Showing papers on "Currency published in 2011"

Stories of the Twentieth Century for the Twenty-First

Abstract: A key precursor of twentieth-century financial crises in emerging and advanced economies alike was the rapid buildup of leverage Those emerging economies that avoided leverage booms during the 2000s also were most likely to avoid the worst effects of the twenty-first century’s first global crisis A discrete-choice panel analysis using 1973-2010 data suggests that domestic credit expansion and real currency appreciation have been the most robust and significant predictors of financial crises, regardless of whether a country is emerging or advanced For emerging economies, however, higher foreign exchange reserves predict a sharply reduced probability of a subsequent crisis

Common Risk Factors in Currency Markets

Abstract: W e identify a “slope” factor in exchange rates. High interest rate currencies load more on this slope factor than low interest rate currencies. This factor accounts for most of the crosssectional variation in average excess returns between high and low interest rate currencies. A standard, no-arbitrage model of interest rates with two factors—a country-specific factor and a global factor—can replicate these findings, provided there is sufficient heterogeneity in exposure to global or common innovations. We show that our slope factor identifies these common shocks, and we provide empirical evidence that it is related to changes in global equity market volatility. By investing in high interest rate currencies and borrowing in low interest rate currencies, U.S. investors load up on global risk. ( JEL G12, G15, F31) W e show that the large co-movement among exchange rates of different currencies supports a risk-based view of exchange rate determination. In order to do so, we start by identifying a slope factor in exchange rate changes: The exchange rates of high interest rate currencies load positively on this factor, while those of low interest rate currencies load negatively on it. The covariation with this slope factor accounts for most of the spread in average returns between baskets of high and low interest rate currencies—the returns on the currency carry trade. We show that a no-arbitrage model of interest rates and exchange rates with two state variables—country-specific and global risk factors—can match the data, provided there is sufficient heterogeneity in countries’ exposures to the global risk factor. To support this global risk interpretation, we provide evidence that the global risk factor is closely related to changes in volatility of equity markets around the world. We identify this common risk factor in the data by building monthly portfolios of currencies sorted by their forward discounts. The first portfolio contains

Determinants of Cross-Border Mergers and Acquisitions

Abstract: Despite the fact that one-third of worldwide mergers involve firms from different countries, the vast majority of the academic literature on mergers studies domestic mergers. What little has been written about cross-border mergers has focused on public firms, usually from the United States. Yet, the vast majority of cross-border mergers involve private firms that are not from the United States. We provide an analysis of a sample of 56,978 cross-border mergers occurring between 1990 and 2007. We first characterize the patterns of who buys whom: Geography matters, with firms being much more likely to purchase firms in nearby countries than in countries far away. Purchasers are usually but not always from developed countries and they tend to purchase firms in countries with lower investor protection and accounting standards. A significant factor in determining acquisition patterns is currency movements; firms tend to purchase firms from countries relative to which the acquirer's currency has appreciated. In addition economy-wide factors reflected in the country's stock market returns lead to acquisitions as well. Both the currency and stock market effect could reflect either misvaluation or wealth explanations. Our evidence is more consistent with the wealth explanation than the misvaluation explanation.

Currency Momentum Strategies

Abstract: We provide a broad empirical investigation of momentum strategies in the foreign exchange market. We find a significant cross-sectional spread in excess returns of up to 10% p.a. between past winner and loser currencies. This spread in excess returns is not explained by traditional risk factors, it is partially explained by transaction costs and shows behavior consistent with investor under- and over-reaction. Moreover, cross-sectional currency momentum has very different properties from the widely studied carry trade and is not highly correlated with returns of benchmark technical trading rules. However, there seem to be very effective limits to arbitrage which prevent momentum returns from being easily exploitable in currency markets.

Bitcoin: An Innovative Alternative Digital Currency

Abstract: Bitcoin is a digital, decentralized, partially anonymous currency, not backed by any government or other legal entity, and not redeemable for gold or other commodity. It relies on peer-to-peer networking and cryptography to maintain its integrity. Compared to most currencies or online payment services, such as PayPal, bitcoins are highly liquid, have low transaction costs, and can be used to make micropayments. This new currency could also hold the key to allowing organizations such as Wikileaks, hated by governments, to receive donations and conduct business anonymously. Although the Bitcoin economy is flourishing, Bitcoin users are anxious about Bitcoin’s legal status. This paper examines a few relevant legal issues, such as the recent conviction of the Liberty Dollar creator, the Stamp Payments Act, and the federal securities acts.

