Benn Steil

Geo-Graphics

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

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Showing posts for "Japan"

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 »

Beware Friendly Fire in the Currency Wars

by Benn Steil and Dinah Walker
imports and inflation

Prominent economic commentators have argued the cases for significantly weaker currencies in each of the world’s major economies – in particular, the United States, the eurozone, Japan, and the UK. As these four economies represent over half of the global economy, it’s clear that they can’t all accomplish this feat. It’s also far from clear that they should all want to. Read more »

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

by Benn Steil and Dinah Walker
reallocation

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 »

Japan’s Big Currency Bet

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Because foreign currency reserves are viewed as a form of insurance, the risks of excess reserves are often overlooked. Japan holds reserves equal to 20% of GDP, more than it could possibly need for insurance purposes. These holdings make up a foreign asset portfolio that is subject to exchange rate risk. However, this risk is hidden because Japan’s reserves are primarily held in U.S. dollars and their value is reported in U.S. dollars. So as the local and global purchasing power of the dollar falls there is no change in the reported value of the reserves. As shown in the chart, Japan’s reserves increased by over $100 billion since June 2007, but fell by nearly ¥20 trillion when measured in local currency terms – over 4% of GDP. The risk of large losses in national wealth is even greater for China, whose reserves make up 50% of GDP. This risk will become apparent as and when China allows the renminbi to appreciate, in line with market pressures. Read more »

U.S. External Debt

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This chart compares the Treasury and Agency holdings of China and Japan. As the chart shows, the amount of debt that the U.S. owes to China has increased sharply this decade and the amount owed to Japan remains high. Will the United States’ continuing need for financing leave it in a weaker position relative to the major holders and purchasers of U.S. debt? Read more »

Can the G7 Stabilize the Yen?

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The G7 has expressed concern over the implications of excessive yen volatility for financial and economic stability, but fell short of promising coordinated action. The graph above illustrates the extreme nature of the yen’s rise. For example, the yen has appreciated 22% against the euro and 35% against the Aussie dollar in the last month alone. The G7 may have to intervene in foreign currency markets to restore stability. Read more »

Emergence of State Capitalism

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After years of celebrating the triumph of market capitalism, many of its advocates today are troubled by the emergence of ‘state capitalism’, particularly in the form of sovereign wealth funds. How should liberal capitalism respond when autocracy is the highest bidder? Is autocratic ownership dangerous to economic robustness? Read more »