Robert Kahn

Macro and Markets

Robert Kahn analyzes economic policies for an integrated world.

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Showing posts for "Foreign Exchange"

Currency Wars: China Escapes a Manipulation Charge

by Robert Kahn

The U.S. Treasury released its semi-annual exchange rate report on Friday, and as signaled by President Trump it did not cite China (or any other country) as an exchange manipulator. There had been earlier speculation, and some concern, that Treasury would substantially rewrite the criteria to meet the President’s pre-election pledge, but the report plays it straight down the middle. No country meets all three existing criteria for manipulation of their exchange rate for competitive gain, though six countries—China, Germany, South Korea, Taiwan, Japan, and Switzerland—are placed on a watch list. At the same time, one can read in the report’s analysis a toughening of exchange rate policy, at least prospectively, in its calls for an ambitious set of reforms in the monitored countries, and its commitment to “aggressively and vigilantly monitoring and combating unfair currency practices”. On balance, the report reaffirms that, while trade and not exchange rates is likely to be the primary battleground for U.S. economic relations in the future, exchange rates remain a flash point.

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Brexit’s Threat to Global Growth

by Robert Kahn

Thursday’s Brexit vote wasn’t a “Lehman moment”, as some have feared. Instead, it was a growth moment. And that may be the greater threat. If policymakers respond effectively, the benefits could be substantial: a stronger global economy, and an ebbing of the political and economic forces now pressuring UK and European policymakers. Conversely, failure to address the growth risks could cause broader and deeper global economic contagion.

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China’s Symbolic Currency Win

by Robert Kahn

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 today’s 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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A Roadmap for Ukraine

by Jennifer M. Harris and Robert Kahn

U.S. and European efforts to resolve the Ukraine crisis seem to be finding their stride in recent days. U.S. Secretary of Defense Ash Carter ended months of “will they won’t they?” by announcing earlier this week that the U.S. would be sending heavy weaponry into Eastern Europe, and late last week EU leaders declared that EU sanctions against Russia would remain in place through the end of 2016, quelling months of anxiety around whether EU resolve on sanctions would hold.

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Japan’s Sensible Fiscal Retreat

by Robert Kahn

Surprisingly poor second quarter growth numbers in Japan have raised market expectations that there will be snap elections and a delay in the consumption tax hike that was scheduled for October 2015. GDP fell for a second consecutive quarter, by 1.6 percent (q/q, a.r), versus market expectations of a 2.2 percent increase. A huge miss. Falling corporate inventories were a large part of the story, but exports rose only modestly while household consumption and capital spending slowed. The yen sold off after the announcement, reaching a low of 117 against the dollar. Japanese stocks are higher.

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Three Central Banks

by Robert Kahn

Today’s central bank news tells us a lot about the risks and rewards of proactive central banking.

The Bank of Japan (BoJ) surprised me (and nearly everyone else ) with a dramatic expansion of its unconventional monetary policy this morning, citing renewed risks of deflation. The BOJ announced (i) an increase in the target for monetary base growth to ¥80 trillion ($730 billion) per annum from ¥60–70 trillion; (2) an increase in its Japanese government bond (JGB) purchases to an annual pace of ¥80 trillion from ¥50 trillion; (3) an extension of the average maturity of its JGB purchases to 7–10 years (3 years previously); and (4) a tripling of its targets for the annual purchases of Japan real estate investment trusts (J-REITs) and exchange-traded funds (ETFs).

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When meetings matter—The World Bank and IMF Convene

by Robert Kahn

There are many reasons cited for this week’s market turndown and risk pullback, including concerns about global growth, Ebola, turmoil in the Middle East, and excessive investor comfort from easy money. What has been less commented on is the role played by last weekend’s IMF and World Bank Annual Meetings. Sometimes these meetings pass uneventfully, but sometimes bringing so many people together—policymakers and market people—creates a conversation that moves the consensus and as a result moves markets. It seems this year’s was one of those occasions. As the meetings progressed, optimism about a G-20 growth agenda and infrastructure boom receded and concerns about growth outside of the United States began to dominate the discussion. The perception that policymakers—particularly European policymakers—were either unable or unwilling to act contributed to the gloom. Time will tell whether macro risk factors that markets have shrugged off over the past few years will now be a source of volatility going forward. But if that is the case, perhaps these meetings had something to do with it.

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The Geopolitical Paradox: Dangerous World, Resilient Markets

by Robert Kahn

Should we be worried by how well global markets are performing despite rising geopolitical volatility? I think so. In my September monthly, I look at the main arguments explaining the disconnect, and argue Europe is the region we should be most worried about a disruptive correction. Here are a few excerpts.

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Ukraine: Economy Matters

by Robert Kahn
Value of the Ukrainian hryvnia against the dollar—closely watched by Ukrainians as an economic signal—has sharply depreciated due to recent turmoil in Kiev. (Source: Oanda.com)

A deal that would end the violence in Ukraine appears to be holding. It would produce early elections, a return to the 2004 constitution, and a national unity government. It would also set the stage for an urgent western effort to provide financing supported by an IMF program. Good news on the politics, though, does not equate to good news on the economy.

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