Global Money Research Articles

Culture Counts

Culture Counts Judith Mara Gutman (bio) I do not go along with the perception of globalization as the Big Bad Wolf neutralizing expression, marginalizing and wiping out differences, and bleeding cultures dry of individuality. It’s not happening in Indian photography, and judging by the art market’s rush for Latin American photography as the “hot” art, India is not alone. It did not happen in nineteenth century India under the strictures of British colonialism. They tried. The British home officer in Bombay threw up his hands in despair, writing to the London home office in 1871 that Indian photographers refused to “learn” how to photograph properly. The British established schools for them to learn. But, the home officer complained, they just go to the Bazaars and learn from their fathers. Not that these photographers—along with golfers, artists, and others—did not extract elements of the foreign culture. They did. But they made it Indian, which is the only process that assures a foreign influence will be absorbed in India. Culture counted then. It does today, too, and even with powerfully influenced global money, an Indian cultural expression in the most powerful contemporary photography grows stronger. Take Vivan Sundaram’s fashion show, fully fledged with models parading down a runway in exotic costume. Except that these costumes are refashioned from such medical castoffs as prosthetics. Or the animated stills that Manas Bhattacharya and Madhuban Mitra made of a ten-year closed camera factory, with leftovers blowing in a wind—past made part of the present. Not joined to the [End Page 159] present but in the present. Call the animation anthropology or an archeological dig. It rearranges time. An undeclared world swims through this photography. For all its use of global facts, fun, and fancies, the most powerful contemporary Indian photography takes on the sweeping concerns beyond daily or personal life. It does not look inward but explores the inexplicable. Myth and religion did that in the nineteenth and earlier centuries. Those belief systems have lost much of their power today. But the driving force propelling those beliefs remains. Sometimes amorphous, at other times focused, today’s photography expresses a connection to health, obsolescence, the environment, water, and other such overriding issues. Is it a new secularism? A new religion? It’s an unnamed force. And it drives visual expression in India. [End Page 160] Judith Mara Gutman Judith Mara Gutman, the author of Through Indian Eyes, is also the author of the forthcoming When Innovation Was King, Lewis Hine’s Photographs of 1930s America, a Society in Transition; of numerous articles for The New York Times, Vanity Fair, and Washington Post; and curator of “The Future of America: Lewis Hine’s New Deal Photographs,” open at the International Center of Photography on October 4, 2013. Copyright © 2013 Wayne State University Press

Structural Features and Interest-Rate Dynamics of Russia's Interbank Lending Market

Russian banks exhibit a range of behaviors that have led to distinct segmentation within the interbank lending market. This paper provides an overview of the core groups of banks operating in the market (state banks, private banks, and foreign-owned banks), as well as a discussion of their assets and liability structures. The 2007-2010 financial crisis had considerable impact on the Russian financial sector. As conditions deteriorated and recovered in global money markets, Russian banks adjusted their behavior with respect to other domestic banks and foreign banks. We conduct a comparative analysis of the Russian interbank lending market structure in the pre-crisis period and during recovery to reveal the tactical shifts in the various bank groups.

STEVEN BRYAN. The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire.

Since Alec Ford, the gold standard used to be “Britain and Argentina”: core and periphery. This interesting book by Steven Bryan looks elsewhere, toward Argentina and Japan. In nine well-written chapters organized in three parts, it provides a perspective on national monetary policymaking discussions in two peripheries of the late nineteenth-century's gold standard. The book is organized in what seems to be a natural order. Part one provides a cross-country overview before the narrative focuses on Argentina in part two and Japan in part three. The literary vein and the author's occasionally successful attempt at creating an “ambience” reminded me of Giovanni Arrighi's The Long Twentieth Century (1994), a book that seems to have served as a model for Bryan, although he does not say so. From Arrighi, Bryan has inherited the taste for grand subtitles (“Rising Powers, Global Money, and the Age of Empire”) as well as a writing style that has more to do with historical sociology than with economic history.

