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35622. Capital Flows and Capital Account Management in Selected Asian Economies
- Author:
- Rajeswari Sengupta and Abhuit Sen Gupta
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- Gross capital inflows and outflows to and from emerging market economies have witnessed a significant increase since the early 2000s. This rapid increase in the volume of flows, accompanied by sharp swings in volatility, has amplified the complexity of macroeconomic management in emerging economies. This paper focuses on capital flows in selected emerging Asian economies, analyzing surge and stop episodes as well as changes in the composition of flows across these episodes, then evaluating the policy measures undertaken by these economies in response to the surge and stop of capital flows. This kind of analysis is highly relevant, especially at a time when emerging economies around the world are facing the repercussions of a potential monetary policy normalization in the United States and continuing quantitative easing measures by the European Central Bank, either of which could once again heighten the volatility of cross-border capital flows, thereby posing renewed macroeconomic challenges for major EMEs.
- Topic:
- Economics, Emerging Markets, International Trade and Finance, and Monetary Policy
- Political Geography:
- Asia
35623. ICANN: Bridging the Trust Gap
- Author:
- Emily Taylor
- Publication Date:
- 04-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- This paper addresses the proposed transfer of Internet Assigned Numbers Authority (IANA) oversight away from the US government. The background section explores how the technical architecture of critical Internet resources has certain governance implications, introduces the Internet Corporation for Assigned Names and Numbers (ICANN) and its relationship with the US government through the IANA function and the Affirmation of Commitments. After discussing why the relationship has caused controversy, the paper describes the work underway within ICANN to find a successor oversight mechanism and provides a short critique of the proposals so far. The majority of the paper is taken up with more general issues relating to ICANN's accountability. It explains how the IANA transition was recognized to be dependent on ICANN's wider accountability, and the trust issues between community and leadership that this exposed. There follows an analysis of ICANN's strengths and weaknesses in relation to accountability and transparency, followed by conclusions and recommendations.
- Topic:
- Government
- Political Geography:
- United States
35624. Over Their Heads: The IMF and the Prelude to the Euro-zone Crisis
- Author:
- Paul Blustein
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- The years prior to the global financial crisis were a peculiar period for the International Monetary Fund (IMF). The IMF was struggling to define its role and justify its existence even as trouble was brewing in countries it would later help to rescue. To understand the Fund's current strengths and weaknesses, a look back at this era is highly illuminating.
35625. Capital Flows and Spillovers
- Author:
- Şebnem Kalemli-Özcan
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- This paper shows that debt flows have contractionary effects on emerging markets' output, while equity flows have expansionary effects. Such correlations can be driven by counter-cyclical debt flows and pro-cyclical equity flows, or by debt flows that lead to an appreciation and hurt exports, and by equity flows that improve the productivity of the real economy, broadly defined. It focuses on business cycle frequencies and the effect of global risk appetite in driving capital flows into emerging markets. A positive initial impact of debt flows on output is followed by a negative impact. Equity flows have a positive impact on output initially, and thereafter. Foreign direct investment (FDI) inflows have a positive effect on output only after a two-year lag, and if this period coincides with increased global uncertainty, the effect on output reverses, but the total effect stays positive. This result also holds for equity flows, suggesting that during increased periods of uncertainty, private investors leave emerging markets. Quantitative impacts are not large except in the case of FDI flows.
- Topic:
- Markets
35626. Short-selling Bans and the Global Financial Crisis: Are They Interconnected?
- Author:
- Pierre L. Siklos, Martin T. Bohl, and Badye Essid
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- This paper observes that short-selling bans spread globally beginning in 2007. We seek to empirically determine whether there were spillover effects over and above the domestic impact from the imposition of such bans. There is some evidence that the bans were unsuccessful, at least insofar as they did not take into account the global component a short-selling ban might have. In the individual countries we examine, the bans had relatively little impact. Nevertheless, our finding that equity returns do not appear to show a decline may be evidence that the bans stemmed further deterioration in stock prices that policy makers sought to avoid.