Currency Misalignments and Optimal Monetary Policy: A Reexamination

Abstract: Exchange rates among large economies have fluctuated dramatically over the past 30 years. The dollar/euro exchange rate has experienced swings of greater than 60 percent. Even the Canadian dollar/US dollar exchange rate has risen and fallen by more than 35 percent in the past decade, but inflation rates in these countries have differed by only a percentage point or two per year. Should these exchange rate movements be a concern for policymakers? Or would it not be better for policymak ers to focus on output and inflation and let a freely floating exchange rate settle at a market determined level? Empirical evidence points to the possibility of "local-currency pricing" (LCP) or "pricing to market."1 Exporting firms may price discriminate among markets, and/ or set prices in the buyers' currencies. A currency could be overvalued if consumer prices are generally higher at home than abroad when compared in a common cur rency, or undervalued if these prices are lower at home.2 Currency misalignments can be very large even in advanced economies. In a simple, familiar framework, this paper draws out the implications for monetary policy when currency misalignments are possible. Currency misalignments lead to inefficient allocations for reasons that are analogous to the problems with inflation in a world of staggered price setting. When there are currency misalignments, households in the Home and Foreign countries may pay different prices for the identical good. A basic tenet of economics is that violations of the law of one price are inefficient—if the good's marginal cost is the same irrespective of where the good is sold, it is not efficient for the good to sell at different prices. We find that these violations lead to a reduction in world welfare and that optimal monetary policy trades off targeting these misalignments with inflation and output goals. In our model, because there are no transportation costs or distribution costs, any deviation from the law of one price would be inefficient. More generally, if those costs were to be included, then pricing

Money, Payments, and Liquidity

Abstract: In Money, Payments, and Liquidity, Ed Nosal and Guillaume Rocheteau provide a comprehensive investigation into the economics of money and payments by explicitly modeling trading frictions between agents. Adopting the search-theoretic approach pioneered by Nobuhiro Kiyotaki and Randall Wright, Nosal and Rocheteau provide a logically coherent dynamic framework to examine the frictions in the economy that make money and liquid assets play a useful role in trade. They discuss the implications of such frictions for the suitable properties of a medium of exchange, monetary policy, the cost of inflation, the inflation-output trade-off, the coexistence of money, credit, and higher return assets, settlement, and liquidity. After presenting the basic environment used throughout the book, Nosal and Rocheteau examine pure credit and pure monetary economies, and discuss the role of money, different pricing mechanisms, and the properties of money. In subsequent chapters they study monetary policy, the Friedman rule in particular, and the relationship between inflation and output under different information structures; economies where monetary exchange coexists with credit transactions; the coexistence of money and other assets such as another currency, capital, and bonds; and a continuous-time version of the model that describes over-the-counter markets and different dimensions of liquidity (bid-ask spreads, trade volume, trading delays).

Gold and the Dollar (and the Euro, Pound, and Yen)

Abstract: Usually, gold and the Dollar are negatively related; when the Dollar price of gold increases, the Dollar depreciates against other currencies. This is intuitively puzzling because it seems to suggest that gold prices are associated with appreciation in other currencies. Why should the Dollar be different? We show here that there is actually no puzzle. The price of gold can be associated with currency depreciation in every country. The Dollar price of gold can be related to Dollar depreciation and the Euro (Pound, Yen) price of gold can be related to Euro (Pound, Yen) depreciation. Indeed, this is usually the case empirically.

Welfare Costs of Inflation and the Circulation of US Currency Abroad

Abstract: Empirical studies of the shoe-leather costs of inflation are typically computed using M1 as a measure of money. Yet, official data on M1 includes all currency issued, regardless of the country of residence of the holder. Using adjusted monetary data, we show that the failure to control for currency held by non residents may lead to significantly overestimating the welfare costs for the domestic economy. In particular, our estimates of shoe-leather costs are minimized for a positive but moderate value of the inflation rate, thereby justifying a deviation from the Friedman rule in favor of the Fed’s current policy.

Getting Beyond Carry Trade: What Makes a Safe Haven Currency?

