A working paper produced by an economist within the IMF recently warned about possible unintended consequences of regulations "aimed at financial stability" that focus on "building equity and reducing leverage at large banks/dealers."
Here is an abstract to the work, by Manmohan Singh.
As you'll see if you visit that page, those of us who allude to the existence of this paper are sternly warned that it "should not be reported as representing the views of the IMF." It represents the views of Mr Singh alone.
Coincidentally, Mr Singh has the same name, first and last, as the current prime minister of India. This has fueled conspiracy theories about the prime minister as a "world bank/IMF agent".
The name, though, is the only connection. The IMF economist didn't leave that employment to become PM of India! He is still there, and this paper bears a quite recent release date as if to illustrate the point.
At any rate, the paper appears to me to be sound work and I hope it draws a wide audience.
Showing posts with label World Bank. Show all posts
Showing posts with label World Bank. Show all posts
07 January 2012
22 April 2011
A World Without A Monetary Superpower
What will become my chapter 12.
On April 18, 2011, one of the Big 2 major credit raters, Standard & Poor's revised its "outlook" on its long-term rating for U.S. Treasury debt from stable to negative.
This news was left in the provinces visited mostly by financial-news wonks, while sleeping air-traffic controllers and a continuing civil war in Libya (and the pseudo-campaign of possible Presidential hopeful Donald Trump) continued to get headlines. Syill, the S&P announcement was yet another straw in a wind that had been blowing for some time already -- the emergence of a world in which there will be no hegemonic economic/financial superpower.
Our business in this chapter is an examination of the consequences of a truly multi-polar financial world.
Note that El-Erian, in the blog entry to which I've just linked, refers to the "risk free" standard as one of the "global public goods" that US hegemony provides. What he means to ask is:
how will anyone make use of the Black-Scholes formula if the US Treasury gets an S&P downgrade? Any use of the formula requires a value for “r,” the risk-free rate of return. My understanding is that T-bills have provided a proxy for r.
I raised this issue in the comments section of one of Felix Salmon's blog posts. Another commenter responded, "Observe option prices, assume put-call parity, and back out r."
But back to S&P. Along with the words of caution, it re-affirmed AAA sovereign credit rating for the US. Why would it do both of those things? As Einstein noted, everything is relative, and the US can only really be measured against the handful of other countries that have the coveted AAA rating. Yet in that company, it has earned its downgrade: "Even in our optimistic scenario we believe the US's fiscal profile would be less robust that those of other AAA rated sovereigns by 2013."
On a related front, Robert Zoellick, president of the World Bank Group (2007-), one-time U.S. Trade Representative (2001 - 2005), one-time Goldman Sachs managing director (2006-07), spoke in November 2010 about the need to “look beyond Bretton Woods.”
Actually, we've all been "beyond" Bretton Woods for about 40 years now. What I take it Zoellick means is that the diplomats and international finance bigwigs to whom he was addressing himself should look to fix the free-float of all-against-all that replaced it, and that they shuld seek to do so by moving forward not back.
We're building on chapter 6 especially here. Will not repeat its historical lessons. Let's focus, instead, on what Zoellick meant by this.
He seems to have in mind especially a sort of G2, an accord between the US and China to share a leadership position. "The U.S. and China could agree on specific, mutually reinforcing steps to boost growth," then to create "wide bands for exchange rates" and finally to work out a new series of market-opening trade agreements. The reference to the G2 agreement on exchange rates suggests that there could be a shared numéraire role. A numéraire is the currency-of-currencies, the one (or two?) that may be said to back the others.
I have to dissent from RZ here, the idea of 2 currencies sharing that role, especially when they are the currencies of countries so different, seems to me unworkable. Explain why.
RZ also says this: "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."
One or more major currencies links or re-links itself to gold, and then floats freely re: the other. Competing to acquire the status of numéraire.
Or, forgetting RZ, the US could take unilateral action in another direction, without the stigma of gold but perhaps with the same benefits. Repeal the special legal tender status of the dollar domestically, allow competing currencies. The winning currency within the US market will be in a sound position for export.
On April 18, 2011, one of the Big 2 major credit raters, Standard & Poor's revised its "outlook" on its long-term rating for U.S. Treasury debt from stable to negative.
This news was left in the provinces visited mostly by financial-news wonks, while sleeping air-traffic controllers and a continuing civil war in Libya (and the pseudo-campaign of possible Presidential hopeful Donald Trump) continued to get headlines. Syill, the S&P announcement was yet another straw in a wind that had been blowing for some time already -- the emergence of a world in which there will be no hegemonic economic/financial superpower.
