and controversies based on the audit of Form 8938.

Statistical Measure of Macro-Financial Structure Risks and Its Application

The macro-financial structure risk is an important part of financial risks. This paper constructs the sub-indices of foreign financial assets risks, monetary liquidity risks and mismatch structure risks for integration into the macro-financial structure risk index according to the index principle. The data of related indicators from January 2007 to April 2015 of China are collected for measuring each sub-index and their subsequent summarization into the total index of the macro-financial structure risk, and the trends of each sub-index and the total index are analyzed. After that, statistical tests and practical analysis are conducted to study the effectiveness, sensitivity and relevance of the macro-financial structure risk index. The practical analysis of the index shows that the macro-financial structure risks of China are on the rise, with prominent tendency characteristics, that the characteristics of each sub-index and their impact on the macro-financial structure risks are different, that the macro-financial structure risk index can be expected to play a leading role for predicting the macro economy and that the sub-indices are correlated to the total index to different degrees, despite their common action effects.

Inflation targeting and exchange rate management in less developed countries

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that tight management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank fixes the path of the nominal exchange rate or leans heavily against the wind in a managed float.

The Role of Excess Liquid Assets in Monetary Policy of Small Open Developing Economies

The central bank in an open developing economy often balances the national foreign exchange market by selling liquid assets (typically domestic sovereign securities) to commercial banks and other institutional investors that would otherwise be motivated to invest in foreign financial assets. Therefore, securities denominated in domestic currency, ostensibly sold in the name of “mopping up excess reserves”, serve as a compensation transmission mechanism under which international reserves and the exchange rate target are central. This transmission mechanism allows the central bank to target the exchange rate while also pursuing an independent monetary policy under free capital mobility, thus to a large degree circumventing the Trilemma. In addition, the securities serve the other purpose of reducing the volatility of the portfolio of bank assets. In an imperfectly competitive security market, this compensation strategy is less expensive than would result if the strategy is to be implemented in a purely competitive securities market.

China’s Current Account: External Rebalancing or Capital Flight?

This paper examines an anomaly in China’s current account: its large and rapidly growing travel expenditure. Drawing evidence from counterparty data, Chinese international arrival statistics, and gravity equation models extended to travel trade, I find that a significant amount of China’s travel spending in the period 2014-2016 could not be explained by accounting factors or economic fundamentals. The unexplained travel imports are inversely associated with domestic growth and positively associated with renminbi depreciation expectations against the dollar, suggesting that they are less likely to be consumption of goods and services abroad than domestic residents’ acquisition of foreign financial assets. Adjusted for these potential disguised outflows, China’s current account balance could be higher than reported by around 1 percent of GDP in 2015 and 2016, a period when the Chinese economy slowed noticeably as it shifted away from investment-driven growth (i.e.“internal rebalancing”). These results suggest that Chinese households, through the travel channel, have in part replaced the official sector in directing domestic surplus savings abroad in recent years. While the official sector preferred liquid foreign government assets, Chinese households appear to prefer private foreign assets.

Problems and Prospects of the Shadow Cross-Border Capital Flows Estimation in the Russian Statistics

For the Russian statistics the adequate estimation of unrecorded cross-border capital transactions is considered not only as a problem of methodological or technical nature, but also as a key factor of improving the quality of macroeconomic analysis, forecasting and regulations of related processes. Currently in Russian practice for this purpose is used the methodology developed by the Central Bank of the Russian Federation (CBRF) and applied to formation of special indicator “net capital outflow of private sector” based on the Balance of payments (BOP) data. The specific features of the CBRF approach in the construction of the relevant estimates are: - Accounting capital flows only for private sector which consists of banks and “other sectors” (the latter includes units of non-financial and non-bank financial corporations); - Using in calculations the total balancing items on asset-related and liability-related transactions of balance of payments financial account for banks and other sectors; - Using in calculations the special item “fictitious transactions” as a part of net acquisition of foreign financial assets by other sectors of resident economy. The values of net capital outflow for each group of units in accordance with applied methodology are determined as the difference between the net acquisition of financial assets and net incurrence of liabilities.

Inflation Targeting and Exchange Rate Management In Less Developed Countries

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.

Inflation Targeting and Exchange Rate Management in Less Developed Countries

We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.

On Egypt's de facto integration in the international financial market

This study explores whether Egypt has become de facto perfectly integrated in the international financial market following the steps taken towards the de jure liberalization of the capital and financial accounts of the balance of payments since the early 1990s. It does so by running two empirical tests, namely, the uncovered interest parity and the monetary autonomy tests using monthly data for the periods January 2000–December 2011 and July 2004–June 2008. The outcome of both tests indicates that during the periods under investigation, Egypt has maintained imperfect de facto integration in the international financial market, despite the de jure financial openness. To explore the reasons behind such imperfect de facto integration, the study estimates a vector error-correction model (VECM) using quarterly data for the period 2001/2002–2010/2011. According to the variance decompositions generated from the VECM, high inflation rate in Egypt has been a major contributor to the variability of the spread between interest rates on domestic and foreign financial assets, and thus could be deemed as a culprit behind Egypt's imperfect de facto integration.

Capital Account Convertibility: An Indian Perspective

Capital Account Convertibility is defined as the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. Capital Account Convertibility is widely regarded as one of the signs of a developed economy. The impact of ongoing recession on India has been less due to the partial convertibility of rupee. The objective of the paper is to examine the present status of Capital Account Convertibility in India and to examine the approach which India has followed for full Capital Account Convertibility. It also analyses the economic indicators for India in the present situation and the challenges which Indian economy faces for full Capital Account Convertibility. The paper concludes that there is a need to wait and watch as the economy of India is not stable enough to withstand all external pressures.

Diminished Returns: Managing Oil Revenues in Azerbaijan

Azerbaijan’s government established a national oil fund in 1999 to address the challenges associated with oil-rich countries, such as addressing revenue fluctuations, saving for future generations and investing in development. However, as described in precept 7 of the Natural Resource Charter, a fund in itself is no panacea: it can only achieve its aims with clear rules governing its operation, as well as transparency and oversight. Azerbaijan is heavily dependent on natural resources. The oil and gas sector contributed to more than 90 percent of export earnings and more than threequarters of the state budget revenues in 2013. The State Oil Fund of the Republic of Azerbaijan (SOFAZ) since held some US $36.6 billion as of July 2014, representing approximately 50 percent of GDP. These revenues are distributed among the state budget, the financing of infrastructure projects, and saved in foreign financial assets. Oil and gas revenue is expected to begin declining permanently in 2015, and while Azerbaijan’s savings are large in comparison with other countries, the loss in revenue will not be compensated by the returns on SOFAZ’s financial assets. This is a particular challenge for Azerbaijan since the government has not found alternative sources of fiscal revenue. To maintain current spending levels, taxes will have to rise or the government will need to borrow.

Capital Account Policies and the Real Exchange Rate

Capital Account Policies and the Real Exchange Rate