Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

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Was Ukraine Tapered?

by Benn Steil and Dinah Walker

For Ukraine’s beleaguered bond market, the seminal event of 2013 was Ben Bernanke’s now-famous taper talk of May 22.  As today’s Geo-Graphic shows, it sent yields soaring to levels they never came back from.

Ukraine was uniquely susceptible to taperitis, having been sporting a current account deficit of 8% of GDP—considerably worse than other big victims such as India, Brazil, Indonesia, Turkey, and South Africa.  Its current political crisis clearly has deep roots, yet it is interesting to speculate as to whether Yanukovych could have held on had it not been for the country’s spiraling debt costs—sent spiraling by the Fed last May. Read more »

The New Geo-Graphics iPad Mini Index Should Calm Talk of Currency Wars

by Benn Steil and Dinah Walker

The “law of one price” holds that identical goods should trade for the same price in an efficient market.  To what extent does it hold internationally?

The Economist magazine’s famous Big Mac Index uses the price of McDonalds’ burgers around the world, expressed in a common currency (U.S. dollars), to estimate the extent to which various currencies are over- or under-valued.  The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose.  Yet it travels badly – cross-border flows of burgers won’t align their prices internationally. Read more »

A GDP-Based IMF Would Boost China’s Voice . . . and America’s

by Benn Steil and Dinah Walker

Since its creation after the 1944 Bretton Woods conference, membership of the International Monetary Fund (IMF) has grown from 29 countries to 188.  Representation, in terms of votes and quotas, has also become less connected with the relative weights of each country in the global economy.  As today’s Geo-Graphic shows, China would be by far the biggest beneficiary of an IMF voting reallocation based purely on gross domestic product, gaining eight percentage points.  What is much less well known, however, is that the United States would be the second biggest beneficiary, well above third-place Japan and fourth-place Brazil.  As the United States already has enough votes to wield unique veto power, this would have little practical effect on its already enormous influence.  But it does explain why the United States has been consistently more aligned with the so-called BRIC developing nations on IMF reform than with its fellow rich nations in Europe. Read more »

The BRIC Twist Didn’t Work

by the Center for Geoeconomic Studies

China, Russia, and Brazil Bond Buying, 2009-11

On September 21st the Fed announced that it would be selling $400 billion in short-term Treasurys and buying $400 billion in longer-term Treasurys to replace them – a maneuver titled “Operation Twist.” Atlanta Fed president Dennis Lockhart explained what it would mean for the economy: “It means lower interest rates – a lower cost of borrowing – across a whole spectrum of loan maturities.” Is he right? Well, China, Russia, and Brazil have conducted their own version of Operation Twist over the past several years, replacing roughly $330 billion in short-term Treasurys with long-term ones. The 10-year Treasury rate went sideways over that period, as shown in the figure above. Whereas the BRIC* Twist may have put some modest downward pressure on longer-term rates, other factors overwhelmed it. Don’t expect much from the Fed’s similar-sized version.

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Afghanistan’s Dependence on Foreign Aid



The U.S. is increasing its military and civilian presence in Afghanistan as part of the Obama administration’s efforts to bring stability to the region and reduce the threat of terrorism at home. Economic growth is critical for building a stable society in a war-torn country. Although Afghanistan’s economy has grown by 20 percent annually since 2002, this growth has largely been driven by foreign aid. Aid has risen by 25 percent annually since 2002, increasing from 32 percent of GDP in 2002 to 42 percent in 2008. These massive aid inflows have fueled corruption, and leave the economy exposed to destabilizing shocks once aid is withdrawn. Building a functional, self-sustaining Afghan economy is therefore vital to the success of the U.S. and coalition mission in the country. Read more »

Venezuela’s Risk Unhinged



The credit risk of oil exporting countries such as Venezuela and Russia tends to move with the price of oil. As a country’s oil export revenue improves, so does its ability to pay its debts. Recently, however, Venezuela’s CDS spreads have increased even while the price of oil has been stable. The market’s perception of an increased risk of default coincides with the Venezuelan government’s move to close banks representing 8% of the country’s deposits. On Tuesday December 15th the Venezuelan National Assembly passed a law increasing depositors’ insurance in an effort to prevent a run on the banks. Problems in the financial sector have become the primary driver of Venezuelan sovereign credit risk. Read more »

Emerging Markets and World Growth



With the United States and other developed countries no longer serving as the engine of global demand growth, a new source of growth is needed. In the past few years, emerging markets have been an important source of global demand growth. The IMF expects this trend to continue, with demand in the emerging world recovering faster than demand in the advanced economies. Read more »

BRIC’s Dollar Assets



Brazil, Russia, India, and China have increased their holdings of foreign exchange reserves significantly over the last decade. But China stands out when it comes to financing the United States. China’s holdings of U.S. financial assets have increased dramatically since 2000. Brazil and Russia have also significantly increased their holdings of U.S. financial assets, but their aggregate increase is still small relative to that of China’s. Read more »

Eastern European Woes


Many Eastern European countries have a strong need for external financing. Negative current accounts and dangerously high levels of short-term debt are raising fears of financial instability. EU leaders on March 1st rejected calls for a $229 billion rescue fund for struggling economies in the east. Instead of a single plan for the region, the EU will be taking a case-by-case approach. The following articles discuss the problems facing Eastern Europe. Read more »