- Topic:
- Financial Crisis
35627. Financial Inclusion and Global Regulatory Standards: An Empirical Study across Developing
- Author:
- Mariana Magaldi de Sousa
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- Expanding the access of financial services to low-income households and other disadvantaged groups has become an important public policy goal in the past decade. Many developing economies have encouraged the introduction of a variety of programs, services and branchless banking instruments ranging from automatic teller machines to cell phones to reach people for whom traditional, branch-based structures, had not. After the 2008 global financial crisis, the leaders of the Group of Twenty (G20) recognized the need to further promote these initiatives as key components in the development of healthy, vibrant and stable financial systems that contribute to sustainable economic growth and lower levels of income inequality. As a result, financial inclusion has become one of the new areas of international financial regulation coordination, alongside shadow banking, resolution regimes and new capital requirements.
- Topic:
- Development, Economics, and Health
35628. The Shadow Banking System of China and International Regulatory Cooperation
- Author:
- Zheng Liansheng
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- The shadow banking system was defined in 2007 by Paul McCulley, the managing director of Pacific Investment Management Company, but it began to receive significant attention in the immediate aftermath of the GFC. Since the beginning of the financial crisis in 2008, the regulatory agencies of different countries, international organizations and think tanks have all carried out in-depth research into shadow banking and have released a series of results. Regulatory reforms have also addressed shadow banking, the most important of which is the US Dodd-Frank Act of 2010, which aims to restrain the expansion and risk taking of shadow banking in the United States. The United Kingdom and the European Union have also adopted reforms and built up a supervisory system to track the risks of the shadow banking system.
- Topic:
- Financial Crisis
- Political Geography:
- United States, China, United Kingdom, and Europe
35629. The Global Liquidity Safety Net: Institutional Cooperation on Precautionary Facilities and Central Bank Swaps
- Author:
- C. Randall Henning
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- The global financial safety net is incomplete with respect to the provision of liquidity in a crisis and both providers and users would benefit from closing the gaps in coverage. This paper examines the proliferation of precautionary facilities and central bank swaps over the last seven years. It recommends harnessing the surveillance and analytical capacity of the International Monetary Fund (IMF) to the precautionary facilities of regional financial arrangements and the swap agreements of key-currency central banks. First, regional and plurilateral facilities should make the IMF's qualification of a member for a Flexible Credit Line (FCL) sufficient to grant access to one of their own precautionary facilities. Second, qualification for an FCL should create a presumption that key-currency central banks extend swap agreements to those countries' central banks. Inferring the thresholds for qualification from the economic performance of the three countries that have been given FCLs and applying them to recent indicators, the paper identifies the additional countries that would likely qualify. These proposals would exploit the comparative advantage of global and regional institutions while reducing the fragmentation of the system.
35630. Understanding Digital Intelligence and the Norms That Might Govern It
- Author:
- David Omand
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- This paper describes the nature of digital intelligence and provides context for the material published as a result of the actions of National Security Agency (NSA) contractor Edward Snowden. Digital intelligence is presented as enabled by the opportunities of global communications and private sector innovation and as growing in response to changing demands from government and law enforcement, in part mediated through legal, parliamentary and executive regulation. A common set of organizational and ethical norms based on human rights considerations are suggested to govern such modern intelligence activity (both domestic and external) using a three-layer model of security activity on the Internet: securing the use of the Internet for everyday economic and social life; the activity of law enforcement — both nationally and through international agreements — attempting to manage criminal threats exploiting the Internet; and the work of secret intelligence and security agencies using the Internet to gain information on their targets, including in support of law enforcement.
- Topic:
- Security, Economics, and Government
- Political Geography:
- Europe
35631. On the Nature of the Internet
- Author:
- Leslie Daigle
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- This paper examines three aspects of the nature of the Internet: the Internet's technology, general properties that make the Internet successful and current pressures for change. Current policy choices can, literally, make or break the Internet's future. By understanding the Internet — primarily in terms of its key properties for success, which have been unchanged since its inception — policy makers will be empowered to make thoughtful choices in response to the pressures outlined here, as well as new matters arising.