The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire (review)

Reviewed by: The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire Kenneth Mouré The Gold Standard at the Turn of the Twentieth Century: Rising Powers, Global Money, and the Age of Empire. By Steven Bryan. New York: Columbia University Press, 2010. 288 pp. $50.00 (cloth). Alan Milward lamented fifteen years ago that studies of the adoption of the gold standard in less developed countries were "almost entirely lacking" and posited that politics and diplomacy had likely been more important than economic logic in shaping their decisions to adopt the gold standard.1 Steven Bryan's new book is a welcome addition to the work focusing on experience outside the European core to the gold standard world. Bryan examines the context and the public debates for and against the adoption of the gold standard in Japan and Argentina in the 1890s. As developing economies on the periphery, their perspective on international monetary standards and behavior provide an essential counterbalance to Eurocentric assumptions. Argentina depended heavily on trade with Britain and was vulnerable to changing world prices for agricultural exports. Japan was more advanced industrially, emerging from the semicolonial status imposed by trade treaties since 1859. A large share of its export trade went to countries with silver standard currencies. The depreciation of silver and the rivalry between gold, silver, and bimetallism as world standards made the gold standard a better prospect to provide exchange-rate stability, but trade considerations and access to international finance played a major role in decisions regarding whether and when to adopt [End Page 228] the gold standard and at what exchange rate. The international position of each country influenced domestic coalitions of interest in terms of exchange rate, trade partners, and capital flows. Bryan follows earlier authors who stress the accidental nature of the classical gold standard,2 giving attention to the 1890s as a "third phase" in the global expansion of the gold standard. (England linked its currency to gold in 1717, key European countries and the United States adopted the gold standard in the 1870s, and developing countries followed in the 1890s.) In both countries, concern for national prestige, currency stability, trade advantage, and access to foreign loans factored into the debate on gold standard adoption. Bryan's analysis and argument are framed to challenge authors who claim that the gold standard marked a late nineteenth-century triumph of international trade and free markets, as a historical parallel and precedent for the veneration of free markets and globalization at the end of the twentieth century. Not so, Bryan cautions. Adherence to the gold standard was not the success of English theories advocating free trade and a night watchman state. Countries joined the gold standard for nationalistic reasons in an era of protectionism, industrial competition, and increasing nationalism. The ideas of Friedrich List and Alexander Hamilton dominated policy discussions, not the classical liberalism of free trade and minimal government. The gold standard needs to be understood for its national, not its international, character (p. 32). In each country, national and sectoral interests structured the public debate on whether to adopt the gold standard. In Argentina, the gold standard advocates were industrial and agricultural exporters worried by the rising value of the Argentinean peso. Fixing the value to gold was advocated as a means to fix the peso at a low level to stimulate exports. The strongest opposition came from partisans of English theory, free trade, and laissez-faire, who saw the proposed currency stabilization as "not a true gold standard" but rather as devaluation and "robbery." The main architect of the gold standard policy, Carlos Pellegrini, sought to promote Argentinean industrial development through protectionism, government support for key industries, and monetary expansion. It was not just the gold standard but also undervaluing the peso to preserve an export advantage that motivated Pellegrini and his allies. In combination [End Page 229] with protectionist measures the gold standard would promote exports and national industrial development. In Japan the gold standard was less controversial. It was accepted as a fundamentally conservative measure to increase Japanese industrial and military power through export growth and access to foreign loans...

A Global Perspective on Inflation and Propagation Channels

This paper revisits the evidence on the monetary policy transmission channels. It extends the existing literature along three lines: i) it takes a global perspective with aggregate series based on a broader set of countries (ca 70% per cent of the global economy) and a longer time (1960-2010) than previous studies. It, thereby, internalises potential international transmission channels (i.e. via global commodity prices); ii) it examines the interaction between monetary variables, asset prices (notably residential property) and inflation; and iii) it looks at the role of public debt for consumer price developments. On the basis of a VAR analysis, the study finds that i) global money demand shocks affect global inflation and also global commodity prices, which in turn impact on inflation; ii) global asset/property price dynamics appear to respond to financing cost shocks, but not to shocks to global money demand. Moreover, positive house price shocks exert a significant influence on inflation. From a global perspective, the study suggests recognition of global externalities of commodities and asset values as well as the close monitoring of real estate price developments. JEL Classification: E31, E51, E62, C32, F42