Abstract: There is already a substantial literature documenting the fact that low yield currencies typically appreciate during times of global financial stress and behave as safe havens. The main objective of this paper is to find out what the fundamentals of safe haven currencies are. We analyse a large panel of 52 currencies in advanced and emerging countries over almost 25 years of data. We find that only a few factors are robustly associated to a safe haven status, most notably the net foreign asset position, an indicator of external vulnerability, and to a lesser extent the absolute size of the stock market, an indicator of market size and development. The interest rate spread against the US is significant only for advanced countries, whose currencies are subject to carry trade. More generally, we find that it is hard to predict what currencies would do when global risk aversion is high, as estimates are imprecise and often not stable or robust. This suggests caution in over-interpreting exchange rate movements during financial crises.

The Use of Foreign Currency Derivatives, Corporate Governance, and Firm Value Around the World

Abstract: This paper examines the impact of currency derivatives on firm value using a broad sample of firms from thirty-nine countries with significant exchange-rate exposure. Derivatives can be used for managers’ self-interest, for hedging or for speculative purposes. We hypothesize that investors can appeal to a firm’s internal (firm-level) and external (country-level) corporate governance to draw inferences on a firm’s motive behind the use of derivatives, since well-governed firms are more likely to use derivatives to hedge rather than to speculate or pursue managers’ self-interest. Consistent with this explanation, we find strong evidence that the use of currency derivatives for firms that have strong internal firm-level or external country-level governance is associated with a significant value premium.

Governance of a Fragile Eurozone

Abstract: When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries’ sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise.This paper analyses the implications of this fragility for the governance of the eurozone. It concludes that the new governance structure (ESM) does not sufficiently recognize this fragility. Some of the features of the new financial assistance in fact are likely to increase this fragility. In addition, it is also likely to prevent member countries from using the automatic stabilizers during a recession. This is surely a step backward in the long history of social progress in Europe. The author suggests a different approach to deal with these problems.

Global credit and domestic credit booms

Abstract: US dollar credit is growing quickly outside the United States, especially in Asia, and in some economies it has outpaced overall credit growth. Cross-border sources of credit bear watching in view of their record of outgrowing overall credit in credit booms. Foreign currency and cross-border sources of credit raise policy issues.

Redemption or Abstinence? Original Sin, Currency Mismatches and Counter-Cyclical Policies in the New Millenium

Abstract: This paper updates our previous work on the level and evolution of original sin. It shows that while the number of countries that issue local-currency debt in international markets has increased in the past decade, this improvement has been quite modest. Although we find that countries have been borrowing at home, thanks to deepening domestic markets, we document that foreign participation in these markets is more limited than what is usually assumed. The paper shows that the recent decline of currency mismatches and the consequent ability to conduct countercyclical macroeconomic policies is due to lower net debt (abstinence) and not to redemption from original sin. We conclude that original sin continues to make financial globalization unattractive and developing countries have opted for abstinence because foreign currency debt is too risky. The promised paradise of financial globalization will need to wait for redemption from original sin.

Predictability of Currency Carry Trades and Asset Pricing Implications

Abstract: This paper studies the time-series predictability of currency carry trades, constructed by selecting currencies to be bought or sold against the U.S. dollar, based on forward discounts. Changes in a commodity index, currency volatility and, to a lesser extent, a measure of liquidity predict in-sample the payoffs of dynamically re-balanced carry trades, as evidenced by individual and joint p-values in monthly predictive regressions at horizons up to six months. Predictability is further supported through out-of-sample metrics, and a predictability-based decision rule produces sizeable improvements in the Sharpe ratios and skewness profile of carry trade payoffs. Our evidence also indicates that predictability can be traced to the long legs of the carry trades and their currency components. We test the theoretical restrictions that an asset pricing model, with average currency returns and the mimicking portfolio for the innovations in currency volatility as risk factors, imposes on the coefficients in predictive regressions.

