Showing papers on "Foreign-exchange reserves published in 1997"

Macroeconomic variables and stock prices in a small open economy: The case of Singapore

Abstract: Using a subset of macroeconomic variables (narrow and broad money supply, nominal exchange rates and foreign currency reserves), that are especially pertinent in the context of a small open economy, this paper tests for the presence of informational inefficiencies in the Singapore stock market The paper uses the techniques of cointegration and causality together with forecasting equations to test for informational inefficiencies in both the long and short run respectively The results indicate that three of the four macro variables are cointegrated with stock prices, suggesting potential inefficiencies in the long run The causality tests and forecasting equations provide conflicting evidence on the informational efficiency of the stock market in the short run Finally, the implications of these findings at both the macro and micro level are discussed

Currency Board Arrangements; Issues and Experiences

Abstract: This paper provides a comprehensive analysis of the attractions and disadvantages of currency board arrangements in their various institutional configurations. It asks what defines a currency board arrangement, what are their strengths and weaknesses, and what constraints they place on macroeconomic policies. It also reviews country experiences with these arrangements.

Characteristics of the Euro, the Demand for Reserves, and Policy Coordination Under EMU

Abstract: The success of European Economic and Monetary Union (EMU) will depend on the stability of the euro. The monetary policy framework is yet to be decided, but is likely to involve either money or inflation targeting. Stochastic simulations compare the outcomes for major macroeconomic and financial variables pre- and post-EMU under both policy rules, as well as under an inflation targeting rule that includes output. Implications for the euro as a reserve currency are examined in the light of the expected returns and covariances among reserve currencies. The role of the exchange rate as an indicator and incentives for policy coordination with other major countries are also discussed.

Currency board or central bank? Lessons from the Irish pound’s link with sterling, 1928-79

Abstract: The resurgence of interest in currency boards prompts reconsideration of one of the Irish experience The authors evaluate the institutional arrangements which underpinned the Irish pound for a half-century While the regime did have a credibility which led to low interest rates and a degree of price stability, its resilience was partly due to the large additional foreign reserves held by the private banking system and to the fact that the sterling proved not to be a very strong currency However, an attempt in 1955 to evade the interest rate discipline of the regime was quickly punished, with far-reaching policy consequences JEL Codes: E58, G20 Keywords: Financial systems and central banks

Current Account Sustainability in Transition Economies

Abstract: This paper presents an analysis of the sustainability of current account deficits in transition economies in Central and Eastern Europe. These countries have experienced large current account imbalances in the transition to a market economy. We consider a wide range of macroeconomic factors that may indicate whether such imbalances are sustainable. We find that capital inflows and the choice of regimes of fixed exchange rates have led to a real exchange rate appreciation in many countries; this in turn has led to a significant loss of competitiveness and a worsening of the current account. In several countries there are a number of other indicators that point to a fragility of the external balance: weak banking and financial systems, large fiscal imbalances, low foreign reserves, increasing foreign debt and foreign debt-burden ratios. However, short-term portfolio investments (so-called hot money' inflows) are still relatively small in the transition economies examined, thus limiting the possibility of sudden speculative capital outflows.

Taiwan as an Emerging Foreign Aid Donor: Developments, Problems, and Prospects

Abstract: T AIWAN IS FINANCIALLY RICH BUT DIPLOMATICALLY POOR. It has one of the world's largest foreign exchange reserves. It is the thirteenth largest trading nation, accumulating trade surpluses almost every year since 1970. Its economy has been growing at an average annual rate of nearly 9 percent for the past forty years. Its gross national product reached $304 billion (measured by purchasing power parity) in September 1996, which was among the top twenty in the world. (All currencies quoted in this paper are in U.S.$ unless otherwise specified.) Table 1 summarizes the rise of Taiwan's position in the global economy. In sharp contrast Taiwan is diplomatically isolated, with only thirty countries recognizing it as a sovereign state as of September 1996. It is a member of only about ten intergovernmental organizations, the most notable one being the Asian Development Bank. Can Taiwan utilize its economic strength to break out of its present diplomatic isolation? As perceived by some Taiwanese leaders, one way to do this is by extending economic assistance or foreign aid to developing countries so as to gain their friend-

Measuring Exchange Market Pressure and Intervention in Interdependent Economies: A Two‐Country Model

Abstract: In this article, operational exchange market pressure and intervention indices are derived for a world composed of two interdependent economies. The model-consistent formulae, which can be calculated from observed data, are obtained by applying general definitions of exchange market pressure and intervention activity to a two-country rational-expectations model. It is demonstrated that the functional forms used to measure exchange market pressure and intervention activity depend on whether intervention is direct or indirect and also on whether foreign exchange reserves are held as currency or in the form of bonds.

