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OMFIF Bulletin OMFIF BULLETIN OfficialGlobal MonetaryInsight on and Official Monetary and Financial Institutions Financial Institutions Forum October 2010 ‘Bash Beijing’ mood grows stronger Embattled Obama wakes up to Chinese realities Jonathan Fenby, Board of Contributing Editors s the Beijing-Washington gulf over In the run-up to the change in Chinese including the renminbi issue alongside Athe renminbi becomes ever more leadership at the end of 2012, Prime North Korea, Iran and military relations. evident, the next chapter of the Sino- Minister Wen Jiabao has launched If that is the case, the administration has American currency saga will probably an intriguing debate about the need been living in an unreal world. Now unfold in the US domestic political for political reform to provide a new that it has woken up, it has to decide arena – a recipe for volatility that could framework for the economy. But that how far to go along with the ‘bash lead to protectionism on both sides. does not mean that China is preparing Beijing’ lobby and play to domestic any concessions on the international politics on trade restrictions linked to Somewhat ironically, a further rise in front, either on the currency or in spats the currency. [See article by Darrell monetary controversy has coincided such as the row with Japan over a Delamaide on p.3.] with the Chinese currency at last detained trawler captain in September beginning to appreciate in the second – a confrontation that has repercussions The departure from President Barack half of September following the People’s in engendering monetary tensions Obama’s team of Larry Summers, Bank of China move in June to allow between Beijing and Tokyo. who visited China in September as the renminbi more flexibility. an administration envoy, will remove The Obama administration may a voice arguing the free trade case. Far from being seen as the welcome finally have accepted that – as I have The danger is that action by the US start of a trend, the 1.8% rise of the consistently argued [OMFIF September on Chinese imports could spark off renminbi between June and late Bulletin, p.4] – China’s currency policy retaliatory action in Beijing. September seems likely to be followed will vary only at the margins. The New by an intensification of US pressure York Times reported on 24 September Obama pressed Wen on the issue ahead of the IMF/World Bank annual that ‘few foreign policy problems when they met on 23 September on meetings in Washington, bringing in took the Obama administration more the fringes of a UN session in New other G20 members and raising the by surprise this year than the rapid York. At the same time, Treasury temperature on Capitol Hill. escalation of tensions with China’, (continued on page 4 ...) Contents Changing faces US stalemate extends to Fed policy Darrell Delamaide 3 Dealmakers’ comeback Great leap in economic governance Lorenzo Bini Smaghi 5 Peter Kinahan, Senior Editor he nominations of Bob Diamond and Stuart Gulliver as chief Permanent fund for Europe John Nugée 6Texecutives at Barclays and HSBC consolidate the ascendancy of investment bankers at some of the world’s largest universal German-Dutch split on errant states Roel Janssen 10 banks – just one element in a remarkable renaissance of investment banking. ‘Trilemma’ over sovereign wealth Andrew Rozanov 11 The two appointments mark an extraordinary resurgence in The paradox of the yen Stefan Bielmeier 13 confidence by businesses badly singed by public and political flak after the financial crisis. The elevation of Diamond – New challenges for central bankers Malan Rietveld 14 termed earlier this year by then UK business secretary Peter Mandelson as ‘the unacceptable face of banking’ – appears Blair’s terminological inexactitudes William Keegan 15 to lay down the gauntlet to the UK government as it launches an inquiry into the possible break-up of large banks. The OMFIF Advisory Board 16 nomination the more low-key Gulliver, part of a management This document must not be copied reshuffle following the departure of HSBC chairman Stephen OMFIF and is only to be made available Green to take a government trade post, does not embody Official Monetary and to OMFIF members, prospective Financial Institutions Forum the same brusque symbolism. members and partner organisations (continued on page 4 ...) www.omfif.org 1 OMFIF Official Monetary and Financial Institutions Forum Letter from the chairman Official Monetary and Financial Institutions Forum Uncertainty in the air One Lyric Square London W6 0NB Politics spills over into economics United Kingdom t: +44 (0)20 3008 8415 David Marsh, Co-chairman f: +44 (0)20 3008 8426 David Marsh head of the annual IMF/World Bank meetings in Washington, the world is again in a Co-chairman Afebrile state. There is not, it must be said, the sense of calamity that attended the same [email protected] gatherings two years ago, in the immediate aftermath of the collapse of Lehman Brothers. +44 (0)20 3008 5207 But uncertainty