scholarly journals Emerging markets and the international financial architecture: a blueprint for reform

2015 ◽  
Vol 35 (2) ◽  
pp. 285-305 ◽  
Author(s):  
JAN KREGEL
Keyword(s):  
Emerging Markets ◽  
Financial Stability ◽  
International System ◽  
Emerging Market ◽  
Political Influence ◽  
National Currency ◽  
Emerging Market Economies ◽  
Market Economies ◽  
Financial Architecture ◽  
International Financial Architecture

If emerging markets are to achieve their objective of joining the ranks of industrialized, developed countries, they must use their economic and political influence to support radical change in the international financial system. This working paper recommends John Maynard Keynes's "clearing union" as a blueprint for reform of the international financial architecture that could address emerging market grievances more effectively than current approaches. Keynes's proposal for the postwar international system sought to remedy some of the same problems currently facing emerging market economies. It was based on the idea that financial stability was predicated on a balance between imports and exports over time, with any divergence from balance providing automatic financing of the debit countries by the creditor countries via a global clearinghouse or settlement system for trade and payments on current account. This eliminated national currency payments for imports and exports; countries received credits or debits in a notional unit of account fixed to national currency. Since the unit of account could not be traded, bought, or sold, it would not be an international reserve currency. The credits with the clearinghouse could only be used to offset debits by buying imports, and if not used for this purpose they would eventually be extinguished; hence the burden of adjustment would be shared equally - credit generated by surpluses would have to be used to buy imports from the countries with debit balances. Emerging market economies could improve upon current schemes for regionally governed financial institutions by using this proposal as a template for the creation of regional clearing unions using a notional unit of account.

scholarly journals A note on money creation in emerging market economies

2017 ◽  
Vol 9 (1) ◽  
pp. 70-85 ◽  
Author(s):  
Alexey Ponomarenko
Keyword(s):  
Emerging Markets ◽  
Financial Stability ◽  
Foreign Currency ◽  
Emerging Market ◽  
Emerging Market Economies ◽  
Special Focus ◽  
Ratio Requirement ◽  
Content Type ◽  
Market Economies ◽  
Money Creation

Purpose This paper aims to discuss the money creation mechanisms in emerging markets with special focus on external transactions and outlines the implications for monetary policy and financial stability issues. Design/methodology/approach To make the argument, the authors analyze a historical episode of flows of funds in Korea and Russia and conduct a canonical correlation analysis for a cross-section of emerging market economies. Findings The authors show that changes in the net foreign assets of the banking system are associated with (or cause) deposits fluctuations. In emerging markets, however, the scope of such fluctuations is limited unless driven by changes in the foreign reserves of a central bank. Originality/value Some preliminary implications for financial stability implementation may be drawn from this analysis. Introducing the net stable funding ratio requirement is unlikely to have any significant destabilizing effect on credit creation in emerging markets (in this regard, it is similar to the restriction on banks’ foreign currency position, which is a common prudential measure). Instead, it is likely to trigger a balance of payment adjustment that is similar to that experienced by an economy during its transition from fixed to flexible exchange rate regime.

scholarly journals Liquidity regulations and bank behavior: An emerging markets perspective

2021 ◽  
Vol 10 (4, special issue) ◽  
pp. 194-211
Author(s):  
Tafirei Mashamba
Keyword(s):  
Emerging Markets ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Generalized Method Of Moments ◽  
Emerging Market Economies ◽  
Basel Iii ◽  
Market Economies ◽  
Coverage Ratio ◽  
The Impact

The 2007 to 2009 global financial crisis significantly affected the funding structures of banks, especially internationally active ones (Gambacorta, Schiaffi, & Van Rixtel, 2017). This paper examines the impact of liquidity regulations, in particular, the liquidity coverage ratio (LCR), on funding structures of commercial banks operating in emerging markets over the period 2011 to 2016. Similar to Behn, Daminato, and Salleo (2019) who developed a dynamic partial equilibrium model to examine capital and liquidity adjustments, this paper develops three dynamic error component adjustment models and estimates them using the two-step system generalized method of moments (GMM) estimator to analyze funding adjustments adopted by banks in emerging markets in response to the LCR requirement. The results revealed that banks in emerging markets responded to binding liquidity regulations by increasing deposit, equity as well as long-term funding. In terms of the magnitude of response, deposit funding was found to be more responsive to the LCR rule while the elasticity of equity and long-term funding to the LCR specification was found to be weak. The weak response of equity and long-term funding to liquidity standards was attributed to low levels of capital market development in emerging markets (Bonner, van Lelyveld, & Zymek, 2015). By and large, the results suggest that Basel III liquidity regulations have been effective in persuading banks in emerging market economies to fund their business activities with stable funding instruments. Based on this evidence, the study supports the adoption of Basel III liquidity regulations in emerging markets. Moreover, policymakers in emerging market economies should monitor competition for retail deposits to safeguard the benefits of the LCR rule and pay more attention to developing capital markets.