The Balance of Payments and Foreign Capital Flows in Eighteenth‐Century England: A Comment

Abstract: I n a recent article in this journal, Brezis presented estimates of England's balances of trade and payments for the eighteenth and nineteenth centuries.' For the nineteenth century, she bases her analysis on the wellknown study by Imlah, a work which has stood the test of time and which is generally accepted as providing an accurate account of the balance of payments in the period.2 For the eighteenth century, her estimates are based on the new data which she herself has provided for the major items in England's foreign trade and invisibles accounts and for the size of the country's foreign reserves. On the basis of these estimates, Brezis argues that eighteenth-century England, like most developing countries, ran near-continuous deficits in its overseas trading and financial dealings, deficits which by the 1 770s had reached ?1.7 million per annum. These deficits were financed by substantial inflows of foreign capital, which in turn led to England accumulating a large foreign indebtedness. Thus, Brezis estimates that England's net foreign debts increased from ?2 million in 1710 to ?103 million by the 1780s. These capital flows, she further argues, while previously neglected, played a vital role in British industrialization as for most of this period they provided nearly one-third of total investment in the economy. Brezis's work provides a strong challenge to the current orthodoxy about the causes of British industrialization, which sees the process as a home-grown product, one based on the technology, demand, and capital generated in the internal rather than the external economy.3 If Brezis is correct, we are required to modify these views and to recognize that industrialization, at least with respect to the financing of capital formation, was heavily influenced by forces operating in the international as well as in the domestic economy. The theoretical framework used by Brezis is a sophisticated one and her article demonstrates considerable ingenuity in its attempts to provide new data on the eighteenth-century balance of payments. Nevertheless, I will argue here that so much of the statistical information which she presents is erroneous or at least highly problematic that little confidence

The Role Of The Euro As An International Currency

Abstract: The creation ofthe euro will link an economy that is nearly as large and as open as the United States. Does this imply that the euro will rival the role of the dollar as an international currency? This paper addresses this question through an examination of the determinants of the use of an international currency. It examines both the prospects of the euro becoming an international currency and the implications for the European Union and the United States.

The Role of the Dollar as an International Currency

Abstract: What role should the United States play in a world where financial and goods markets are increasingly integrated? Is U.S. monetary policy becoming less effective?

India and the World Bank

Abstract: The 50th anniversary of lndia's independence follows close on the 50th anniversary of the creation of the World Bank Throughout the past 50 years; India and the Bank have remained closely involved. The twin anniversary provides an opportunity to look at the relationship between them. The World Bank played an important role in India, just as India was an important member of the Bank. The Bank was India’s biggest single source of external finance and India, in turn, was the Bank’s largest single borrower. The size of its borrowing from the Bank gave rise in India to concern about the Bank's influence, though India probably had a greater influence on the Bank. The Bank understands of development issues and priorities, its response to development needs and its policies were shaped in important ways by its knowledge of, interaction with, and its activities in India. In this sense, the relationship between India and the Bank was very much a mutual one, much more akin to a partnership than to a conventional creditor-debtor relationship. The following sections of this paper sum up the several phases in the uneven evolution of the India-Bank relationship, then discuss key aspects of the Bank’s role in India, describe India’s impact on the Bank, and conclude with a few thoughts about the significance of this relationship.