- Topic:
- Development and Science and Technology
35632. Emerging Countries and Implementation: Brazil's Experience with Basel's Regulatory Consistency Assessment Programme
- Author:
- Fernanda Martins Bandeira
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- As part of a major effort to level the regulatory playing field among internationally active banks, the Basel Committee on Banking Supervision (BCBS) established the Regulatory Consistency Assessment Programme (RCAP) in 2012 to evaluate the consistency and completeness of Basel standards. The enlargement of international financial standard-setting affiliation opened the doors to the increasing participation of emerging markets in the financial regulation reform agenda. In spite of this, important challenges remain in terms of legitimacy, transparency and accountability for principal international standard setters as well as concerning the effective contribution of emerging economies. Recent Brazilian experience with RCAP points to some of the gaps that must be filled in order to serve the interests of a broader range of actors in the international regulatory landscape.
- Topic:
- Reform
- Political Geography:
- Brazil
35633. Internationalization of the Renminbi: Developments, Problems and Influences
- Author:
- Ming Zhang
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- Due to the 2008-2009 global financial crisis, the Chinese government began to promote renminbi (RMB) internationalization in order to raise its international status, decrease reliance on the US dollar (USD) and advance domestic structural reform. RMB internationalization has achieved progress not only in cross-border trade settlement, but also in the offshore RMB markets. However, the rampant cross-border arbitrage and the relatively slow development of RMB invoicing compared to RMB settlement are becoming increasingly problematic. RMB internationalization has exerted significant influence on not only the Chinese economy but also other emerging market economies. RMB internationalization complicates domestic monetary policy, exacerbates the currency mismatch on China's international balance sheet and increases both the scale and volatility of short-term capital flows. It offers emerging economies another alternative for pricing domestic currency and investing foreign exchange reserves. Its overall impact on the international monetary system's stability will depend on how the capital account is liberalized and the consistency and transparency of Chinese monetary policy. This paper concludes with five recommendations for Chinese policy makers to promote RMB internationalization in a sustainable way that is conducive to international stability.
- Topic:
- Development, Economics, and Government
- Political Geography:
- United States and China
35634. The China (Shanghai) Pilot Free Trade Zone: Backgrounds, Developments and Preliminary Assessment of Initial Impacts
- Author:
- John Whalley
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- The China (Shanghai) Pilot Free Trade Zone (SPFTZ) founded in September 2013, is a trial for China's new round of “reform and opening up” (China.org.cn 2008). The SPFTZ has promised liberalization on capital account and trade facilitation as its main objectives. This paper discusses reasons why China needs such a pilot zone after three decades of economic development, examines the differences between the SPFTZ and other free trade zones (FTZs) and highlights the developments of the SPFTZ since its inception. The SPFTZ's initial impressions are assessed, especially its impact on the opening of China's capital account and financial liberalization. The hope is that the success of the SPFTZ, and more pilot policies replicated in China, will give rise to a more balanced Chinese economy in the following decade.
- Topic:
- Development and Economics
- Political Geography:
- China
35635. Changing Global Financial Governance: International Financial Standards and Emerging Economies since the Global Financial Crisis
- Author:
- Hyoung-Kyu Chey
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- One of the most remarkable changes in global financial governance since the 2008-2009 crisis has been the primary forums that establish international standards extending their memberships to include emerging economies. There are two disparate perspectives in the literature on the impact of this change on international financial regulation: the weakening cooperation view, which sees an attenuation of international cooperation due to this change, and the enduring status quo view, which sees the domination of global financial governance by advanced economies persisting even despite it. This paper presents an alternative — more positive — perspective. It argues that extending membership to include emerging economies has, to some extent, actually strengthened their role in the rule-making process related to international standards, by allowing them to participate in that process from the very beginning. Their role, however, has been constrained due to their shortages of regulatory expertise, and has focused mainly on the defensive dimension of mitigating the negative effects of international standards on emerging economies. In addition, their lack of available resources significantly limits their ability to actually incorporate their preferences into international standards. The research presented in this paper also argues that the expanded membership has had positive impacts on emerging economies' compliance with international standards, by increasing their exposure to external compliance pressures and also by heightening compatibility between their own regulatory preferences and the international standards. These findings suggest that a further strengthening of emerging economies' inclusion in the rule making related to international financial standards is likely to enhance rather than hinder international cooperation in this area.
