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Economics Commentary offers analyses and opinions on international monetary affairs and emerging markets capital markets developments. The content is primarily concerned with changes in the international monetary system and its impact on economic policies and international capital markets and draws extensively on participations in key international economic policy fora. Economics Commentary aims to support the public debate and markets' understanding of major international monetary and emerging capital markets developments.


Cryptocurrencies, monetary stability and regulation: Germany’s nineteenth century private banks of issue

14 February 2018

The present paper classifies bitcoins and other cryptocurrencies as money, reviews their possible economic impact and proposes a regulatory approach based on Germany’s nineteenth century private banks of issue. Cryptocurrencies represent important monetary innovations and have reinvigorated interest in and debate about notion and meaning of money. They aim to disrupt and challenge existing monetary and financial arrangements. Their market valuations though highly volatile may become substantial quickly. Their impact on the financial system therefore causes disquiet. It has already led to various regulatory measures and calls for more. However, few discussions on regulation have focused in earnest on the possibility of a sustained significant expansion of cryptocurrencies as money. [...]

European Monetary Fund—A misnomer

23 January 2018

The prospects for a European Monetary Fund (EMF) are good. The agreement of last Sunday to initiate formal talks between the SPD and CDU to form a government in Germany made an EMF significantly more likely. An EMF has been promoted by the CDU and pushed by the SPD and may be one of the first European measures of the new government. However, an EMF is unlikely to address monetary issues or become a fund. The misnomer obfuscates what an EMF should and likely will be doing. European Fiscal and Financial Support Bank would be more fitting. [...]

Cryptocurrencies and tulipmania

28 December 2017

The spectacular price rises of many cryptocurrencies during the past 12 months have for some time been compared to the seventeenth century Dutch tulip mania. The comparison seems appropriate. Not because price rises are comparable. They are not as cryptocurrencies have seen price increases far greater than those seen for tulip bulbs. Tulips and cryptocurrencies share the same fundamental feature: They can be reproduced at will. As with tulip bulbs, with totally elastic supply, the substantial price increases for cryptocurrencies appear impossible to justify.[...]

International reserve diversification

6 December 2017

The composition of central banks’ international reserves has not changed much over the decades. Or has it? The latest IMF Coordinated Portfolio Investment Survey (CPIS) shows a significant increase in the number of countries in which assets are invested that are held as foreign exchange reserves. This seems indicative of some momentum towards greater diversification in international reserve holdings.[...]

International portfolio investments (update)

6 December 2017

International portfolio investments picked up in 2016 amid a push towards the United States and a modest recovery towards emerging markets. The latest IMF Coordinated Portfolio Investment Survey (CPIS) shows the total stock of cross-border portfolio investments in equity and debt securities, excluding securities held as international reserves, in December 2016 at 42.9 trillion (57 percent of world GDP) up from US$39.9 trillion in 2015 (54 percent of world GDP). The shifts in cross-border portfolio holding reveal a further decline of Euro Area securities and somewhat more concentrated portfolio holdings. Overall, total international portfolio investments have still not recovered from their 2007 peak relative to world GDP. [...]

Federal Reserve—Unwinding of securities holdings

1 December 2017

The Federal Reserve initiated in October2017 the unwinding of its securities holdings acquired as a result of its quantitative easing policy. It means channelling large amounts of credit and duration risk back into the market. At the same time, the collapse of money velocity highlights persistent strong liquidity preference by the market and likely wariness to absorb interest rate risk in an environment of targeted interest rate increases. The combination of low money velocity and long duration of the Fed's balance sheet means that unwinding of quantitative easing will be a complicated affair. At the end of targeted normalisation, the Fed will still retain unprecedented large amounts of rate and credit risks. The Fed could therefore become itself an important source of instability for monetary policy, the international monetary system and the dollar. [...]

Special Drawing Right (SDR)

Collection of comments on the SDR