Currency Payment Research Articles

A review of RMB internationalisation, investment and financial products with assessment of past trends and discussion of likely future developments

Since 2002 and the start of the Qualified Foreign Institutional Investor (QFII) programme, the Chinese renminbi (RMB) has come a long way. In just a few years, the RMB has been accepted as a major international currency for international trades and payments. It was the fifth most used currency for payments in September 2015 and the second most used currency for trades, being recently included in the International Monetary Fund’s (IMF’s) Special Drawing Reserve (SDR) basket. Although market adoption is real, the RMB remains not freely usable or convertible, which has been compensated by the implementation of a variety of investment channels. Among these are the quotas schemes, Stock Connect, mutual funds recognition between China and Hong Kong as well as the issuance of bonds. On all these markets, convergence can be expected. While much has been done by China already to internationalise its currency and enable easier access to Chinese securities for foreign investors, some additional structural adjustments could still be required, especially providing greater capital account flexibility and developing deeper offshore markets. China’s next challenge might very well be to develop new products in a controlled economy.

Emerging markets and the international financial architecture: a blueprint for reform

If emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes's "clearing union" as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches. Keynes's proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally - credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account.

Реальные контуры и ориентиры валютного партнерства БРИКС для содействия торговле и инвестициям

The article focuses on the evolution of monetary cooperation among BRICS members and on testing the bilateral trade andexchange rate indicators to target transaction costs as they drive export growth. It starts with the formal arrangements toensure the settlement of trade among BRICS in local currencies. An analysis of the export structures of BRICS membersreveals benefits from shifts in export structure from 2009 to 2013, first from China’s role in vertical trade integration andthen, second, as a growing source of demand for BRICS economies. With regard to the exchange rate indicators, mosttrade responses to exchange rate deviations were found to depend on the overall structure of exports. Some BRICS currencydevaluations that anticipate inflation are attributed to exchange rate discrepancies and dumping. With regard to thedivergent effects on export, Russia’s export grew largely through mineral fuel and Brazil has gained from its deepened traderelationships. Therefore, transaction costs may be reduced via common trade settlement arrangements and trade facilitation.The author introduces ideas for designing BRICS payment and settlement mechanisms. One suggestion is to build aclearing union on the platform of BRICS conditional currency reserves similar to the reserve tranche mechanism used by theInternational Monetary Fund. Another addresses cross border local currency payment systems with fine-tuning transac -tions among national clearing systems and banks.

Emerging Markets and the International Financial Architecture: A Blueprint for Reform

If emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes’s “clearing union” as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches. Keynes’s proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally — credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account.

Invoice Currency in Brazil

The article describes the invoice currency choice in the Brazilian foreign trade, focusing on the use of the Brazilian real (BRL). The Ministry of Foreign Trade (MDIC) database is freshly used with this purpose. Even the US dollar being far most used in Brazil than in other countries, the BRL use for denominating trade has unusually grown. We categorically move away from the idea that the BRL is not used in Brazilian international trade. Brazilian imports show a larger tendency to be invoiced in non-international currencies than exports. Brazilian trade evidence does not confirm some previous international findings. Albeit being homogenous products, sugar and tobacco are the two main exported merchandise denominated in BRL. BRL use as invoice currency and payment currency do not match.

Integrated currency market of the eurasian economic spaceand settlements in national currencies: myths or reality?

The article highlights integration processes and the rising demand for the use of national currencies. The creation of an integrated currency market of the Eurasian Economic Space should enhance the role of national currencies. Formation of the single exchange space would generate direct market quotes and conduct exchange operations with national currencies directly without US dollar and euro, carry out cross-border payments in national currencies.

Using Russian Ruble in International Transactions

The article deals with topical issues in international relations of the Russian Federation on the basis of the increased use of the ruble as the currency contracts and payments. The work shows the coordinated support of economic actors, public institutions of countries-partners. Collaborate with international teams, according to the author of the article, the implementation of economic programs of mutual interest and reinforces the trend of creating a multipolar world. The analysis of problems of development cooperation partners countries in the monetary sphere and shows that the main causes hindering greater use of domestic currencies are: hard currency regulation; a rare use of letters of credit and guarantees, which increases the financial risk operations; significant transaction costs; asymmetrical measures, currency regulation, burdening the mutual interests of the parties. To expand the use of the ruble in international relations author offers take into account a number of factors, including the need for a priority international currency contracts to perform the basic functions of money abroad is a measure of the value, means of payment and means of hoarding. The author's position is presented about the prospects of State institutional policy. In particular, the conclusion: the experience of Bulgaria, Romania, Albania has shown that the main task of the departments responsible for implementing the monetary policy should be the containment of inflationary pressures associated, including overdue contributions to the budget. A key priority in such circumstances is to support solvent and transparent banking systems, which are the basis for international cooperation.

