Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

China’s Symbolic Currency Win

by Robert Kahn Monday, November 30, 2015

Earlier today, the International Monetary Fund (IMF) Board approved the inclusion of the Chinese renminbi (RMB) as a fifth currency in the special drawing rights (SDR), the IMF’s currency, as of October 2016.  The move was expected and IMF Board approval was never in doubt once the U.S. government signaled that it would not oppose the step. My read is that the Fund staff acted properly in arguing that the RMB now meets the test of being freely useable for international transactions by its members (though some have argued that the IMF was bending its rules for political reasons). Of course, Chinese financial markets remain significantly restricted for private investors, but the SDR’s current primary use is for transactions between members of the IMF (governments). From that narrow perspective the RMB can be judged to be widely used and widely traded because a country receiving RMB as a result of IMF transactions should be able to switch it to any other basket currency at low cost, at any time of the day or night, somewhere in the world. So too perhaps are more than a dozen other currencies freely useable by this measure, but the SDR is for now limited to the largest of those currencies by a separate (export share) measure. Consequently, next year the RMB goes into the basket with a weight of 10.9 percent (compared to current weights, most of China’s share comes from the U.S. dollar which will retain a 41.7 percent share; the other shares will be 30.9 percent for the euro, 8.3 percent for the yen, and 8.1 percent for the pound sterling).

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APEC Summit Economics: the Case for Trade

by Robert Kahn Tuesday, November 17, 2015

The Asia-Pacific Economic Cooperation (APEC) Summit, tomorrow and Thursday, will no doubt see its trade and regional integration agenda overshadowed by new global threats. At this week’s Group of Twenty (G20) summit, the economic agenda rightly took a backseat to the horrific attacks in Paris. Leaders reaffirmed their commitment to strong, sustainable, and balanced growth, and endorsed a range of initiatives underway from climate change to tax and financial reform. But few new economic initiatives were announced. A similar outcome is likely in Manila, though trade and investment deserve a central seat on the stage in the name of preserving global growth.

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G20: Preparing for the Next Crisis

by Robert Kahn Thursday, November 12, 2015

The leaders of Group of Twenty (G20) meet this weekend in Antalya, Turkey. The agenda is long, the ambitions are modest, and it is easy to be cynical that the group has outlived its usefulness. Still, the meeting matters in a number of respects: strengthening relationships among leaders of the most important economies, providing momentum to ongoing reform initiatives, and pushing forward work on issues as diverse as climate change and tax avoidance. The most important task for the group though will be preparing for future crises, because it is at those times that G20 leadership is most critical. The G20 will have some satisfaction that serious economic shocks were weathered in 2015. In 2016, when China leads the G20, the story could be different.

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Greece’s Bailout Dead End

by Robert Kahn Monday, November 9, 2015

It should be no surprise that eurozone finance ministers failed to agree to disburse €2 billion in bailout money to the Greek government today or to release bank recapitalization funds. Despite optimism following the recent announcement of a relatively benign program for recapitalizing Greek banks, it is hard to escape the conclusion that the Greek program again is headed off track.  The government has fallen behind its reform commitments, and a substantial number of additional end-year measures look unlikely to be met. Even with substantial forbearance from Greece’s European partners, it now looks likely that conclusion of the first review of its program will be delayed and that the promised debt relief negotiation will come only in 2016. Further, an eventual International Monetary Fund (IMF) program is likely to be small and leave a large unfilled financing gap that will further strain Greece’s relations with its European neighbors.  It is hard to predict how long Greek voters will continue to support a government that cannot deliver on its economic pledges of low debt and sustainable growth.

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Are We Ready for the Next Emerging Market Crisis?

by Robert Kahn Wednesday, November 4, 2015

This summer’s market turmoil was a serious jolt to emerging markets, particularly commodity exporters and those countries with strong trade and financial ties to China. Fortunately, there are good reasons for comfort that the tail risks facing these countries do not rise to the level of the Asia financial crisis or the Great Recession. After early missteps, China’s policymakers have been more assured in recent weeks in signaling their commitment to near term stability and support for growth. Financial distress in emerging markets, the most serious channel for contagion, has yet to materialize. Moreover, bolstered by high reserve levels, more flexible and competitive exchange rates (see chart) and in some cases better policies, emerging market buffers against contagion have been strengthened.

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A U.S. Budget Deal that Matters

by Robert Kahn Tuesday, October 27, 2015

This is what governing looks like.

When outgoing speaker John Boehner promised to “clean the barn up a little bit” before leaving, there was understandable skepticism that a large number of must-pass pieces of legislation could be sheparded through a sharply divided congress.  From that perspective, last night’s agreement on a budget framework—if it holds—looks to be an important step forward. While far from ideal budgetary policy, it removes substantial tail risk from U.S. economic policymaking between now and the election.

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Fed Holds Fire—China Matters

by Robert Kahn Thursday, September 17, 2015

The Federal Reserve’s decision to not raise rates today was the market’s consensus expectation. Nonetheless, U.S. and foreign bond markets have rallied on revised expectations for Fed policy. With four members of the Federal Open Market Committee (FOMC) now forecasting that interest rates will lift off only in 2016 or later, markets are now putting significant weight on a rate hike only next year.

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Get Ready for Lift Off

by Robert Kahn Monday, August 10, 2015

While markets are debating whether the Fed will raise interest rates in September, a more challenging question is how will they implement that policy change.  There is a new blog by Stephen Cecchetti and Kim Schoenholtz that cuts through the clutter and clearly lays out how the Federal Reserve will operate monetary policy once it lifts off from the zero lower bound. As they note, their paper draws on a valuable primer by Federal Reserve economists Ihrig, Meade, and Weinbach that was recently released on the topic. (For disclosure purposes, I am married to one of the authors of the Fed paper.) Both are well worth reading.

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The Fallacy of Euro-Area Discipline

by Robert Kahn Tuesday, August 4, 2015

Throughout the Greek crisis, policymakers have acted on the assumption that Greece’s best chance at sustainable growth is through the conditionality and discipline of an IMF-EU adjustment program. Already, the desire to stay in the eurozone and receive the promised rescue package of at least €86 billion has led to significant legislative measures, and the ESM and IMF programs under negotiation will be comprehensive in the scope of their structural reforms. In contrast, “Grexit” would be chaotic, and at least initially, make it difficult for any government to reach consensus on strong policies needed to restore durable growth. In that environment, the boost to growth from devaluation could prove short-lived.

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