China's Foreign Economic Relations

Abstract: This paper provides an up-to-date overview of China's economic relations with its major trade and investment partners, including Hong Kong and Taiwan, the United States, Japan, the European Union and ASEAN. We also discuss other important international issues such as China and the WTO and the status of China's currency and foreign reserves. In 1995, China's merchandise exports to the world increased by 22%, while merchandise imports rose by 14%. But preliminary data show that China's foreign trade experienced a dramatic slowdown in 1996. Exports grew only by 1.4%, while imports rose by 5.1%. Asia absorbed more than 60% of China's exports and provided about 60% of China's imports. After adjusting for re-exports via Hong Kong, the largest export market for China is the United States, followed by Japan and the EU. Hong Kong and Taiwan are the largest foreign investor in China. Together they accounted for more than 60% of the total foreign direct investment. There are three general problems that China faces with its trading partners: trade restrictions imposed by importing countries against China in the textile and clothing sector, the use of the rule of origin as a means to restrict China's exports, and the use of antidumping duties against Chinese goods. In addition, economic relation with the United States is also affected by the large but inaccurately measured bilateral trade balance, as well as tough negotiations related to China's entry to the WTO. Japan's importance to China is not only through trade and investment, but also through being the largest source of concessional fianancing and aid. The EU is important since it is the third largest export market for China and the second largest provider of China's imports.

Construction of an Estimated Domestic Monetary Base Using New Estimates of Foreign Holdings of US Currency

Abstract: This paper presents a new method to estimate the amount of U.S. currency held abroad. The method exploits the fact the Federal Reserve System is the major processor of currency for depository institutions. The method exploits differentials across denominations in the ratios of shipments to receipts of currency at Federal Reserve cash offices in New York City and nationwide. The method permits us to construct a new monthly time series on the domestic monetary base, M1 and M2. The method has several advantages over previous methods, including an earlier starting date (1965) and the ability to be updated easily each month from Federal Reserve currency processing data. Relative to previous studies, our estimates suggest larger currency exports during the 1970s and early 1980s, and a sharp slowing of exports since 1995. ; This paper has been replaced with working paper 2000-002, "The Domestic Adjusted Monetary Base".

The demand for international liquidity: a cointegration approach

Abstract: This paper first examines the existence of a long-run demand for foreign reserve holdings in Greece and second, tests for its temporal instability using time series techniques. Cointegration tests reveal the existence of a systematic long-run relationship between real reserves, real income, average propensity to import and the eurodollar interest rate. An interesting aspect of the cointegration analysis is the evidence that the demand for international liquidity is not characterized by economies of scale. The Hansen—Johansen (1993) recursive analysis results indicated that the cointegrating equation was stable over the nominal exchange rate targeting period 1988–92, implying that the reserve holdings play a significant role in the balance of payments adjustment process.