Public-sector housing: rethinking policies and approaches to estate renewal

For the first time in decades the numbers of properties in the private rented sector exceed those in the social rented sector in England. Commentators have declared the end of public-sector housing and regeneration has fallen offthe agenda. Recent headline themes in the housing press include:* local authorities to take on £30 billion of debt from April 2012;* Nottingham and Birmingham Councils to demolish 1500 homes;* 454 homes built by social housing landlords in the first 6 months of 2011;* household benefits to be capped at £500 per week (£26,000 per annum) from 2013;* Manchester Council to build 250 homes; and* new rented social housing to be let on fixed-term 'flexible' tenancies at up to 80 per cent market value affordable rents.The parallel reforms of the welfare benefits systems to create one universal credit add another layer of complexity to any discussion about the future of public-sector housing. Money is tight and government is announcing new policy on an iterative basis creating uncertainty across the housing sector, developers and financial institutions.BackgroundThe Labour government of 1997-2010 lefta significant legacy of refurbishment and renewal. It established the Decent Homes programme for social housing and the Housing Market Renewal Pathfinder programme for areas of failing housing markets. It introduced mixed tenure for new housing developments and increased housing supply with rates of new build in the public sector outstripping that of the private sector in Labour's final years. However, ambitions were thwarted by the collapse of the global money markets - banks stopped lending, developers stopped building and new build rates plummeted. By 2010, when the Coalition government came into power, caution had set in. The new government's strategy has been to completely change the ways in which new housing and estate renewal is paid for through a combination of reducing public funding, increasing rents and requiring social housing landlords to draw on their reserves and take on more debt through borrowing; the days of largesse are over. Money for both the National Affordable Housing programme and the Housing Market Renewal Pathfinders have both been cut, with the latter seeing funding reduced half-way through the programme, leaving 1000 residents living in blighted neighbourhoods and uncertainty as to how remainder of the work will be completed.The stability of the previous Labour government's funding model for new build involving a combination of social housing grant, cross-subsidy from shared ownership and private finance, has been replaced by a model which has a different ethos at its core. This model links 'additional' borrowing capacity from the private sector to new affordable rent levels. The Coalition government has completely rewritten the rules. To secure funding for new developments at low interest rates, housing organisations are offering bonds and establishing investment trusts through pooling resources. Jointventure vehicles are also being created between councils, housing associations and developers to build on empty land and continue with regeneration plans. An implication of this more commercial approach is that housing organisations have had to open themselves up to more private-sector scrutiny, including that of the credit-rating agencies. New approaches are being called for to harness the complexities resulting from the new funding landscape. Social housing landlords have had to become more innovative in how they maximise property values: numbers are being 'crunched' on a continuous basis, debts are increasing (especially for housing associations) and more risks are being taken on. The key components of the new funding regime are:* government grants;* financial reform of local authority housing revenue account; and* new rent structure - affordable rents.Government grantsTo incentivise local communities the government has introduced a financial package for new-build schemes, where agreed, and to encourage empty properties being brought back into use. …

Sectoral Interests and Global Money: Renminbi, Dollars and the Domestic Foundations of International Currency Policy

In deciding whether to support an international role of their country’s currency, national policymakers are often influenced by lobbying from domestic sectoral groups. While these groups will be consistently more interested in some implications of international currency issuance than others, their specific preferences are likely to be highly context specific. Looking at the cases of the United States and China, we anticipate that domestic sectoral lobbying is unlikely to pressure either the US government to defend the dollar’s international role vigorously or the Chinese government to internationalize the renminbi fully. From this domestic sectoral perspective, the future looks to be characterized by reluctant monetary leaders rather than increasingly aggressive currency competition between the United States and China.

The gold standard at the turn of the twentieth century: rising powers, global money and the age of empire - By Steven Bryan

The gold standard at the turn of the twentieth century: rising powers, global money and the age of empire - By Steven Bryan

International subprime crisis and recession: Emerging macroprudential, monetary, fiscal and global governance

This paper scrutinizes technical international policy reactions to the subprime crisis and recession. Short-term policy responses present challenges to the conservative policies of the 1980s-2000s, while long-term structures and issues are likely to redirect governance significantly. Macroprudential policy now includes systemic risk and debt problems arising from booms in the cycle. Monetary policy considers asset price instability as well as inflation. Fiscal policy in practice cannot ignore functional finance. Alternative forms of global money and reducing international payment instabilities are now a core element of policy. While there is still some asymmetry in policy, international financial crises can be useful in moderating ceremonial policy structures.

Financial crisis and changes in the international monetary system. Implications for the euro

Having an international currency brings some benefits but also important obstacles. Undoubtedly it is positive to have international money but the process of achieving the status of global money may lead to some costs connected with appreciation of the euro. The main goal of this article is to show that one of the probable scenarios of the post –crisis adjustment in the international monetary system is the risk of the euro overvaluation. It can be a result of diminishing role of the U.S. economy and growing role of the euro as an international currency. Paradoxically, thanks to its success, the euro can be exposed to the overvaluation with important implication for the euro area countries as well as candidates countries.