Lessons from a collapse of a financial system

Abstract: The paper draws lessons from the collapse of Iceland’s banking system in October 2008. The rapid expansion of the banking system following its privatization in the early 2000s is explained, as well as the inherent fragility due to the size of the banking system relative to the domestic economy and the central bank’s reserves, market manipulation enabling bank capital to expand rapidly and the weak and understaffed public institutions. Most of Iceland’s banking system was traditionally in state hands but was privatized and sold to politically favoured entities at the turn of the century, with laws and regulations subsequently changed to facilitate the expansion of the banking system. Political connections and the tacit support of the authorities enabled senior bank managers and key shareholders to extract significant private benefits while shifting risk to domestic and foreign taxpayers and foreign creditors. These problems were exacerbated by symptoms of what the paper terms the small country syndrome. The size of the banking sector made the central bank incapable of serving as the lender of last resort. The domestic supervisor, the central bank and the ministries in charge of economic affairs were understaffed and lacking in experience in how to manage a large financial sector. The rapid growth was also ultimately unsustainable due to high levels of leverage and a weak capital base due to both the rapid expansion of balance sheets and lending to finance investment in own shares. The episode demonstrates the importance of closely monitoring rapidly growing financial institutions and even possibly slowing growth when institutions are systemically important. One lesson to be drawn from the crisis relates to the role of politics in a financial crisis. The Icelandic authorities as a matter of policy encouraged the creation of an international banking centre. This involved the privatization and deregulation of the banking system, rules and regulations being relaxed and the neglect of financial supervision. Another lesson is that floating exchange rates can be hazardous in the presence of large capital flows. The central bank raised interest rates during the boom years in order to meet an inflation target. This created an interest rate differential with other countries that encourages a large volume of carry trades and incentivized domestic agents to borrow in foreign currency. Both conspired to create an asset price bubble, excessive currency appreciation and – counter-intuitively – high inflation. The result was that monetary policy as conducted was ineffective at curbing domestic demand. The eventual large depreciation of the currency made a large section of the economy insolvent. Finally, there are lessons about the European passport system in financial services and the common market. The Icelandic banks had the right to set up branches in the European Union by means of the passport on the explicit assumption that home regulators were exercising adequate controls. The collapse of the banks left the United Kingdom and the Netherlands with significant costs, demonstrating the inherent weakness in the passport when one member country can undercut the supervisory standards of other member countries. For the passport system to work, the home supervisor must be trustworthy. — Sigridur Benediktsdottir, Jon Danielsson and Gylfi Zoega

Eclipse: Living in the Shadow of China's Economic Dominance

Abstract: In his new book, Arvind Subramanian presents the following possibilities: What if, contrary to common belief, China's economic dominance is a present-day reality rather than a faraway possibility? What if the renminbi's takeover of the dollar as the world's reserve currency is not decades, but mere years, away? And what if the United States's economic pre-eminence is not, as many economists and policymakers would like to believe, in its own hands, but China's to determine? Subramanian's analysis is based on a new index of economic dominance grounded in a historical perspective. His examination makes use of real-world examples, comparing China's rise with the past hegemonies of Great Britain and the United States. His attempt to quantify and project economic and currency dominance leads him to the conclusion that China's dominance is not only more imminent, but also broader in scope, and much larger in magnitude, than is currently imagined. He explores the profound effect this might have on the United States, as well as on the global financial and trade system. Subramanian concludes with a series of policy proposals for other nations to reconcile China's rise with continued openness in the global economic order, and to insure against China becoming a malign hegemon.

The governance of a fragile Eurozone. CEPS Working Document No. 346, May 2011

Abstract: When entering a monetary union, member countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued. As a result, financial markets can force these countries’ sovereigns into default. In this sense, the status of member countries of a monetary union is downgraded to that of an emerging economy. This makes the monetary union fragile and vulnerable to changing market sentiments. It also makes it possible that self-fulfilling multiple equilibria arise. This paper analyses the implications of this fragility for the governance of the eurozone. It concludes that the new governance structure (ESM) does not sufficiently recognize this fragility. Some of the features of the new financial assistance in fact are likely to increase this fragility. In addition, it is also likely to prevent member countries from using the automatic stabilizers during a recession. This is surely a step backward in the long history of social progress in Europe. The author suggests a different approach to deal with these problems.

The future of economic convergence

Abstract: The question addressed in this paper is whether the gap in performance between the developed and developing worlds can continue, and in particular, whether developing nations can sustain the rapid growth they have experienced of late. The good news is that growth in the developing world should depend not on growth in the advanced economies themselves, but on the difference in the productivity levels of the two groups of countries - on the "convergence gap" - which remains quite large. Yet much of this convergence potential is likely to go to waste. Convergence is anything but automatic, and depends on sustaining rapid structural change in the direction of tradables such as manufacturing and modern services. The policies that successful countries have used to achieve this are hard to emulate. Moreover, these policies - such as currency undervaluation and industrial policies - will meet greater resistance on the part of industrial countries struggling with stagnant economies and high unemployment.