Internationalizing Procurement: Determinants of Countertrade Involvement

Abstract: As protectionist governments around the world have toppled, free trade zones opened up, and trade barriers dissolved through either multilateral agreements (such as the GATT) or through regional free trade agreements (such as NAFTA), greater numbers of enterprises have looked to foreign markets as sources of supply. International procurements, as a share of a firm's total purchase volume, have expanded steadily since the end of the 1970s. In 1977, only 2.5 percent of total purchased value in the U.S. was procured from other countries; the global proportion of purchases expanded to around 5 percent by 1981, and grew to 19 percent of total procurements in 1990.[1] This steady increase in global sourcing is one observable dimension of the internationalization of American firms. Internationalization, the expanding involvement of a firm's business functions in the global arena, has brought new consumer goods to some countries, lower component costs to other countries, and increased employment for many.[2] The growth in worldwide sourcing has been accompanied by a similar expansion in unconventional trade financing mechanisms, the most prominent of which is countertrade. Countertrade, the exchange of goods and/or services for other goods and/or services as full or partial payment for a trade transaction, has been estimated to accompany anywhere from 15 to 30 percent of all world trade.[3] From the early 1970s to the mid-1980s, the number of countries involved in countertrade rose from 15 to 94.[4] Due to the lack of reporting requirements in most countries around the world, these figures are simply estimates; exact volume numbers are not known. BACKGROUND Countertrade has traditionally been demanded by countries with limited foreign exchange reserves and/or inconvertible currencies as a means for financing imports.[5] Well-known examples, such as the construction of the gas pipeline between the (former) Soviet Union and Western Europe (where payment for the pipeline was made with the natural gas that later flowed through it) and McDonnell-Douglas's compensation of canned hams for the sale of aircraft to Poland, involved centrally planned economies with insufficient convertible currency funds to pay for the purchases with cash.[6] Less developed countries have also mandated countertrade from time to time to diversify their foreign exchange earnings. This motivation has been particularly true for countries that are heavily dependent on one or a handful of commodities for their entire national export earnings. For example, Indonesia, which issued countertrade regulations in December 1981, received 71.8 percent and 81.4 percent of its export earnings from petroleum sales in 1980 and 1981, respectively.[7] Its increasing dependence on one commodity made the country's export earnings very vulnerable to shifts in prices on the world oil markets. By mandating countertrade, Indonesia and other countries could earn foreign exchange from alternative exports and thereby curtail their economic exposure. Countertrade has also been used as a means of developing labor-intensive exports, and in turn, increasing a country's employment rate.[8] As with diversifying export earnings, the use of countertrade to increase labor-intensive exports is typically resorted to because of inadequate marketing channels through which the items could be sold for cash.[9] The imposition of countertrade allows a country to take advantage of multinationals' established distribution channels. Because countertrade requires the location and matching of buyers and sellers for a wide variety of goods in a short period of time, trading companies are often used to facilitate the transactions. These trading companies charge a fee for their services, thereby inflating the price of the products sold to the country mandating countertrade. This margin means the importing country must pay a premium for their imports, which is equivalent to placing a discount on their exports. …

Trade, Money and Markets

Abstract: In the mid-1990s, the best estimates put the amount of foreign exchange dealing across national borders, around the world, at about $1.3 trillion daily (The Economist, 1995a, p. 12). In contrast, total government foreign reserve holdings — the money by which governments enter the game of market speculation and intervention — rested at less than the equivalent of two days of this turnover in the foreign exchange market (Walter, 1993, p. 199) and totalled around $640 billion for the rich industrial countries (The Economist, 1995a, p. 12). The capacity for this market to create targeted runs on particular currencies is thus fearsome. In late 1987 the dollar plummeted by some 14 per cent in just over three months following loss of confidence in international money markets (Spero, 1990, p. 62). On 16 September 1992 the British Chancellor of the Exchequer authorized the spending of more than one-third of Britain’s total foreign currency reserves in a rearguard action in the face of a market-led assault on the pound. By the end of what became known as ‘Black Wednesday’ the policy had failed and the Quantum fund run by George Soros was $1 billion in profit. Two things stand out. When it comes to international monetary issues, national economies are highly interdependent with each other and vulnerable to the foreign exchange market. Because of this, individual governments face a loss of control over the economic destiny of their countries.

Dual Exchange Rates: the Mexican Experience, 1982–7

Abstract: On 6 August 1982, after a run against the peso left the Bank of Mexico with no foreign exchange reserves, a stabilization program to deal with the balance of payments crisis was announced. One important part of this stabilization program was the institution of a dual exchange rate system. The exchange regime consisted of a ‘preferential’ rate and a ‘general’ rate. The preferential rate applied to current account transactions while the general exchange rate applied to capital account transactions. The Central Bank set the preferential rate at 49.13 pesos per dollar and announced a daily devaluation of 4 cents. In contrast, the general rate was allowed to float. Immediately after the announcement, the general rate was equal to 75.33 pesos per dollar, implying a depreciation of 54.4 percent.

Liberalization and Growth-Oriented Structural Adjustment Programs: A Financial Programming Approach for India

Abstract: The underlying rationale for the current approach to structural adjustment in India is explained in terms of a growth-oriented financial programming model. Control theory is then invoked to design a stabilization package to manage the pace at which the exchange rate and interest rate equilibrate with attempts to modify the impact of the liberalization process on foreign exchange reserves so that the possibility of stagflation is avoided.