Eurocurrency interest rate linkages: A frequency domain analysis

We investigate relations between Eurocurrency interest rates using frequency domain methods, which permit us to decompose test statistics into short-term and long-term causality measures. We document significant linkages between international interest rates. Specifically, we show that the euro plays an increasingly important role in global money markets. In fact, a subperiod analysis suggests that the euro interest rate leads the US dollar rate during the recent financial crisis. We discuss the implications of the findings for understanding global monetary policy dynamics as well as modeling and forecasting of short-term interest rates.

Funds, Rights and Terror: Her Majesty's Treasury v Mohammed Jabar Ahmed and Others

The case of Her Majesty's Treasury v Mohammed Jabar Ahmed and others is discussed to arrive at a better understanding of the legislation pertaining to global money laundering and terrorist finance. The legal framework and the decision in the case as well as its implications are highlighted.

The impact of the global financial crisis on the cross-currency linkage of LIBOR–OIS spreads

This article examines the impact of global financial crisis on cross-currency linkage of the LIBOR–OIS spread, a financial stress measure in interbank markets. The impulse response analysis is conducted in a multivariate setting, adopting the bias-corrected bootstrap as a means of statistical inference. The overall evidence suggests that the crisis has substantially changed the nature of the cross-currency interactions in liquidity stress. Also global money markets have failed to contain stress in US dollar funding and the role of the Japanese yen as a liquidity source appears to be significant, while these two currencies drive the cross-currency system of liquidity stress.

Value, Price and Epic Recession

The concepts, assumptions, and models of contemporary mainstream economics are inadequate for analyzing and explaining the current global financial and economic crisis. The crisis is neither a ‘normal’ (typical post-1945) recession nor yet a classic great depression, but instead represents what is called an ‘epic recession’, which is a specific kind of economic contraction that is precipitated by a major financial system crash with origins in excessive global liquidity, an extended period of speculative financial asset investment, asset price inflation, extreme debt accumulation, and declining real asset investment. The failure of mainstream economics to properly understand the current crisis lies in its misunderstanding of the character and role of asset prices, credit, debt, as well as its inability to differentiate between speculative and non-speculative forms of investment. The origins of epic recessions are not only different from normal recessions, but the evolution and trajectory of epic recessions differ as well. Epic recessions typically result in either an extended period of general economic stagnation, i.e. a ‘Type I’ epic recession (U.S. 1907–1914), or in a ‘Type II’ (U.S. 1929–1931) with a high probability of transitioning to a bona fide depression. To explain epic recession new concepts of global money parade, speculative investment shift, debt-deflation-default nexus, and financial fragility and consumption fragility are introduced as key forces underlying, and integrating, both financial and real economic aspects of the crisis. The analysis of epic recession that follows is undertaken at the level of price categories. However, the article concludes with an exploration of the implications of the analysis for explaining the current crisis at the level of value, in the Marxist sense of that latter term. Suggestions are made how key Marxist ratios of rate of surplus value, organic composition of capital, and falling rate of profit might be extended and expanded to include financial variables, such as credit and debt, in order to better explain the obvious critical role played by finance capital in causing and contributing to the current epic recession.

Promise and perils: the making of global money laundering, terrorist finance norms

PurposeThe purpose of this paper is to offer a preliminary comparison of the formation of money laundering and terrorist finance norms through international conventions and through Security Council resolutions.Design/methodology/approachThe formation of a global approach to criminal finance through the negotiation of international conventions is compared to the creation of a standardized approach through intervention by the United Nations Security Council.FindingsWhile the formation of norms through the Security Council is efficient, it risks jeopardizing the legitimacy of the institution. Formation through conventions, with the assistance of soft‐actors, however at times glacial, is preferred.Practical implicationsThe paper implies that the Security Council should seriously restrict any involvement in creating global norms attentive to terrorist funding.Originality/valueThe paper critiques global money laundering, and terrorist finance laws through the unique prism of norm formation. It demonstrates that the imperfect process of norm development through international conventions offers more promise than Security Council lead development.

New Consensus on Global Money? A Note

The paper reviews the recent literature and debates on the reform of the international monetary system which has followed the global financial crisis and the subsequent Chinese proposal for enhancing the role of Special Drawing Rights.

A Common Definition of European Money Market Funds: More Clarity or More Confusion?

