International finance

Ricardo Fernholz, Kris Mitchener, Marc Weidenmier, 18 May 2017

There has been speculation that the dollar may soon be displaced by the euro or renminbi as the primary international currency. This column examines the demise of silver-based monetary standards in the 19th century to explore price dynamics when a money ceases to function as a global unit of account. According to new data on the historical prices of agricultural commodities, silver ceased functioning as a global price anchor in the mid-1890s. Over the same period, the volatility of agricultural commodity prices also declined.

Atish R. Ghosh, Jonathan D. Ostry, Mahvash S. Qureshi, 12 May 2017

There has been growing recognition that emerging markets may benefit from more proactive management of capital flows, and thus avoid crises when the flows recede. But do they do this in practice? By analysing policy responses in a sample of emerging markets, this column argues that central banks respond to capital inflows through various tools. Ironically, the most commonly prescribed instrument for coping with capital inflows – tighter fiscal policy – is the least-used tool in practice.

Thorsten Beck, 24 April 2017

Nine years after the onset of the Global Crisis, the problem of non-performing assets is still acute in the Eurozone. This column takes stock of the different proposals to deal with the issue. It argues that a Eurozone-level asset management company can resolve bank fragility and spur economic recovery, but warns that lack of political will and legal barriers can impede the creation of such an agency. 

Thomas Gehrig, Maria Chiara Iannino, 21 April 2017

The first Basel Accord initiated what has become a three decade-long process of regulatory convergence of the international banking system. This column argues that by trying to regulate minimal capital standards, the Basel process itself contributed to an ever-increasing shortfall in aggregate bank capital. Consequently, European banks have become increasingly exposed to systemic risk, suggesting that expansive monetary policy could adversely affect the resiliency of banks. 

Marcus Miller, Sayantan Ghosal, 17 April 2017

Lacking some supra-national, overseeing authority, sovereigns in default typically renegotiate with their creditors. In these negotiations, the owed principal typically receives a ‘haircut’. This column explores whether overburdened sovereign debtors can strategically leverage delay as they bargain with their creditors. Under asymmetric information, a delay in the form of offers that the debtor knows won’t be accepted can work out in the debtor’s favour. The findings suggest that strategic delay can be used to show where restructuring is necessary.

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