Our business in this chapter is an examination of the consequences of a truly multi-polar financial world.
Note that El-Erian, in the blog entry to which I've just linked, refers to the "risk free" standard as one of the "global public goods" that US hegemony provides. What he means to ask is:
how will anyone make use of the Black-Scholes formula if the US Treasury gets an S&P downgrade? Any use of the formula requires a value for “r,” the risk-free rate of return. My understanding is that T-bills have provided a proxy for r.
I raised this issue in the comments section of one of Felix Salmon's blog posts. Another commenter responded, "Observe option prices, assume put-call parity, and back out r."
But back to S&P. Along with the words of caution, it re-affirmed AAA sovereign credit rating for the US. Why would it do both of those things? As Einstein noted, everything is relative, and the US can only really be measured against the handful of other countries that have the coveted AAA rating. Yet in that company, it has earned its downgrade: "Even in our optimistic scenario we believe the US's fiscal profile would be less robust that those of other AAA rated sovereigns by 2013."
On a related front, Robert Zoellick, president of the World Bank Group (2007-), one-time U.S. Trade Representative (2001 - 2005), one-time Goldman Sachs managing director (2006-07), spoke in November 2010 about the need to “look beyond Bretton Woods.”
Actually, we've all been "beyond" Bretton Woods for about 40 years now. What I take it Zoellick means is that the diplomats and international finance bigwigs to whom he was addressing himself should look to fix the free-float of all-against-all that replaced it, and that they shuld seek to do so by moving forward not back.
We're building on chapter 6 especially here. Will not repeat its historical lessons. Let's focus, instead, on what Zoellick meant by this.
He seems to have in mind especially a sort of G2, an accord between the US and China to share a leadership position. "The U.S. and China could agree on specific, mutually reinforcing steps to boost growth," then to create "wide bands for exchange rates" and finally to work out a new series of market-opening trade agreements. The reference to the G2 agreement on exchange rates suggests that there could be a shared numéraire role. A numéraire is the currency-of-currencies, the one (or two?) that may be said to back the others.
I have to dissent from RZ here, the idea of 2 currencies sharing that role, especially when they are the currencies of countries so different, seems to me unworkable. Explain why.
RZ also says this: "The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today."
One or more major currencies links or re-links itself to gold, and then floats freely re: the other. Competing to acquire the status of numéraire.
Or, forgetting RZ, the US could take unilateral action in another direction, without the stigma of gold but perhaps with the same benefits. Repeal the special legal tender status of the dollar domestically, allow competing currencies. The winning currency within the US market will be in a sound position for export.
12 November 2010
Gold Standard Links
There is talk -- not fever-swamp debate but serious discussion stimulated by the president of the World Bank --of bringing back the gold standard in some capacity.
Zoellick had a lot of sensible things to say as you can read here for yourself.
Robert Harding, writing for the FT, noted that gold "prices have risen from close to $200 a decade ago to almost $1,400 today. The rapid rise in recent years reflects fears that unconventional central bank policies – such as last week’s move by the US Federal Reserve to expand its balance sheet by another $600bn – could lead to inflation."
For some historical background, you might go here or here.
For the Austrian school's take on the significance of gold, go here.
For informed speculation on where the price of gold is headed, you might look to a Bloomberg story yesterday by Nicholas Larkin.
But back to Zoellick. Who the heck is he? Who was he before he was put in charge of the World Bank? Here'a the official bio.
Or you could listen to this fellow talking about the history of the institution.
And here are some final thoughts specifically on how a return to a gold standard might be accomplished.
Zoellick had a lot of sensible things to say as you can read here for yourself.
Robert Harding, writing for the FT, noted that gold "prices have risen from close to $200 a decade ago to almost $1,400 today. The rapid rise in recent years reflects fears that unconventional central bank policies – such as last week’s move by the US Federal Reserve to expand its balance sheet by another $600bn – could lead to inflation."
For some historical background, you might go here or here.
For the Austrian school's take on the significance of gold, go here.
For informed speculation on where the price of gold is headed, you might look to a Bloomberg story yesterday by Nicholas Larkin.
But back to Zoellick. Who the heck is he? Who was he before he was put in charge of the World Bank? Here'a the official bio.
Or you could listen to this fellow talking about the history of the institution.
And here are some final thoughts specifically on how a return to a gold standard might be accomplished.
16 April 2007
Wolfowitz scandal: Who Should Care?