Money market funds (MMFs) that started as a U.S. phenomenon in 1971, in nearly forty years have grown into a $5.8 trillion global industry. In the early 1980s the European investment management community adopted MMFs with certain variations to fit the local legislations and practices. The market dislocation of 2007–2009 exacerbated by the liquidity crisis that followed the bankruptcy of the Lehman Brothers have led financial regulators in all major jurisdictions to review the existing policies. The European Union now is facing even greater challenges due to the fragmented nature of the local markets and the lack of regulatory consistency. The de Larosiere report published in February 2009 pointed out that an efficient Single Market should have a harmonized set of core rules. This article focuses on the recent initiative undertaken by the Committee of European Securities Regulators (CESRs) to follow up on the de Larosiere’s report recommendations in introducing a common definition for European MMFs. Section I of the article is an introduction into the past and the present of the MMF industry in the U.S. and Europe. Section II reviews existing definitions of MMFs. Section III analyses regulated elements of investment management and operational practices applicable to MMFs including risk-limiting provisions of the recent MMF Reform implemented by the U.S. Securities and Exchange Commission (SEC). While I support the CESRs’ efforts in introducing a common EU definition of MMFs, the diversities of the European financial markets call for a better delineation of seemingly homogenous investment schemes. The article concludes by re-emphasizing the importance of a consistent regulatory guidance for the creation of an efficient and transparent Single Market. The paper is an initial step in a much larger research project on comparative regulation of the global money markets and cash management. Even further, I study the impact of financial markets on law and regulation and vise versa regulatory response to market developments in the narrow focus of money market fund industry. The historical record supports the thesis that the law matters to the development of the transparent and efficient global financial markets. My approach is historical in orientation and starts with an attempt to define MMFs as a subject of regulation.

Credit Risk Transfer and Crunches: Global Finance Victorious or Vanquished?

Rather than in terms of the inevitable demise of a destabilising process of speculation, this article explores the ‘credit crunch’ as a window on the fabrication, and measure of the proportions of a political shift driven by market actors and financial innovation. The Basel process reconceptualised banks as risk navigators and generated a competitive hierarchy within the global banking industry determined on a gauge of this capacity. This private regulatory regime promoted market inflation and rendered institutional liquidity and risk transfer definitive of market power. In turn, a ballooning credit derivatives market broke the limits of financial production and defined state actions in the face of crisis. A shift from a central concern with solvency to that of liquidity thinly masks a profound redistribution of power from the public to the private. By swapping private assets of uncertain value for government bonds, central banks have effectively recognised that the products of innovation in the private sphere are global money. The state is in a curious bind. It takes on limitless exposure to private liabilities while its reform agenda is constrained to calling for greater levels of transparency and tackling the worst excesses. Promises of substantive reform remain only that, reflecting dissonance between reality and an entrenched faith in a progressive innovation spiral.

A vector-autoregression analysis of credit and liquidity factor dynamics in US LIBOR and Euribor swap markets

We use a vector autoregressive approach to investigate the determinants of US Dollar LIBOR and Euribor swap spread variation during the 2007–2009 crisis in global credit and money markets. Using market-quoted yield and spread data from the highly liquid credit default swap (CDS) and overnight index swap (OIS) markets, we provide compelling empirical evidence that liquidity risk factor shocks have been the dominant drivers of the variation in swap spreads over this period. Our findings provide an explanation for the temporal differences that liquidity shocks have on swap spreads and provide a contemporary perspective on the dynamical interplay between credit-default and liquidity risk-factors in these markets. As all our risk-factor proxies are traded in liquid derivatives markets, our findings have implications for proprietary hedge fund traders hedging an exposure to swap-spread risk, for bank treasurers managing their liquidity requirements and for central bankers seeking to better understand the response of markets to their macroeconomic policy implementation and liquidity management actions. Indeed our markets-based analysis suggests that the European Central Bank (ECB) has underperformed relative to the Federal Reserve in terms of the differing levels of market confidence placed in its macroeconomic policy actions and remedial liquidity interventions during the period.

Money Market Funds: An Introduction to the Literature

This article provides an overview of the literature on various aspects of the money market fund industry. It also serves as an introduction to a much larger research project on comparative regulation in the context of the global money market and cash management. The study of a relationship between MMFs and an efficient global financial market is in its early stages. Here we provide just a glimpse of the major driving forces behind the MMFs popularity. The article examines studies related to funds’ investment management practices, but also explores a number of issues raised by the emerging money market fund industry under the securities and banking laws in the U.S. and Europe. An open question is whether the MMFs will continue to play an important role as one of the major cash management vehicles and a source of financing given certain structural deficiencies and unresolved regulatory issues. We hope that our further research will help to better understand the role of money market funds in more efficient functioning of the global financial markets and capital formation.