Dynamic Adaptation of Processing Steps For Financial Messaging

In the business-to-business area of financial services firms, financial messaging is the backbone for processing financial transactions such as currency payments. Firms implementing these solutions require high levels of straight-through-processing (STP) and flexible processing configurations. Experience shows that decisions about the processing steps are dependent on various parameters, which can change during the processing life cycle of a financial message. This could be due to something like a missed deadline where special agreements for important customers need to be considered. To handle these situations, externalise the processing behaviour and to allow dynamic updating of the sequence of processing steps, the author invented the dynamic adaptation of electronic routing slips. The dynamic adaptation is based on financial message control information, processing status of the message and environment variables that direct the processing of the financial message. The financial message control information is derived from the sender, receiver, message type, clearing system and currency. The processing status of the message is determined at each step of the process. Environment variables are based on conditions that can change, or processing timeframes.

Regional Financial Cooperation: Issues in South America

There is an emergence of regional financial cooperation in South America as a result of the insufficiency shown by IFIs in crisis periods. In this paper we want to argue that regional financial cooperation serves to cover any or all of the external, fiscal and, savings and investment gaps, in a new regionalism context where the actors are no longer the States only but also the private sector. The requirement for monetary cooperation is financial stability which exists amongst certain subsets of countries but not amongst all. Equally, Latin America has turned into South America and as such is organised around UNASUR due to the political perception that Mexico and the Central American Community countries were shifting towards a US led dominance while the Mercosur countries centred around Brazil. This country launched local currency payment mechanisms and have not in been used widely due to the lack of monetary policy coordination.but equally they would require a a change in the IMF definition of what is a reserve currency. A regional payment system(SUCRE) was also launched and is not used widely for the same reason. Finally there are new research areas found after the Euro crisis that must be studied in order to ensure greater regional financial stability.

Should the European repo market clear and settle only in central bank money?

One of the threads in the regulatory discussions that have been taking place in Europe in the wake of the Lehman crisis has been about strengthening the financial market infrastructure. Attention has turned to the issue of whether payments by so-called financial market infrastructures should be made in ‘central bank money’ (CEBM) rather than ‘commercial bank money’ (COBM). This paper looks at the roles of CEBM and COBM in the clearing and settlement of fixed-income securities in Europe. CEBM is seen as a risk-free settlement asset. The problem is that most institutions wishing to make payments do not have access to central bank accounts and many institutions that do have access do not necessarily think it economic or worthwhile to open an account. But, most importantly, few central banks offer cross-border access (a major exception being the European Central Bank within the eurozone) and none offer foreign currency payments. All developed economies therefore use CEBM and COBM in tandem, but the vast bulk of payments are made in COBM. In order to aid an understanding of the complex interaction of CEBM and COBM in the clearing and settlement of repos in Europe, the paper maps the flow of money and securities in central counterparty-cleared repo business.

Determinants of earnout as acquisition payment currency and bidder’s value gains

We examine the wealth effects of a comprehensive sample of UK bidders offering contingent payment, or earnout, as consideration for their acquisitions. We show that bidders using earnout generate significantly higher announcement and post-acquisition value gains than bidders using non-earnout currencies (such as cash, stock exchange, or mixed payments). We construct a logistic model to predict when it is optimal for a bidder to offer earnout. We show that bidders offering earnout optimally enjoy significantly higher announcement and post-acquisition gains than bidders offering non-earnout currencies, consistent with our model of the choice of the optimal method of payment. Overall, we provide robust evidence that earnout is an effective payment mechanism to mitigate valuation risk to acquirers, and also enhances acquirer value during the announcement and post-acquisition periods. Our paper contributes to the broader literature on how corporate acquirers use payment currency to manage information asymmetry and the attendant valuation risk.

A Market Model of Interest Rates With Dynamic Basis Spreads in the Presence of Collateral and Multiple Currencies

The recent financial crisis caused dramatic widening and elevated volatilities among basis spreads in cross currency as well as domestic interest rate markets. Furthermore, the widespread use of cash collateral, especially in fixed income contracts, has made the effective funding cost of financial institutions for the trades significantly different from the Libor of the corresponding payment currency. Because of these market developments, the text-book style application of a market model of interest rates has now become inappropriate for financial firms; It cannot even reflect the exposures to these basis spreads in pricing, to say nothing of proper delta and vega (or kappa) hedges against their movements. This paper presents a new framework of the market model to address all these issues.