The International Debt Crisis of Iraq

Abstract: The two devastating wars fought unnecessarily by Iraq in the past decade, alongwith the UN’s ongoing economic sanctions, have ultimately led to the bankruptcy of the country. Iraq has thus moved from a once prosperous situation with estimated foreign reserves of US$35-40 billion and virtually no foreign debt to one with a foreign debt and obligations of almost US$700 billion. Obviously, Iraq’s prospects for economic recovery, prosperity, and its re-integration into the international community will depend largely on the kind of political, social, and economic reforms that its government can develop and implement. An attitudinal change on the part of the creditor nations towards Iraq’s indebtedness problem would also have a considerable impact on its growth and economic recovery. This paper analyzes Iraq’s external indebtedness problem and evaluates the applicability of the debt-equity swap as a means to relieve the severity of its debt burden. In spite of some drawbacks of debt-equity swaps, this paper demonstrates how a successful debt-equity swap program could not only play an important role in alleviating Iraq’s debt problem, but it could also aid in the revitalization of its economy.

Impact of Policy Reforms on Manufacturing Growth in Nepal

Abstract: Until the mid-1980s, there was a very popular view in Nepal, as in many other developing economies, that import substitution (IS) policy improves terms of trade, reduces dependence on external markets, and creates employment opportunities Thus, IS policy was given top priority However, it failed to sustain economic development, and in fact, reliance on external markets increased due to growing need for capital goods and intermediate inputs Furthermore, the capital intensive nature of the IS industries resulted in slow growth in employment opportunities By the mid-1980s, it was obvious that an inward-oriented development policy had produced recession in the economy Thus, reforms were introduced in 1986-87 but they moved very slowly at the beginning due to the country's land-locked position and open border with India If trade and investment policies in Nepal were more liberal than those in India, massive smuggling would drain Nepal's foreign exchange reserves If Nepal were to provide generous export incentives, Indian goods would be reexported So to control smuggling and maintain an economic balance, Nepal had to delay pursuit of a massive liberalization until India liberalized its policy environment in the early 1990s This article examines the impact of reforms on the manufacturing sector of Nepal, a least-developed land-locked country' The first section briefly describes the historical setting and is fol-

Ein neuer Verfassungsartikel für die Schweizerische Nationalbank

Abstract: This paper critically examines the proposed new constitutional article for the Swiss National Bank. The following points are emphasised : a) The SNB distributes only a very small fraction of its profits (as compared to other national banks). b) The SNB holds an exceptionally important and undiversified portfolio of foreign exchange reserves. It clearly wants to pursue this strategy of accumulating foreign government debt, at the expense of the tax- payer. c) In the past it has earned only a very low rate of return on its assets. d) A substantial part of the assets held by the SNB are not required for the purposes of monetary policy, and should be managed by professional asset managers. e) It would be an error to allow the SNB to concentrate itself solely on controlling inflation.

Convertibilidad, capitales volátiles y estabilización : el papel de las finanzas del gobierno

Abstract: This paper examines the potential effects of volatile international capital flows on a small, commercially and financially open economy under a currency board regime, as is currently the case in Argentine. In the face of shocks, like those associated with changes in the magnitude and direction of capital flows, the convertibility regime generates pro-cyclical reactions, which pose important problems for the stabilization of real and financial variables. In particular, the paper focuses on the stabilization of real and financial variables. In particular, the paper focuses on the stabilizing role of decisions concerning public debt management and, in general, the administration of the Treasury’s and Central Bank’s financial portfolios (assets and liabilities, including foreign exchange reserves). The paper briefly reviews the main analytical approaches to the public sector’s financial portfolio management and, within that framework, makes a stylized examination of the distinctive characteristics of the Argentine case.

Priorities for Burma’s Development: the Role of International Aid

Abstract: In July 1988, in the waning hours of the Burma Socialist Programme Party (BSPP), the ruling elite made two important decisions that were both implemented following the military coup of 18 September 1988. Both profoundly affected the economic structure of the state.

