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1. Sanctions, SWIFT, and China’s Cross-Border Interbank Payments System

Author:
Barry Eichengreen
Publication Date:
05-2022
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies
Abstract:
In response to Russia’s attack on Ukraine, the United States and a coalition of cooperating countries imposed harsh financial sanctions on the Russian government, corporations, and individuals.1 These sanctions bar Russian banks from using SWIFT (the Society for Worldwide Interbank Financial Telecommunications) to facilitate cross-border payments, prohibit banks from doing most forms of business with Russian entities, and freeze assets held abroad by the Central Bank of Russia in the form of treasury securities and bank deposits. These developments have led Russia, as well as other countries contemplating whether they might find themselves in the same position, to explore alternatives. Such options could include building a substitute for SWIFT to send instructions regarding cross-border interbank transactions; identifying financial counterparties other than Western banks with which to do international business and platforms other than Western clearinghouses through which to make payment; and finding a vehicle other than the dollar for denominating and executing transactions. Specifically, countries are looking to China, which has large internationally active banks, has created its own clearinghouse for cross-border transactions and is embarked on a campaign to encourage broader international use of its currency, the renminbi.2 This note investigates how far China has gone in creating alternatives to SWIFT, Western banks, and the dollar. It explores whether Russia and other countries might be drawn toward this parallel international financial universe and what economic and political implications this has—for the United States, for its geopolitical rivals, and for global economics and politics. China is making strides in fostering cross-border use of the renminbi and building a renminbi-based interbank payments system that can serve as an alternative to SWIFT and Western clearinghouses. However, these remain somewhat limited alternatives—for the moment. The situation could change faster if lent additional impetus by Western sanctions. Thus, countries such as the United States that employ financial sanctions should prepare for the development of alternative financial arrangements in China and possibly elsewhere. This may mean relying more heavily on nonfinancial measures insofar as financial sanctions eventually become less effective.
Topic:
Economics, Sanctions, Finance, Borders, and Banks
Political Geography:
China and Asia

2. Changing Environment for Opening of Chinese Financial Sector and Implications

Author:
Sangbaek Hyun, Suyeob Na, Young Sun Kim, Koun Cho, and Bongkyo Seo
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The opening of China's financial sector has progressed at a very slow pace, unlike the manufacturing and trade sectors that have pushed for an active opening to the outside world. The Chinese economy has been growing rapidly while serving as a global production base, but since 2012, it has become necessary to modify its approaches to achieve growth as it enters an era of medium-speed growth. Recently, new reform and opening measures have been taken in various fields to improve the quality of the Chinese economy, and the need for reform and opening in the financial sector has also increased. Internally, the financial system centered on China's state-owned commercial banks has focused on indirect financing, which has served as a major obstacle to upgrading China's economy and industry to the next level, further increasing the need for reform and opening of the financial sector. Moreover, externally, the U.S.-China conflict which began in earnest in 2018, is applying strong pressure toward reform and opening in China’s financial sector. The Chinese government began to show a proactive attitude toward financial opening amid such internal needs and external pressure, and an important development was seen in China’s financial opening when President Xi Jinping declared further opening measures at the Boao Forum in April 2018. The Chinese financial authorities have prepared follow-up measures related to financial opening, and the Chinese government’s efforts toward financial opening in the three years from 2018 to 2020 yielded more results than the ten-year opening period since its accession to the WTO. Against this backdrop, this study examines the main contents of China’s financial opening process, which has been accelerating recently, and derives evaluation and implications.
Topic:
Finance, Economy, Economic Growth, and Banks
Political Geography:
China, Asia, and Korea