Knowledge Management and Transfers between North and South Korea at the Kaesong Industrial Complex

The countries of North Korea and South Korea entered into an agreement in 2002 to develop a Special Economic Zone in the Kaesong Industrial Region of North Korea. The resultant Kaesong Industrial Complex, or KIC, was designed to attract South Korean investment and supply South Korean firms with inexpensive North Korean labor to be directed with South Korean management, in return for hard currency payment of land rents and employment for North Korean workers. Other KIC competitive advantages include proximity to the Seoul consumer market and a workforce that speaks a common language. However, North Korean labor had little experience with high-technology machinery, and initially began manufacturing very low-technology, labor intensive goods such as cookware and watches. North Korean governmental concerns slowed management’s efforts at knowledge management and transfers, placing barriers between management-worker interactions. Recently, the North relaxed many of these restrictions, and by several anecdotal accounts, knowledge transfers is increasing at many firms. This paper looks at the knowledge management and transfers at the KIC and its future as knowledge management is implemented.

The Role of Gold in the New Financial Architecture

Beyond its value as industrial input, including in jewelry, gold as a financial asset provides no cash flow or monetary dividend, nor a positive carry, and thus its value depends on non-directly measurable factors. However, its ancestral property as a store of value and a ‘safe haven’ especially in the face of heightened uncertainty and grave disruptions to the financial system would call for a role in the new financial architecture emerging after the global crisis. Absent a return to a fully fledged gold standard or to a gold exchange standard as prevailed pre-1971, gold could provide at least a partial anchor for monetary aggregates in a world that is increasingly multipolar, that is, where one economy would not be able to sustain the dominant international role of its currency without jeopardizing its internal stability as a result of an unsustainable external debt service (Triffin dilemma).The ongoing real decoupling trend of emerging markets from mature economies will lead to a secular re-centering of the world’s economic and financial geography. This implies that the size of the US economy will shrink relative to other economies and therefore the world will gradually revert to a situation similar to that prevailing before WWI when the first wave of globalization took place.During the XIX century and up to WWI, the gold standard provided the foundation for the expansion of international trade and the international financial relations. At that time none of the four or five large economies (including their colonial empires) was dominant. In that environment characterised by intense rivalries among major powers, the anchor for the world monetary and payments relationships was gold, i.e. an asset whose supply was independent from the discretionary decisions of national or supranational authorities.After World War I, and especially after WWII, an economic landscape took shape that was unusual from an historical standpoint (at least since the fall of the Roman Empire). With Europe undergoing reconstruction from the devastation and ravages of war while imposing restrictions on trade and payments, the US became the dominant economy in global trade and investment relations (especially considering that the Soviet Union and, after WWII, China decided to pursue a closed door policy in international economic relations, while India pursued a protectionist model of economic development). The US dollar became the international currency for payments and reserves, thanks to its peg to gold until 1971, the size, depth and liquidity of its financial markets, the dominance of the US as a capital exporter and thereafter thanks to its overwhelming size and military reach.The Triffin Dilemma, which figured prominently in the international monetary policy discussions right after WW II, posits that the country issuing the reserve currency is bound to run an ever increasing current account deficit as world trade and payments increase in order to allow reserve accumulation and until its foreign liabilities become unsustainable. Against that the US obtained an ‘exorbitant privilege, enabling it to pay for its imports with its own currency. This dilemma could be side stepped as long as the US economy grew at least as fast as the world global average and had no serious rival on the world stage. However, the global financial crisis which originated in the US severely shook confidence in US banks, financial institutions and markets, which along with the emergence of China and India (with a 10-15 year lag), has reignited these dormant worries. Moreover fiscal laxity in the US, aggravated by the uncertainty over the cost of the health care reform combined with the large unfunded liabilities related to social security and other entitlement programmes, raises the spectre of a scenario in which the international role of the dollar could suddenly come into question.The US cannot continue to run indefinitely a current account deficit without jeopardizing the stability of the world economy. In a multipolar world the size of a single country would not be large enough to sustain its role as supplier of the dominant reserve currency and international liquidity. The alternative would be to devise a financial system relying on several major currencies as was the case before WWI. But should such a multi-currency system be left to market forces to set exchange rates or could it benefit from being anchored to an asset such as gold which not issued by a national authority? Should we base an alternative global monetary system on national fiat currencies or should we move towards a gold exchange standard? The answer of this paper is that international liquidity should be supplied on a large scale by an international currency such as the SDR, whose value should be tied to a basket of major currencies and gold, with the weight of the latter set at 20-25%.

2011 Observations on the Digital Currency Industry

This document takes an informal look at non-bank digital currency payment systems, online value transfer software and digital precious metals (DGC). Focus is placed on the evolution of these systems over the past decade along with the developments of new models including software, products and regulations.