hangs in the air, made worse by the doubts over the sustainability of Michael Lafferty the US recovery following a collapse in poll ratings for President Barack Obama and a Co-chairman stream of announcements of the departure of erstwhile trusted aides. [email protected] +44 (0)20 3008 8415 The four main economies – the US, China, Japan and Germany – continue to be pummelled Evelyn Hunter-Jordan by political controversies with considerable repercussions in the financial and monetary Managing Director sphere. Whether it is the row between China and Japan over a detained Chinese trawler [email protected] captain, the Sino-American spat over trade and the renminbi or Germany’s controversies +44 (0)20 3008 5283 with its neighbours over the long-term future of euro governance, politics spills over into Edward Longhurst-Pierce economics. The same is true, but with opposite direction of causality, in the world of Kevin Molloy investment banking: economics spills over into politics. Freddie Leclercq OMFIF Secretariat The October edition of the Bulletin attempts to put all this into perspective. Jonathan [email protected] [email protected] Fenby and Darrell Delamaide look at the two sides of the US-Chinese equation. Peter [email protected] Kinahan examines the impressive resurgence of investment banks and the march to the +44 (0)20 3008 5262 top of the men behind them. On the prime theme of improving the governance of the euro area, Lorenzo Bini Smaghi sets down in this month’s OMFIF Essay the main lines of Neil Courtis Development Director the European Central Bank’s thinking, while John Nugée outlines his own proposals for a [email protected] European Fiscal Solidarity Fund to take over from the European Financial Stability Facility. +44 (0)79 4747 5044 Roel Janssen points out crucial differences between the approaches of two countries that normally agree with each other – Germany and the Netherlands. Malan Rietveld Head of OMFIF Education Chief Economist Andrew Rozonav contributes a thoughtful article on some fundamental constraints on [email protected] the role and behaviour of state-owned investment groups, for which he continues to +1 (0)416 818 4566 favour the term ‘sovereign wealth funds’ rather than ‘sovereign funds’ as suggested in the Sanjay Ujoodia September OMFIF Bulletin. We agree with Andrew that differences over terminology are Chief Financial Officer less important than interchanges on ideas. [email protected] +44 (0)20 3008 8421 Malan Rietveld suggests that, to keep pace with the changing environment, central banks Darrell Delamaide and other official institutions need a shot in the arm in the field of education and training. Newswire Editor Stefan Bielmeier in his monthly column looks at the paradox of high public debt driving the [email protected] yen higher. William Keegan delves further into terminology, pointing out some important +1 (0)202 248 1561 ‘inexactitudes’ over monetary policy in the recent memoirs of former UK prime minister Tony Tom Brown Blair which he suggests even deserve the description ‘whoppers’. We hope the subtle and Production Editor not-so-subtle differences between these two terms will not be lost on our readers. y [email protected] +44 (0)20 3008 5284 Strictly no photocopying is permitted. It is illegal to reproduce, store in a central retrieval system or transmit, electronically or otherwise, any of the content of this publication without the prior consent of the publisher. All OMFIF members are entitled to PDFs of the current issue and to an Note on contributors to October Bulletin archive of past issues via the member area of the OMFIF website: www.omfif.org Lorenzo Bini Smaghi is Member of the Executive Board of the European Central Bank While every care is taken to provide accurate information, the publisher cannot accept liability Jonathan Fenby, Member of the OMFIF Advisory Board, is in Beijing for the research for any errors or omissions. service Trusted Sources (www.trustedsources.co.uk) No responsibility will be accepted for any loss occurred by any individual due to acting or not acting as a result of any content in this Malan Rietveld is Head of OMFIF Education publication. On any specific matter reference should be made to an appropriate adviser. Andrew Rozanov is Managing Director and Head of Sovereign Advisory at Permal Company Number: 7032533 Investment Management Services 2 www.omfif.org OMFIF Official Monetary and US & the world Financial Institutions Forum US stalemate extends to Fed policy The prevarications of Thomas Hoenig Darrell Delamaide, Board of Contributing Editors homas Hoenig appears to have a guilty conscience. The president of the Kansas City Hoenig’s go-it-alone TFederal Reserve Bank has ‘powerful regrets’ about not dissenting more often under Fed chairman Alan Greenspan when low interest rates allowed dangerous asset bubbles to prevarications are develop, Bloomberg Business Week reports, citing Hoenig’s friend Richard Fisher, president undermining the of the Dallas Fed, as a source.
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