3. Identifying the Relationship between Trade and Exchange Rate Volatility

Abstract: We develop a model of international trade in which international trade depresses real exchange rate volatility and exchange rate volatility impacts trade in products differently according to their degree of differentiation. In particular, commodities are less affected by exchange rate volatility than more highly differentiated products. These insights allow us to simultaneously identify both channels of causation, thereby structurally addressing one of the main shortcomings of the existing empirical literature on the effects of exchange rate volatility on trade — the failure to correct for reverse causality. Using disaggregate trade data for a large number of countries for the period 1970-1997 we find strong results supporting the prediction that trade dampens exchange rate volatility. We find that once we address the reverse-causality problem, the large effects of exchange rate volatility on trade found in some previous literature are greatly reduced. In particular, the estimated effect of currency unions on trade is reduced from 300 percent to be between 10 and 25 percent. ∗Thanks are due to Mark Aguiar, Guillermo Calvo, Robert Feenstra, Erik Hurst, Silvana Tenreyro, Shang-Jin Wei, Kei-Mu Yi, and participants at seminars at Chicago GSB, Federal Reserve System Committee Meeting, LACEA Conference 2003, NBER, Minnesota, RIN Conference 2003, and Wisconsin for helpful suggestions. Any errors are our own.

Classifying "CCs": Community, complementary and local currencies' types and generations

Abstract: Since the emergence of "CCs" thirty years ago, attempts to build typologies and to name things properly have always been disappointing, as if the very object of the analysis escaped from any rigid classification. A major problem that arises with regards to CCs is the obsolescence of previous typologies, due to rapid innovation and the weakening of borders (technological, juridical, political, ideological...) that seemed unlikely to be broken down. Even the terms "complementary currency", "community currency" and many others (with language specificities in English as well as in other languages - for example, in Latin language-speaking countries, something like "social money" is frequently employed) are not considered similarly by activists, scholars, policy-makers or users. As a result, there is no common typology shared by scholars, activists and observers, beyond a series of general considerations clearly distinguishing specific items between CC schemes. Building a typology requires first to state the precise objectives of it; different objectives may lead to different typologies. The present short paper aims at proposing ways to build typologies in a flexible framework, able to include further developments of the matter. Section 2 discusses the principles of a CC typology. Section 3 proposes a distinction between local, community, and complementary currencies, based on the schemes' projects, formulated through redistribution, reciprocity and market criteria. Section 4 distinguishes, in the recent past, four generations of CC schemes, related to combination of previous ideal types : unconvertible community schemes like LETS and trueque (G1), pure time exchange schemes (G2), convertible currencies with local economic objectives like Regio, Palmas or Ithaca currencies (G3) and multiplex schemes like NU and SOL projects (G4). Section 5 concludes. Available online : [ http://ijccr.net/2012/05/29/classifying-ccs-community-complementary-and-local-currencies/ ]

The "Austerity myth": Gain Without Pain?

Abstract: As governments around the world contemplate slashing budget deficits, the “expansionary fiscal consolidation hypothesis” is back in vogue. I argue that, as a statement about the short run, it should be taken with caution. Alesina and Perotti (1995) and Alesina and Ardagna (2010) (AAP) have argued that, contrary to conventional wisdom, fiscal consolidations may be expansionary if implemented mainly by cutting government spending. IMF (2010) criticizes the data used by AAP and shows that all consolidations are contractionary in the short run. I argue that this criticism is correct in principle, and that there are other important limitations in the AAP methodology. However, the implementation of the IMF methodology has several problems of its own, that make an interpretation of the IMF results difficult. I then argue that because of the multi?year nature of the large fiscal consolidations, which are precisely those that can tell us more on the mechanisms at work, using yearly panels of annual data is limiting. I present four detailed case studies of fiscal consolidations, two (Denmark and Ireland) carried out under fixed exchange rates (arguably the most relevant case for many European countries today) and two (Finland and Sweden) after floating the currency. All four consolidations were associated with an expansion; but only in Denmark the driver of growth was internal demand. However, as in most exchange rate based stabilizations, after three years a long slump set in as the economy lost competitiveness. In the other episodes for a long time the main driver of growth was exports. In the second exchange rate based stabilization, Ireland, this occurred because the sterling coincidentally appreciated. In Finland and Sweden the currency experienced an extremely large depreciation after floating. In all consolidations interest rate fell fast, and wage moderation played a key role in ensuring competitiveness and allowing the decrease in interest rates. Wage moderation was supported by incomes policies that saw the direct in tervention of the government in the wage negotiation process. These results cast doubt on at least some versions of the “expansionary fiscal consolidations” hypothesis, and on its applicability to many countries in the present circumstances. A depreciation is not available to EMU members today (except vis a vis countries outside the Eurozone). The current account channel is not available to the world as a whole. A further decline in interest rates is unlikely in the current situation. And incomes policies are not popular nowadays; moreover, international experience, and the Danish case, suggest that they are ineffective after a few years.

