Benn Steil


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

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Showing posts for "Currencies"

Greece Fallout: Italy and Spain Have Funded a Massive Backdoor Bailout of French Banks

by Benn Steil and Dinah Walker
Greece France Spain and Italy

In March 2010, two months before the announcement of the first Greek bailout, European banks had €134 billion worth of claims on Greece.  French banks, as shown in the right-hand figure above, had by far the largest exposure: €52 billion – this was 1.6 times that of Germany, eleven times that of Italy, and sixty-two times that of Spain. 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 »

Move Over Big Mac: The Law of One Price Is Lovin’ Our Little Mac Index

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 McDonald’s 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 »

Will China Bail Out Russia?

by Benn Steil and Dinah Walker
Russia's International Borrowing Options

Russia’s foreign exchange reserves have fallen by nearly 1/3 since October 2013; they’ve fallen 20% just since September 2014.  Whereas the country still has over $300 billion in reserves, about $150 billion of this may be illiquid; it also has close to $700 billion in external debt. 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 »

The Politics of IMF Crisis-Country Growth Projections

by Benn Steil and Dinah Walker
IMF growth projections vs reality Greece and Ukraine

IMF GDP growth “projections” accompanying emergency lending programs are nothing of the sort; they are targets the level of which is necessarily set high enough to enable the interventions.

Take Greece.  After committing to lending of €30 billion over 3 years in 2010, the Fund projected that the crisis-mired nation would return to growth by 2012.  As shown in the left figure above, Greece’s economy actually plunged by 7% that year – the year it completed the world’s largest sovereign restructuring, covering €206 billion of bonds. Read more »

Can Russia Escape Dollar Dependence?

by Benn Steil and Dinah Walker
Russia investment in BICS

Russian president Vladimir Putin is determined to wean his country off the dollar, or so he says.

In July, after insisting that the international monetary system depended too much “on the U.S. dollar, or, to be precise, on the monetary and financial policy of the U.S. authorities,” Putin signed off on a new BRICS development bank whose initial paid-in capital would be entirely in dollars – unlike the World Bank, where only 10% of paid-in capital was in dollars.  So the new BRICS bank actually creates a new source of demand for dollar assets. Read more »