I'm just trying to think my way into this one. Just getting my feet wet.
As regular readers know, I don't believe in sovereignty. Sometimes when I say so, people reply, "ah, you must be pushing world government, then." Or harsher words with that implication.
Why do they say that? Chiefly because the word "sovereignty" is nowadays often used to imply "the sovereignty of nations." The antithesis of sovereignty, then, is international organization and law.
But no, I reply when the question arises. I reject that antithesis. International organizations come about through agreements among and to serve the ends of the national governments involved. The same issues of command-and-control or hierarchy, the issues of unearned privilege, are at stake in the one case as in the other. We as humans have to think our way toward better ways of relating to one another than those implied in the myth of sovereignty, and this requires a rejection both of nationalism and of internationalism.
The Bretton Woods organizations in particular (the IMF and the World Bank) have outlived any utility they may once have had by anybody's measure, and they should close up shop.
It is with these biases that I look rather gingerly at the scandal that seems for the moment to have immobilized one of those institutions, the World Bank. Its president, Paul Wolfowitz, has come under fire for showing favoritism to a particular staffer, Shaha Raza, allegedly due to their romantic relationship.
As usual, the basics are at wikipedia, http://en.wikipedia.org/wiki/Shaha_Ali_Riza
There is no principled difference between romantic cronyism and the more traditional all-guys-who are-golfing-buddies sort of cronyism. In either case, such favoritism is inevitably because human beings are hard-wired for dealing with each other, with a small group of acquaintances, rather than with masses and big abstractions. This means that organizations devoted to serving the masses and big abstractions, but nonetheless composed entirely of human beings, rather than robots, are in a biologically determined bind from the start.
What this leads to is an endless trench warfare in which factions profess enduring commitment to the masses and the big abstractions, while using the other factions' scandals as ammunition to advance their own aims. I haven't quite psyched out the hows of this in the Wolfowitz/Raza matter, but I'm pretty sure (a priori, if you will) that this is what is happening.
Which is to say, again, that we need to move toward less absurd and inherently hypocritical ways of dealing with each other than the ways that the latest contre temps would seem to embody.
Here, for those of you who may enjoy bureaucratese, is the URL for an official inquiry. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21297732~pagePK:64257043~piPK:437376~theSitePK:4607,00.html
As regular readers know, I don't believe in sovereignty. Sometimes when I say so, people reply, "ah, you must be pushing world government, then." Or harsher words with that implication.
Why do they say that? Chiefly because the word "sovereignty" is nowadays often used to imply "the sovereignty of nations." The antithesis of sovereignty, then, is international organization and law.
But no, I reply when the question arises. I reject that antithesis. International organizations come about through agreements among and to serve the ends of the national governments involved. The same issues of command-and-control or hierarchy, the issues of unearned privilege, are at stake in the one case as in the other. We as humans have to think our way toward better ways of relating to one another than those implied in the myth of sovereignty, and this requires a rejection both of nationalism and of internationalism.
The Bretton Woods organizations in particular (the IMF and the World Bank) have outlived any utility they may once have had by anybody's measure, and they should close up shop.
It is with these biases that I look rather gingerly at the scandal that seems for the moment to have immobilized one of those institutions, the World Bank. Its president, Paul Wolfowitz, has come under fire for showing favoritism to a particular staffer, Shaha Raza, allegedly due to their romantic relationship.
As usual, the basics are at wikipedia, http://en.wikipedia.org/wiki/Shaha_Ali_Riza
There is no principled difference between romantic cronyism and the more traditional all-guys-who are-golfing-buddies sort of cronyism. In either case, such favoritism is inevitably because human beings are hard-wired for dealing with each other, with a small group of acquaintances, rather than with masses and big abstractions. This means that organizations devoted to serving the masses and big abstractions, but nonetheless composed entirely of human beings, rather than robots, are in a biologically determined bind from the start.
What this leads to is an endless trench warfare in which factions profess enduring commitment to the masses and the big abstractions, while using the other factions' scandals as ammunition to advance their own aims. I haven't quite psyched out the hows of this in the Wolfowitz/Raza matter, but I'm pretty sure (a priori, if you will) that this is what is happening.
Which is to say, again, that we need to move toward less absurd and inherently hypocritical ways of dealing with each other than the ways that the latest contre temps would seem to embody.
Here, for those of you who may enjoy bureaucratese, is the URL for an official inquiry. http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:21297732~pagePK:64257043~piPK:437376~theSitePK:4607,00.html
Subscribe to:
Posts (Atom)