Prospects for integration of financial markets in CIS countries

This article deals with macroeconomic preconditions for financial integration and strengthening the role of the ruble in the post-Soviet space. Particular attention is paid to the developmental priorities of stock markets and the interaction of the CIS exchanges. The integration of the financial infrastructure, the implementation of cross-border payments in national currencies, stock market development, and the growth of investment activity in CIS countries are important areas of integration processes and dealing with the crisis.

On the Term Structure of Interest Rates with Basis Spreads, Collateral and Multiple Currencies

The recent financial crisis caused dramatic widening and elevated volatilities among basis spreads in cross currency as well as domestic interest rate markets. Furthermore, the widespread use of collateral has made the effective funding cost of financial institutions for the trades significantly different from the Libor of the corresponding payment currency. In this presentation, after reviewing the implications of profit/loss for financial firms still using a textbook-style curve construction and an interest rate model, we will explain the consistent swap curve construction with all the basis spreads taken into account, and how to make all the reference rates stochastic with no-arbitrage conditions.

A Market Model of Interest Rates with Dynamic Basis Spreads in the Presence of Collateral and Multiple Currencies

The recent financial crisis caused dramatic widening and elevated volatilities among basis spreads in cross currency as well as domestic interest rate markets. Furthermore, the wide spread use of cash collateral, especially in fixed income contracts, has made the effective funding cost of financial institutions for the trades significantly different from the Libor of the corresponding payment currency. Because of these market developments, the text-book style application of a market model of interest rates has now become inappropriate for financial firms; It cannot even reflect the exposures to these basis spreads in pricing, to say nothing of proper delta and vega (or kappa) hedges against their movements. This paper presents a new framework of the market model to address all these issues.

Convenção de pagamento em moeda estrangeira no Brasil

Este trabalho pretende tratar da nulidade de estipulações contratuais em moeda estrangeira no Brasil, ainda que realizada a conversão em moeda corrente nacional quando do efetivo pagamento. Em função disso, o trabalho analisa o artigo 318 do novo código civil brasileiro e a normatização especial sobre o tema.

Intimacy and Alienation: Money and the Foreign in Biak

ions that define what is happening as of a type. But the act that reproduces these paradigms can only occur at particular moments, in particular places, among particular interlocutors, and can only use particular sounds, marks, and things. Contemporary commerce is fueled by appeals to intimacy: from producers who add a personal touch to differentiate their products, to consumers who turn shopping into sacrifice and commodities into intimate elements of selves.46 Capitalism promises intimacy but then calls it into crisis when the competition puts a price on service or when one is forced to sell the family silver or pawn one’s coat. Yet it is not simply the conventional character of social action that exposes intimacy to crisis in the market. It is also the fact that this intimacy requires objects that originate beyond the immediate setting, in economies that control their availability and cost. In 1997, when international investors suddenly dumped their shares in Indonesian enterprises, demanding payment in foreign currency and sending the rupiah’s value plummeting, Indonesians received an object lesson in the vulnerability of national currencies to forces beyond their control.47 The New Order survived for three decades by managing a national geography in which the central government controlled export revenues from the outer islands’ natural resources.48 These revenues flowed into the production of official intimacies: through an expanded civil service, which bound vast numbers of state employees to the regime; through state enterprises, which enriched senior officers who otherwise might have threatened President Suharto’s rule. Revenues also flowed into the production of unofficial intimacies: through deals that made fortunes for the president’s children and Sino-Indonesian friends. Met by forceful intervention from the International Monetary Fund, the Asian crisis led to an attack on nepotism and cronyism at the center and, ultimately, to Suharto’s resignation. But it also threatened intimacies created in markets throughout the nation’s cities and towns. Arjun Appadurai has linked ethnic violence to the Public Culture 322 46. See Miller, Theory of Shopping; and Peter Stallybrass, “Marx’s Coat,” in Border Fetishisms: Material Objects in Unstable Spaces, ed. Patricia Spyer (London: Routledge, 1998). See also Arjun Appadurai, “Introduction: Commodities and the Politics of Value,” in The Social Life of Things: Commodities in Cultural Perspective, ed. Arjun Appadurai (Cambridge: Cambridge University Press, 1986). 47. Compare Anna Tsing, “Inside the Economy of Appearances,” Public Culture 12 (2000): 115–144. 48. See John Bresnan, Managing Indonesia: The Modern Political Economy (New York: Columbia University Press, 1993), and Hal Hill, “The Economy” in Indonesia’s New Order: The Dynamics of Socio-Economic Transformation, ed. Hal Hill (St. Leonards, Australia: Allen and Unwin, 1994). See also John Sidel, “Macet Total: Logics of Circulation and Accumulation in the Demise of Indonesia’s New Order,” Indonesia 66 (1999): 159–94. PC 13.2-08 Rutherford 5/3/01 11:31 AM Page 322