3. Central Banks' Responses to COVID-19 in ASEAN Economies

Author:
Charan Singh and Panitra Kumar Jena
Publication Date:
08-2021
Content Type:
Research Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
The effect of the COVID-19 pandemic on public health, social life, economic conditions, and financial markets has been significant for Association of Southeast Asian Nations (ASEAN) economies. The main objective of this study is to understand the response of central banks to COVID-19 in 10 ASEAN economies, i.e., Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. In this study, panel data as well as time-series data have been used to see the impact of COVID-19 on macroeconomic variables and financial variables. The period of the study ranges from 23 January 2020 to 11 December 2020. The first part of the study shows the trend analysis of macroeconomic variables of ASEAN economies and a descriptive analysis of various measures taken by the central banks of ASEAN economics. Further, a comparative analysis of monetary measures with advanced countries is depicted. Further, empirical findings of ARCH and GARCH indicate that recent as well as past COVID-19 news has a significant impact on stock market volatility in select ASEAN countries.
Topic:
Banks, Fiscal Policy, Pandemic, COVID-19, Financial Institutions, and Banking
Political Geography:
Asia and Southeast Asia

4. Financial Inclusion, Active Bank Accounts and Poverty Reduction in India

Author:
Tony Cavoli, Ilke Onur, and Patricia Sourdin
Publication Date:
09-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Using the World Bank’s Global Findex data, this research first shows that the efforts by the Indian Government and the Reserve Bank have been successful in providing access to formal banking services, especially in the rural areas of the country. Similarly, financial account ownership gap has been eliminated in terms of gender and income. Further analysis, using the Financial Inclusion Insights dataset, shows that financial inclusion has a positive and significant effect on reducing poverty in India. A closer look at the utilisation of the financial accounts shows that active usage of these accounts would lead to further reductions in poverty levels in India. Therefore, targeted programmes, such as offering financial education both in and outside schools, with the aim of improving financial literacy, could lead to further poverty reduction in India.
Topic:
Education, Poverty, Finance, and Banks
Political Geography:
India and Asia

5. Intellectual Capital in Islamic Banking Sector: Evidence from Turkey

Author:
Hakan Uslu
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
The Rest: Journal of Politics and Development
Institution:
Centre for Strategic Research and Analysis (CESRAN)
Abstract:
The Islamic banking sector has experienced a rapid development both in Muslim and non-Muslim geographies. In this study, using a panel dataset spanning the time period 2005-2018 and several econometric estimations, how intellectual capital affects the financial performance of the participation banks, as Islamic banks are called in Turkey is analysed. The Value-Added Intellectual Coefficient model (VAIC), a well-known methodology, is utilised as a measure for intellectual capital performances and return on assets (ROA) and return on shareholders’ equity (ROE), in general, financial performances of the banks. The results of the analyses provide evidence for a positive and statistically significant impact of intellectual capital on financial performances of Islamic banks operating in Turkey. The results also suggest that employed capital efficiency and structural capital efficiency in the operations of Islamic banks are the two crucial factors for their profitability, while human capital efficiency has no statistical relationship with their financial performances. The current study contributes to the relevant literature since there is no study on Islamic banks of Turkey in the aspect of intellectual capital and helps Islamic bankers, such as executives, investors and shareholders, or policymakers in understanding and determining their positions regarding intellectual capital.
Topic:
Banks, Financial Institutions, Capital, and Banking
Political Geography:
Europe, Turkey, and Asia

6. An Analysis of the PBOC’s New Mobile Payment Regulation

Author:
Andrew Liu
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
In 2016 alone, China saw $9 trillion in mobile payments—in contrast to a comparably small $112 billion of mobile payments in the United States (Abkowitz 2018). The use of mobile payment systems such as Alipay and WeChat Pay are widespread in China, with users ranging from beggars to lenders to criminals. Previously, the mobile payments landscape was largely untouched and unregulated by the Chinese government because of its relative insignificance in the Chinese economy. However, with the explosive growth in mobile payment transactions, the People’s Bank of China (PBOC) implemented a new mobile payment regulation on June 30, 2018. Most notably, the government will require all mobile payments to be cleared through the PBOC, and hence, all mobile payment transactions will begin to touch the hands of the Chinese Communist Party (CCP) (Hersey 2017). The PBOC’s stated reasoning for implementing this regulation is to curb money laundering and fraud. While those are valid concerns, it is unlikely that there are not additional motivations for the new regulation. In this article, I analyze the effects this new regulation has had and will likely have on the various mobile payment system stakeholders, competitors, and users, and also uncover what underlying motives the PBOC has in implementing the regulation.
Topic:
Government, Regulation, Economy, Banks, and Chinese Communist Party (CCP)
Political Geography:
China and Asia