Countertrade in a Transitional Market Economy: The Chinese Experience

Abstract: J L Simpson * Introduction The processes of internationalisation and market reform are occurring rapidly in China and other transitional market economies (TMEs). TMEs are the new socialist market economies born out of centrally planned economies after the recent break down of communism in Europe and in parts of Asia. Countertrade (CT), in its purest form, is the exchange of product for product rather than product for currency in conventional trade. The basic incentives to countertrade relate to the likelihood that the economies of developing countries, centrally planned countries and transitional market countries are dominated by foreign exchange shortages or a strong desire to conserve foreign exchange reserves. The importance of CT is that it is estimated at 20% of global trade and is increasing (Simpson, 1995). The broad components of CT are barter, counterpurchase, buyback and offsets. Barter is the purest form of CT. It is the simple exchange of one product for another under one contract. There is no exchange of currency. Counterpurchase is a more complex form of barter. The deals are usually completed over more than one year. In counterpurchase more than one contract is involved as the sale of one product becomes conditional on the purchase of another. The products exchanged may be complementary in nature. There may be a currency exchange to make up for any shortfall in values of product exchanged. Buyback deals are even more complex than counterpurchase. There is also more than one contract involved. There can.be a portion of currency exchange. The deals may take many years to complete. A typical buyback deal would involve a DC multinational becoming a joint venture partner in a manufacturing facility in a less developed country (LDC) or in a centrally planned economy (CPE). The multinational accepts payment for its investment in the product of the joint venture. There is usually a deferred dividend flow from the joint venture security. This form of trade also involves transfer of technology to the importing country. Offset is government mandated CT. It usually involves more than one contract for `big ticket' products of a defence nature and may take many years to complete. There may be a component of currency exchange. A typical offset deal would involve for example, the establishment by a western government of an aircraft componentry manufacturing facility in an LDC in exchange for certain economic benefits. Such benefits would include favoured trading status in the importing country. Again, there is necessarily a technology transfer involved in favour of the importing country. Notwithstanding the various economic arguments against CT (such as large transaction costs and bilateralism), the motivations of liquidity conservation and wealth maximisation in practice, are sufficient conditions to bring a DC and an LDC or a DC and a CPE together to countertrade. That is, short term liquidity requirements of one party may be matched with share value maximisation motivations of the other party through CT. Various theories have assisted in the evolution of modern CT theory, particularly where one of the parties is a DC, or a DC firm and where the law of comparative advantage and the minimisation of transaction costs are dominating motivations for trade. CT theory derived from economic theory relates to the utility of barter deals (Edgeworth, 1881), the signalling hypothesis in counterpurchase deals (Murrell, 1982) and risk sharing for export sales (Amman and Marin, 1994). The utility of barter deals presents a game theory model where two traders trade different quantities of two products according to their own levels of satisfaction. The signalling hypothesis applies to buyback (joint venture) and offset CT and is based on the assumption that the product concerned has a certain quality which the original supplier knows and can signal to potential buyers with trademarks and guarantees. …

Bank of Norway's Role as Manager of Norway's Foreign Exchange Reserves and the Government Petroleum Fund

Abstract: Leif Eide, Executive Director. EMEAP (Executive Meeting of East Asia and Pacific Central Banks) reserves management seminar, Singapore, 26-27 February 1997.

Real estate and a single currency

Abstract: Currency fluctuations have a significant impact on occupational and investment property markets. The performance of an international portfolio would be strongly influenced by the changes seen in the exchange rate of the investor and in the country of their investments. Occupational costs meanwhile vary considerably as a function of currency movements as well as rental growth. A single currency would reduce this risk. The changing economic conditions necessary to deliver a single currency are however of greater importance than the denomination of money. Examines the general concept of a single currency, rather than the specific design and implementation of the Euro as currently envisaged. There are clearly some concerns as to the stability of the proposed new European currency. If extreme, these could outweigh the advantages indicated in this research, particularly over the shorter term. Modelling capital growth and yields demonstrates the importance of exchange rates as a function of monetary policy and economic behaviour. A single currency could allow yield premiums to fall in more volatile markets as economic conditions converge, as has already been seen in bond markets. It would highlight the pricing of property as a function of fundamental demand and income security and could facilitate a more sophisticated valuation and investment appraisal practice in Europe. If EMU goes ahead it will lead to new occupational patterns and areas of investment growth. As such it is likely to generate tenant and investor activity as the most efficient and competitive locations are sought out.