- Topic:
- Financial Crisis
35636. The Influence of RMB Internationalization on the Chinese Economy: Theory and Policy
- Author:
- Fan He and Qiyuan Xu
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- With a balance between radicalism and gradualism, renminbi (RMB) cross-border settlement covers all of the items in China's balance of payments (BoP), including financial accounts, although some of these accounts are still controlled by means of quotas and administrative approval. By the end of the first quarter in 2014, the amount of RMB trade settlement had reached ¥11 trillion since the pilot scheme was launched in July 2009. RMB cross-border settlement has become increasingly important for monetary authorities in terms of macroeconomic policy frameworks. This is especially the case with the more sophisticated conditions in global monetary markets, which result not only from the nontraditional monetary policies employed by the European Central Bank and the Bank of Japan, but also the ongoing quantitative easing (QE) tapering by the US Federal Reserve and the spillover effects on emerging economies. It is increasingly important to evaluate the potential influence of RMB internationalization on China's macroeconomy. A framework, which includes monetary supply and demand, was created to analyze the influences of RMB cross-border settlement on China's domestic interest rate, asset price and foreign exchange (forex) reserves. RMB settlement behaves in different ways with the various items in BoP, such as imports, exports, foreign direct investment (FDI), overseas direct investment (ODI), RMB Qualified Foreign Institutional Investor (RQFII), RMB Qualified Domestic Institutional Investor (RQDII) and cross-border loans. It was found that RMB settlement in different items leads to different effects on China's economy. For RMB export settlement, RMB overseas direct investment (RODI) and RQFII at the initial stage, RMB settlement does not affect China's interest rate and asset price. In addition, more favourable to the People's Bank of China (PBoC), foreign exchange reserves increase less with these reforms; therefore, they should be promoted with priority. However, it is necessary to stress that all settlements should be based on real transactions in order to prevent fake exports. For RMB import settlement, RODI and RQDII at the initial stage, these pilot schemes exert influences on China's economy through interest rate changes, causing an additional increase of forex reserves. Although other short-term items in the financial account could also impact the interest rate, the items in this group are either based on real business such as trade and investment or on financial transactions at the initial stage on a small scale. Therefore, this group has a relatively moderate influence on the interest rate. It is important to remember that this negative by-product is a result of the assumption that the PBoC targets exchange rate stability. If the PBoC sets the exchange rate system to be flexible enough, then such pilot schemes will not cause an increase of forex reserves. It is thus essential to advance exchange rate regime reforms to keep up with the steps of RMB internationalization. With the progress in RQDII and RQFII, the endorsement of issuing dim sum bonds for capital backflows and with the increase in lending from the offshore to the onshore market, these types of RMB cross-border settlements will not exert pressure on forex reserves; however, they do have an impact on the money market. If the amount of RMB flowing through these items is large enough, the interest rate and asset price will be significantly affected, and could be in conflict with the intended monetary policy. These types of transactions are the most risky to monetary authorities; therefore, they should be cautious regarding these items. In the short term, RMB settlements in these kinds of items should be regulated with quotas. In the medium to the longer term, these items should be opened in a gradual way.
- Topic:
- Foreign Exchange and Monetary Policy
- Political Geography:
- Japan, China, and Europe
35637. The Risk of OTC Derivatives: Canadian Lessons for Europe and the G20
- Author:
- Chiara Oldan
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- Over-the-counter (OTC) derivatives played an important role in the buildup of systemic risk in financial markets before 2007 and in spreading volatility throughout global financial markets during the crisis. In recognition of the financial and economic benefits of derivatives products, the Group of Twenty (G20), under the auspices of the Financial Stability Board (FSB), moved to regulate the use of OTC derivatives. Although a number of scholars have drawn attention to the detrimental effects of the United States and the European Union (EU) to coordinate OTC reform, this overlooks an important aspect of the post-crisis process: the exemption of non-financial operators from OTC derivative regulatory requirements. Critically, they remain exempt under existing legislation regardless of the risks they continue to pose through unreported trades and counterparty risks to financial firms; there is still uncertainty around the pricing of derivatives (i.e., model risk) for non-financial operators that could pose a risk to the financial system. Nevertheless, the lack of coordination between the United States and European Union is detrimental for consistency and coherence among financial sectors. These, and similar inconsistencies in financial regulation, pose risks of conflict and fragmentation that should soon be addressed by the G20. The paper concludes by discussing what lessons can be learned from Canada, after it successfully avoided the worst of the crisis and contained the systemic risks posed by OTC derivatives before and after it.