Renminbising China's Foreign Assets

Abstract: Since the 2008 global financial crisis, China has rolled out a number of initiatives to actively promote the international role of the renminbi and to denominate more of its international claims away from the US dollar and into the renminbi. The present paper discusses the factors shaping the prospects of internationalising the renminbi from the perspective of the currency composition of China's international assets and liabilities. These factors include, among others, underlying valuation and management of the renminbi.

Monetary Policy in Emerging Markets: A Survey

Abstract: The characteristics that distinguish most developing countries, compared to large industrialized countries, include: greater exposure to supply shocks in general and trade volatility in particular, procyclicality of both domestic fiscal policy and international finance, lower credibility with respect to both price stability and default risk, and other imperfect institutions. These characteristics warrant appropriate models. Models of dynamic inconsistency in monetary policy and the need for central bank independence and commitment to nominal targets apply even more strongly to developing countries. But because most developing countries are price-takers on world markets, the small open economy model, with nontraded goods, is often more useful than the two-country two-good model. Contractionary effects of devaluation are also far more important for developing countries, particularly the balance sheet effects that arise from currency mismatch. The exchange rate was the favored nominal anchor for monetary policy in inflation stabilizations of the late 1980s and early 1990s. After the currency crises of 1994-2001, the conventional wisdom anointed Inflation Targeting as the preferred monetary regime in place of exchange rate targets. But events associated with the global crisis of 2007-09 have revealed limitations to the choice of CPI for the role of price index. The participation of emerging markets in global finance is a major reason why they have by now earned their own large body of research, but it also means that they remain highly prone to problems of asymmetric information, illiquidity, default risk, moral hazard and imperfect institutions. Many of the models designed to fit emerging market countries were built around such financial market imperfections; few economists thought this inappropriate. With the global crisis of 2007-09, the tables have turned: economists should now consider drawing on the models of emerging market crises to try to understand the unexpected imperfections and failures of advanced-country financial markets.

Currency crises and the evolution of foreign exchange market: Evidence from minimum spanning tree

Abstract: We examined the time series properties of the foreign exchange market for 1990–2008 in relation to the history of the currency crises using the minimum spanning tree (MST) approach and made several meaningful observations about the MST of currencies. First, around currency crises, the mean correlation coefficient between currencies decreased whereas the normalized tree length increased. The mean correlation coefficient dropped dramatically passing through the Asian crisis and remained at the lowered level after that. Second, the Euro and the US dollar showed a strong negative correlation after 1997, implying that the prices of the two currencies moved in opposite directions. Third, we observed that Asian countries and Latin American countries moved away from the cluster center (USA) passing through the Asian crisis and Argentine crisis, respectively.

Safeguarding livelihoods or exacerbating poverty? Artisanal mining and formalization in West Africa

Abstract: In recent years, policy mechanisms to support a formalized artisanal and small-scale mining (ASM) sector in sub-Saharan Africa have gained increasing currency. Proponents of formalization argue that most social and environmental problems associated with the sector stem from the fact that ASM is predominantly unregulated and operates outside the legal sphere. This paper critically examines recent efforts to formalize artisanal and small-scale mining in West Africa, drawing upon recent fieldwork carried out in Sierra Leone, Ghana and Mali. In exploring the sector's livelihood dimensions, the analysis suggests that bringing unregulated, informal mining activities into the legal domain remains a considerable challenge. The paper concludes by confirming the urgent need to refocus formalization strategies on the main livelihood challenges and constraints of small-scale miners themselves, if poverty is to be alleviated and more benefits are to accrue to depressed communities in mineral-rich regions.

The Icelandic Banking Crisis and What to Do about it: the Lender of Last Resort Theory of Optimal Currency Areas

Abstract: Iceland has, in a very short period of time, created an internationally active banking sector that is vast relative to the size of its very small economy. Iceland also has its own currency. This chapter argues that this ‘business model’ for Iceland is not viable. With most of the banking system’s assets and liabilities denominated in foreign currency, and with a large amount of short-maturity foreign currency liabilities, Iceland needs a foreign currency lender of last resort and market maker of last resort to prevent funding illiquidity or market illiquidity from bringing down the banking system.