7. Assessing China’s Financial Reform: Changing Roles of the Repressive Financial Policies

Author:
Yiping Huang and Tingting Ge
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
When China began economic reform in 1978, it had only one financial institution, the People’s Bank of China (PBOC), which, at that time, served as both the central bank and a commercial bank and accounted for 93 percent of the country’s total financial assets. This was primarily because, in a centrally planned economy, transfer of funds was arranged by the state and there was little demand for financial intermediation. Once economic reform started, the authorities moved very quickly to establish a very large number of financial institutions and to create various financial markets. Forty years later, China is already an important player in the global financial system, including in the banking sector, direct investment, and bond and equity markets. However, government intervention in the financial system remains widespread and serious. The PBOC still guides commercial banks’ setting of deposit and lending rates through “window guidance,” although the final restriction on deposit rates was removed in 2015. Industry and other policies still play important roles influencing allocation of financial resources by banks and capital markets. The PBOC intervenes in the foreign exchange markets from time to time, through directly buying or selling foreign exchanges, setting the central parity, and determining the daily trading band. The regulators tightly manage cross-border capital flows, and the state still controls majority shares of most large financial institutions.
Topic:
Economics, Foreign Exchange, Reform, Financial Markets, and Banks
Political Geography:
China and Asia

8. The evolution of China’s Asian Infrastructure Investment Bank: from a revisionist to status-seeking agenda

Author:
Jeffrey D. Wilson
Publication Date:
01-2019
Content Type:
Journal Article
Journal:
International Relations of the Asia-Pacific
Institution:
Japan Association of International Relations
Abstract:
China’s Asian Infrastructure Investment Bank (AIIB) is a controversial addition to both the global and Asian economic architectures. Western critics have alleged it is a vehicle designed to achieve China’s geostrategic goals, while scholars have argued it marks China’s adoption of a ‘revisionist’ foreign policy strategy. This article argues that such interpretations are incorrect, as they fail to account for the evolution of China’s AIIB agenda. To secure a broad membership and international legitimacy for the AIIB, China compromised with partners during governance negotiations in 2015. Western country demands saw several controversial initial proposals dropped, the governance practices of existing multilateral development banks were adopted, and cooperative partnerships were developed with the World Bank and Asian Development Bank. This transition from a revisionist to status-seeking AIIB agenda reveals the flexibility of Chinese economic statecraft, and its willingness to compromise strategic goals to boost the legitimacy of its international leadership claims.
Topic:
International Relations, Foreign Policy, Geopolitics, and Banks
Political Geography:
China and Asia

9. Addressing China's Rising Influence in Africa

Author:
Michael Tiboris
Publication Date:
05-2019
Content Type:
Special Report
Institution:
Chicago Council on Global Affairs
Abstract:
Addressing China's Rising Influence in Africa MAY 21, 2019 By: Michael Tiboris, Nonresident Fellow, Global Water Key facts and figures China is now the largest trading partner for the African continent, and China’s Export-Import Bank aims to invest more than $1 trillion in the continent by 2025. In addition, China has now surpassed the United States government in total agriculture R&D funding. China has increased its presence in African development—a trend that will persist because its model is extremely attractive to both China and many African nations. China’s growing contributions to African development should not automatically be feared, but their increased presence should create a recalibration in US approaches to development. Current US National Security Advisor and former Ambassador John Bolton in his announcement of the administration’s Prosper Africa initiative cast China’s presence in Africa as a strategic challenge for the United States. The market opportunities on the African continent are enormous. Consumer expenditure is expected to reach $2.1 trillion by 2025 and $2.5 trillion by 2030. The World Bank estimates that the African food market alone could be worth $1 trillion by 2030, more than tripling the current $300 million market. China’s ability to directly finance and construct infrastructure projects with fewer conditions is unique and has raised worries in some quarters about the expropriation of natural resources, environmental hazards, labor displacement, unstable debt burdens, and land grabs. In addition, China’s investment strategy leaves notable gaps that the United States, leaning on its expertise, can fill. The most direct and sustainable mechanism for moving people out of poverty is investment in agriculture—in particular, smallholder agriculture. US leadership on global water, food, and nutrition security is essential to catalyze the innovations and development necessary to achieve US foreign policy and development goals on the continent. To maintain its global leadership in this strategically important continent, the United States should consider prioritizing technical assistance for water sustainability and thereby support sanitation and agricultural growth. The United States must also continue to find ways to deepen its relationships with African partners to demonstrate US commitment to building resilience and self-reliance in these communities for the long term. Simultaneously, the United States and its allies should work through international institutions to encourage China to adopt policies that achieve shared global objectives in economic development, security, human welfare, and sustainability.
Topic:
Infrastructure, Banks, Trade, and Strategic Competition
Political Geography:
Africa, China, Asia, North America, and United States of America

