Benn Steil


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

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Showing posts for "Capital Flows"

Could China Have a Reserves Crisis?

by Benn Steil and Emma Smith
China reserves

Last summer, U.S. lawmakers were condemning China for pushing down its currency, arguing that it was still “terribly undervalued.” But those days may be long gone.  Chinese and foreigners alike have been stampeding out of RMB, leaving the Chinese central bank struggling to keep its value up and prevent a rout. Read more »

Our Mini Mac Index Flame-Broils The Economist—Yet Again

by Benn Steil and Emma Smith

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

The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs 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. Read more »

Are China’s RMB Swap Lines an Empty Vessel?

by Benn Steil and Dinah Walker
China US Swaps Argentina

As our recent CFR interactive shows, central bank currency swaps have spread like wildfire since the financial crisis.  In 2006, the Fed had only two open swap lines outstanding, with Canada and Mexico, for just $2 billion and $3 billion, respectively.  At its high point in 2008, the Fed had fourteen open swap lines, with as much as $583 billion drawn. Read more »

Which Countries Should Fear a Rate Ruckus?

by Benn Steil and Dinah Walker
EM bond yields taper reaction

For many Emerging Markets, May 22, 2013 is a day that will live in infamy.  It marks the start of the great Taper Tantrum, when Ben Bernanke’s carefully hedged remarks on prospects for slowing Fed asset purchases triggered a massive sell-off in EM bond and currency markets. Read more »

China, not Piketty, Explains “Confused Signals” in U.S. Asset Prices

by Benn Steil and Dinah Walker
china drives down treasury yields

The FT’s Ed Luce recently took on the “confused signals” being sent by U.S. stock and bond prices moving in sync (upward).

Which is it, he asks?  Are economic prospects good, as stock prices suggest, or bleak, as bond prices suggest? Read more »

French Banks Play Russian Roulette

by Benn Steil and Dinah Walker
bank exposure to russia

In the fourth quarter of last year, with tensions rising between Russia and the West over Ukraine, U.S., German, UK, and Swedish banks aggressively dialed down their credit exposures in Russia.  But as the graphic above shows, French banks, which have by far the highest exposures to Russia, barely touched theirs.  At $50 billion, this exposure is not far off the $70 billion exposure they had to Greece in 2010.  At that time, they took advantage of the European Central Bank’s generous Securities Market Programme (SMP) to fob off Greek bonds, effectively mutualizing their Greek exposures across the Eurozone.  No such program will be available for Russian debt.  And much of France’s Russia exposure is illiquid, such as Société Générale’s ownership of Rosbank, Russia’s 9th largest bank by asset value ($22 billion).  With the Obama Administration and the European Union threatening to dial up sanctions on Russia, is it time for U.S. money market funds and others to start worrying about their French bank exposures? Read more »

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 »

Beware of Greeks Bearing Primary Budget Surpluses

by Benn Steil and Dinah Walker
primary balance and default

Things are looking up in Greece – that’s what Greek ministers have been telling the world of late, pointing to the substantial and rapidly improving primary budget surplus the country is generating.  Yet the country’s creditors should beware of Greeks bearing surpluses. Read more »

Can China’s Bond Market Support a Global RMB?

by Benn Steil and Dinah Walker

On April 24, the Australian central bank announced that it would raise the proportion of its reserves devoted to Chinese financial assets from 0% to 5%, likely among the highest such allocations among world central banks.  Will other major central banks follow suit? Read more »