Financial liberalization and the behavior of reversals in emerging market economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ali Fayyaz Munir ◽  
Shahrin Saaid Shaharuddin ◽  
Mohd Edil Abd Sukor ◽  
Mohamed Albaity ◽  
Izlin Ismail
Keyword(s):  
Emerging Markets ◽  
Financial Liberalization ◽  
Emerging Market ◽  
Asia Pacific ◽  
Emerging Market Economies ◽  
Investment Strategies ◽  
Content Type ◽  
Market Economies ◽  
Contrarian Strategy ◽  
Fund Managers

PurposeThis paper investigates the behavior of contrarian strategy payoffs under varying degrees of financial liberalization in the context of Asia-Pacific emerging market namely China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines and Thailand for the period 1997–2017. These markets represent economies that display a gradual change in the degree of financial liberalization instead of fully opening their markets to foreign investors at once.Design/methodology/approachUsing a daily dataset of 2,468 firms and four different measures of the degree of financial liberalization, the paper employs portfolio formation, panel regressions and binary modeling methods to reveal the impact of partial and complete financial liberalization on contrarian returns.FindingsThis paper documents a negative relationship between the degree of financial liberalization and contrarian strategy payoffs. The results further indicate that small-sized emerging markets reveal more significant and higher contrarian returns as compared to their larger counterparts. Moreover, the returns are significantly higher during negative market states, higher volatility and crises periods. The study findings are consistent with the investor-base broadening hypothesis.Practical implicationsThe findings may serve as a useful input for investors and fund managers to devise contrarian investment strategies in emerging market economies. Together, the study provides additional insights for policymakers in managing financial liberalization and integration policies within their respective countries.Originality/valueThis study provides a novel viewpoint by examining the relationship between the degree of financial liberalization and contrarian strategy payoffs. The authors contribute to the existing debate by shifting the discussion to the investor-based broadening argument in which small and less liberalized emerging markets offer opportunities for investors and fund managers to produce abnormal contrarian returns that cannot be earned by other conventional investment strategies.

The 2017 Joint Review of the Standards and Codes Initiative

Policy Papers ◽  
2017 ◽  
Vol 17 (009) ◽  
Author(s):  
Keyword(s):  
Emerging Markets ◽  
World Bank ◽  
Emerging Market ◽  
Capacity Development ◽  
International Standards ◽  
Economic Institutions ◽  
Policy Makers ◽  
Financial Architecture ◽  
Market Participants ◽  
International Financial Architecture

The standards and codes (S&C) initiative was launched in the aftermath of the emerging market crises of the 1990s as part of efforts to strengthen the international financial architecture, with a focus on emerging markets. The initiative has aimed at promoting international standards and codes to improve economic and financial resilience by assisting countries in strengthening their economic institutions and informing World Bank and IMF work. The four previous reviews confirmed a fairly high appreciation of the overall initiative, while also raising questions about the initiative’s link to surveillance and capacity development efforts, weak uptake by market participants, as well as a need to improve traction with policy makers. This review reaffirms the country authorities’ appreciation for S&C work, and its focus and scope are guided by the February 2017 paper.

Equity Prices, Monetary Policy, And Economic Activities In Emerging Market Economies: The Case Of South Africa

2012 ◽  
Vol 28 (6) ◽  
pp. 1217 ◽  
Author(s):  
Lumengo Bonga-Bonga
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Emerging Markets ◽  
Emerging Market ◽  
Labour Productivity ◽  
Emerging Market Economies ◽  
Font Size ◽  
Economic Activities ◽  
Equity Prices ◽  
Market Economies

<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="font-family: Times New Roman;"><span style="color: black; font-size: 10pt; mso-themecolor: text1;">This paper investigates the possible influence equity price shocks have on economic activities and inflation in emerging market economies such as South Africa. Moreover, the paper discusses the role monetary policy action should play in preventing or reducing the disruptive effects of equity market volatility in emerging markets. It uses the structural vector error correction (SVEC) model to identify the different shocks and obtain the impulse response functions in a case study of South Africa. The paper finds that positive shocks to equity prices negatively affect expected inflation in the first two quarters before the effect becomes positive. This finding indicates that initially </span><span lang="EN-ZA" style="color: black; font-size: 10pt; mso-themecolor: text1; mso-ansi-language: EN-ZA;">high stock market valuations raise the expectation of high capital and labour productivity by investors. Later on, the possibility of high stock prices increasing economic activity creates an expectation of high inflation rates in the future. From this finding, the paper concludes that the monetary authority in emerging markets in general and South Africa in particular should include equity prices in its reaction function. </span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>

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