10. ABCs of the IFIs: The African Development Bank, the Asian Development Bank, and the International Fund for Agricultural Development

Author:
Scott Morris, Erin Collinson, and Alysha Gardner
Publication Date:
10-2019
Content Type:
Policy Brief
Institution:
Center for Global Development
Abstract:
The African Development Bank (AfDB), the Asian Development Bank (ADB), and the International Fund for Agricultural Development (IFAD) are among the international financial institutions seeking pledges from donor countries as part of upcoming replenishment cycles in 2019 and 2020. The United States is a leading donor to these funds and has played a crucial role in shaping the institutions’ agendas throughout their histories.
Topic:
Agriculture, Development, Finance, Banks, Institutions, and Banking
Political Geography:
Africa and Asia

11. BALANCING AGAINST CHINA WITH THE ASIA-AFRICA GROWTH CORRIDOR: AN INDIAN-JAPANESE INITIATIVE TOWARDS THE INDO-PACIFIC

Author:
Carlos Eduardo Carvalho and João Paulo Nicolini Gabriel
Publication Date:
10-2018
Content Type:
Journal Article
Journal:
Conjuntura Austral: Journal of the Global South
Institution:
Conjuntura Austral: Journal of the Global South
Abstract:
The launch of a vision document for Asia-Africa Growth Corridor (AAGC) at the African Development Bank meeting in Gujarat in 2017 reveals an important aspect to grasp the awkening of a strategy to face China’s rise. This conference of the African Development Bank (AfDB) is a landmark for this initiative. This bank is a mechanism for economic and social development with the participation of non-African members (e.g. China, India, Brazil, the United States, and Japan). The main contributors to the African Development Fund -linked to this bank -are the United Kingdom, the USA and Japan. Beijing does not figure among the most influent members of this organization. Thus, it was an opportunity for think tanks, supported by India and Japan, to introduce the idea of a corridor aimed to link Asia to Africa in order to increase co-operation in agriculture, social development and technology sharing.
Topic:
Development, International Political Economy, International Trade and Finance, Economic Growth, Banks, Trade, Economic Development, Trade Policy, and Economic Cooperation
Political Geography:
Africa, Japan, China, and Asia

12. Strategies for Development of Transport Infrastructure in North Korea for Unification and Beyond

Author:
Kwon Young-in, Na Hee Seung, and Kim Kyoung-Sik
Publication Date:
07-2017
Content Type:
Special Report
Institution:
Korea Economic Institute of America (KEI)
Abstract:
It has been reported that passenger transport and logistics between regions in North Korea are very difficult due to deterioration and imperfect maintenance of transport infrastructure and limited investment in the facilities for several decades. If South Korea and North Korea are unified, massive investment in the development of transport infrastructure is inevitable. This investment would mainly be supported by South Korea as well as through cooperation with Multilateral Development Banks such as the World Bank Group (WBG), Asian Development Bank (ADB), and Asian Infrastructure Investment Bank (AIIB). In addition, special and efficient plans for transporting people and goods need to be established in case of reunification considering the current transport environment in North Korea. Thus, well-prepared strategies should be in place for short, mid, and long-term perspectives.
Topic:
Development, Infrastructure, Banks, and Peace
Political Geography:
Asia, South Korea, North Korea, and Korea