- Political Geography:
- United States, Europe, and Canada
35638. The Impact of the Dark Web on Internet Governance and Cyber Security
- Author:
- Michael Chertoff and Tobby Simon
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- With the Internet Corporation for Assigned Names and Numbers' contract with the United States Department of Commerce due to expire in 2015, the international debate on Internet governance has been re-ignited. However, much of the debate has been over aspects of privacy and security on the visible Web and there has not been much consideration of the governance of the “deep Web” and the “dark Web.”The term deep Web is used to denote a class of content on the Internet that, for various technical reasons, is not indexed by search engines. The dark Web is a part of the deep Web that has been intentionally hidden and is inaccessible through standard Web browsers. A relatively known source for content that resides on the dark Web is found in the Tor network. Tor, and other similar networks, enables users to traverse the Web in near-complete anonymity by encrypting data packets and sending them through several network nodes, called onion routers. Like any technology, from pencils to cellphones, anonymity can be used for both good and bad. Users who fear economic or political retribution for their actions turn to the dark Web for protection. But there are also those who take advantage of this online anonymity to use the dark Web for illegal activities such as controlled substance trading, illegal financial transactions, identity theft and so on. Considering that the dark Web differs from the visible Web, it is important to develop tools that can effectively monitor it. Limited monitoring can be achieved today by mapping the hidden services directory, customer data monitoring, social site monitoring, hidden service monitoring and semantic analysis. The deep Web has the potential to host an increasingly high number of malicious services and activities. The global multi-stakeholder community needs to consider its impact while discussing the future of Internet governance.
- Political Geography:
- United States
35639. Sovereign Bond Contract Reform: Implementing the New ICMA Pari Passu and Collective Action Clauses
- Author:
- Gregory Makoff and Robert Kahn
- Publication Date:
- 02-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- In August 2014, following an extensive consultative process, the International Capital Market Association (ICMA) published proposed standard terms for new, aggregated collective action clauses (CACs). Concurrently, ICMA released new model wording for the pari passu clause typically included in international sovereign bond contracts. These announcements and the commencement of issuance of bonds with these clauses are an important turning point in the evolution of sovereign bond markets. The new CACs will make it much harder for holdout creditors to disrupt future bond restructurings or to be paid in full after the other bondholders receive haircuts. Under the new contractual form, a supermajority of bondholders can vote to force non-participating creditors into a restructuring, subject to strong protections against the abuse of minority creditors by the majority. At the same time, the new pari passu clause is designed to prevent the kind of rulings that lead to a disruption in payments to investors, as was the recent case with Argentina. Neutralizing holdout creditors in this fashion is of immense economic importance. It should facilitate more predictable outcomes for debtors and creditors, and fairer outcomes among creditors in situations that require debt restructuring. However, even with the rapid issuance of bonds under the new ICMA framework, the potential for disorderly debt restructurings will remain until the vast majority of old bonds, already in the stock of debt of sovereign borrowers, have been converted to bonds that include the new clauses. This may take more than a decade. A strong case exists for the establishment of a coordinated public-private initiative that is focused on converting existing stocks of debt to the new format. While benefits to issuers and investors should provide a market force to drive the rapid uptake of the new clauses, the Group of Twenty (G20), working closely with the International Monetary Fund (IMF) and creditor groups, is uniquely positioned to give legitimacy to discussions of accelerated adoption of the new clauses, as well as discussions of further mechanisms to facilitate orderly debt restructuring. This paper discusses the ICMA consultative process to develop the new clauses, explains the workings of CACs and the history of their adoption, analyzes the effect of the new clauses in reducing holdout activity and discusses the use of bondholder meetings and exchange offers to accelerate the conversion of outstanding debt stocks into the new format.
- Topic:
- Debt and International Monetary Fund
- Political Geography:
- Argentina
35640. Canada's Coming Property Insurance Crisis
- Publication Date:
- 03-2015
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- In many areas across Canada, climate change will erode the conditions necessary for property insurance to remain available and affordable. This policy brief looks at the challenges facing the insurance system and presents policy recommendations aimed at sustaining and maximizing the insurance system and its benefits.
- Topic:
- Climate Change
- Political Geography:
- Canada