13. The Japanese Experience with QE and QQE

Author:
John Greenwood
Publication Date:
01-2017
Content Type:
Journal Article
Journal:
The Cato Journal
Institution:
The Cato Institute
Abstract:
This article provides an overview of the three episodes of quantitative easing (QE) pursued by the Bank of Japan (BOJ) since 2001. It begins with a brief account of the initial reluctant shift to unorthodox policies under BOJ Governors Hayami and Fukui in 2001–06 (here designated QE1) and then covers the equally reluctant adoption of QE by Governor Shirakawa in 2010–13 (QE2). The article then turns to an account of the attempt since April 2013 by the BOJ under Governor Kuroda, designated “quantitative and qualitative easing” (QQE), to revive the economy and achieve a 2 percent inflation target. None of these attempts at QE has been successful in raising the broad money growth rate for M2 sustainably above the 2–3 percent per annum range where it has languished for the past 25 years. Consequently, Japan’s attempts at QE have all failed to raise the equilibrium level of Japanese nominal GDP by any material magnitude, and so far, attainment of the 2 percent inflation target under QQE has remained elusive. At the time of writing (October 2016), the Japanese economy therefore continues to grow at a low rate with periodic lapses into deflation. After discussing the case of Japan, the article compares the experience of the United States in 1929–33, when there was no QE, and the experience of 2008–14, when the Fed conducted QE over three periods. The comparison is deliberately focused on the quantitative aspects of the policy, not its interest rate effects. Finally, the article explains that there are two brands of QE, and that the failure of QE in Japan is fundamentally due to the choice of the wrong brand of QE. Given the type of QE that the Japanese authorities have chosen, the policy cannot be expected to succeed, except under limited conditions.1 If QE were to be implemented according to a different design, the prospects of success would be much greater. In brief, the primary reason for the failure of BOJ-style QE or QQE derives from the habitual tendency to buy securities from banks instead of from nonbank private-sector entities (such as nonbank financial firms, nonfinancial firms, households, or foreigners). While QE policy in Japan boosts the monetary base, it does not increase broad money. But it is broad money that drives nominal GDP, not the monetary base.
Topic:
History, Economy, Banks, and Central Bank
Political Geography:
Japan and Asia

14. Indradhanush-Banking Sector Reforms

Author:
Rajiv Kumar, Geetima Das Krishna, and Ankit Bhardwaj
Publication Date:
01-2016
Content Type:
Working Paper
Institution:
Centre for Policy Research, India
Abstract:
The Indradhanush framework with its seven pronged plan was unveiled by Finance Minister Mr Arun Jaitley on 14th August 2015 for revamping Public Sector Banks (PSBs) of India. In this paper, we look at the deteriorating profitability, asset quality, capital position of PSBs along with previous bank recapitalisation expenditure of the government. The seven reform initiatives in Indradhanush are compared with Nayak Committee recommendations. We summarise that Indradhanush does not propose any ground-breaking reforms for the PSBs. Re-capitalisation or infusion of capital into PSBs is its central theme. This opens up a debate on whether the capital infusion is adequate for all banks. Given various constraints for the government, we feel Indradhanush is definitely the step in the right direction. It does incorporate some of the initiatives mentioned in Nayak Committee report but does not fully embrace the essence of the bold Nayak recommendations. PSBs accounting for 70 percent of the banking system and saddled with high NPAs will be an impediment to growth unless the government acts fast to revamp this sector.
Topic:
Government, Reform, Finance, and Banks
Political Geography:
South Asia, India, and Asia

15. Macroeconomic Update: Early Signs of Rise in Investment

Author:
Geetima Das Krishna and Rajiv Kumar
Publication Date:
07-2015
Content Type:
Special Report
Institution:
Centre for Policy Research, India
Abstract:
Economic recovery remains fragile on the back of a weak consumption demand. Sustained high growth will be achieved only with an upturn in the investment cycle. The government seems to have understood the importance of pump-priming the capex cycle directly through higher public capital expenditure and front loading the expenditure. While private investment remains muted due to stressed corporate balance sheets, weak external and domestic demand prospects and commercial banks’ cautious approach to expanding credit, there are some early signs that the private investment cycle is likely to turn around in the next six to nine months.
Topic:
Government, Economic Growth, Banks, Investment, and Macroeconomics
Political Geography:
South Asia, India, and Asia