Lagarde's Over-Accommodative Stance

Winter 2021 Vol.12 Ed.1

in the LINE of fre The threats to central bank independencE Invested in the future.

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Untitled-2AS_0319_3793_print.indd 1 1 29/03/20193/28/19 2:34 09:20 PM Contents

Winter 2021 Vol.12 Ed.1 10

4 ABOUT OMFIF 26 WHY RISING PUBLIC DEBT WON’T DRIVE 5 LEADER COUNTRIES INTO DIFFICULTIES Christian Kopf 6 REVIEW WORLDVIEW COVER STORY 28 10 REASONS WHY RENMINBI WILL KEEP 10 IN THE LINE OF FIRE ON RISING David Marsh David Marsh

15 ECB MAIN TASK IS TO FOLLOW 30 DON’T OVERPLAY THE RIGHT POLICIES DOLLAR’S DECLINE IN 2021 Danae Kyriakopoulou Mark Sobel

16 SCEPTICISM OPENS DOOR FOR 31 ERA OF LOW INFLATION CRYPTOCURRENCIES COULD LAST FOR Steve Hanke 50 YEARS Meghnad Desai OUTLOOK 2021 17 32 WHY BROWN SHOULD 18 WHAT NEXT FOR RESERVE MANAGERS? BE THE NEW GREEN Massimiliano Castelli Danae Kyriakopoulou 30

19 DIGITAL DYNAMISM WILL FUEL 33 THE CASE FOR A ASIA’S OUTPERFORMANCE EUROPEAN BANKING CHARTER Taimur Baig Ignazio Angeloni

20 BIDEN MUST ADOPT MULTILATERAL 34 A SURGE IN INFLATION IS ON THE TACTICS FOR CHINA POLICY HORIZON Nathan Sheets Juan Castañeda and Tim Congdon

21 AFTER COVID-19, WE REQUIRE A 35 SHEDDING LIGHT ON CHINA’S CAPITAL NEW FORM OF FINANCE INFLOWS Joseph Ding Herbert Poenisch 22 MAKING DIVERSITY COUNT INQUIRY Hani Kablawi 38 OMFIF ADVISERS NETWORK POLL 23 MAKING CBDCS A TRUE AND Ensuring policy harmony TRUSTED CURRENCY Wolfram Seidemann Inquiry 24 BEWARE RISING NEUTRAL RATES James Sweeney

25 SOVEREIGN DEBT CAN BOOST EURO’S Cover illustration: Shonagh Rae RESERVE CURRENCY STATUS @shonaghrae Frank Scheidig 38

In a speech to OMFIF in November, Bundesbank President Jens Weidmann stated that central bankers need ‘to make it very clear that we 93% Ensuring are not going to place monetary policy at the OMFIF.ORG serviceWINTER of ﬁscal policy’, cautioning 2021 that ‘if we BULLETIN 3 create a diferent impression, we are putting policy both our independence and our credibility at risk.’ Do you agree? 7% harmony Poll of OMFIF website users, OMFIF advisory board and Twitter users Yes No

Talk of monetary policy at the service of fscal policy is misguided. Both Jens Weidmann correctly frames the issue. As central are at the service of the economy. The real challenge for central banks and banks increasingly engage in quasifscal operations and BTN_Q1.21_0003-005_Bulletin.indd 3 fnance ministries at a time of great fnancial strain is to work together to their balance sheets grow, it is inevitable that they will be29/01/2021 15:27 ensure that monetary and fscal policy are in harmony. subject to more scrutiny and criticism, particularly in a John Nugee, formerly Bank of England populist age. The growing criticism of technology giants by US politicians of both parties is a powerful example of No, I do not agree. Extraordinary circumstances call for extraordinary how sentiment can change. To maximise the prospects of measures, and every central bank needs to work in tandem with fscal sustained independence, central banks should focus on authorities to ensure that the macroeconomic policy response to the traditional monetary policy objectives and crisis prevention current pandemic-driven crisis is as effective as possible. through prudential regulation. Jeffry Frieden, Harvard University Irena Asmundson, State of California Department of Finance Recent history has shown that monetary policy cannot respond to crises alone. Prompt and credible action by central banks has been crucial to stabilising markets, but fscal policy has been slower to respond. The future of central banks will depend on the success Irena Asmundson, State of California Department of Finance they have in being seen as far-sighted thinkers and policy- makers. They should avoid insisting on independence ln the wake of Covid-19, large scale government bond purchases by central for its own sake. Central banks cannot act independently banks and elevated debt have blurred the line between monetary and fscal of government in a time of crisis where the roles of it policy. Authorities in Mauritius have even amended legislation to allow the and the fnance ministry are intertwined. They should central bank to make an outright grant to the government. Such policies, demonstrate their commitment to the long term, especially conducted under the pretext of Covid-19, only undermine the independence the shift toward green. Climate change impacts all the of central banks and increase the risk of fscal dominance. variables on which delivery of their exiting mandates rely. Hemraz Jankee, formerly Bank of Mauritius Andrew Large, Formerly Bank of England

26 BULLETIN WINTER 2021 OMFIF.ORG About OMFIF

Dialogue on world finance and economic policy

THE Offi cial Monetary and Financial Institutions Forum is an independent think tank for central OMFIF banking, economic policy and public investment – a non-lobbying network for best practice in worldwide public-private sector exchanges. At its heart are Global Public Investors – central banks, ON DEMAND sovereign funds and public pension funds – with investable assets of $36tn, equivalent to 45% of world GDP. With offi ces in London and Singapore, OMFIF focuses on global policy and investment themes – particularly in asset management, capital markets and fi nancial supervision/regulation – relating to central banks, sovereign funds, pension funds, regulators and treasuries. OMFIF promotes higher standards, performance-enhancing public-private sector exchanges and a better understanding of the world economy, in an atmosphere of mutual trust.

Membership Membership offers insight through two complementary channels – Analysis and Meetings – where members play a prominent role in shaping the agenda. For more information about OMFIF membership, advertising or subscriptions contact membership@omﬁ f.org

Analysis OMFIF Analysis includes commentaries, charts, reports, summaries of meetings and The Bulletin. Contributors include in-house experts, advisers network members and representatives of member institutions and academic and oﬃ cial bodies. To submit an article for consideration contact the editorial team at analysis@omﬁ f.org

Meetings OMFIF Meetings take place within central banks and other offi cial OMFIF On Demand institutions and are held under OMFIF Rules. A full list of past and forthcoming meetings is available on www.omfi f.org/meetings. For more gives you the chance information contact meetings@omfi f.org to listen back to our podcasts and watch OMFIF Advisers Network videos of our past The 173-strong OMFIF advisers network, chaired by Meghnad Desai, is public meetings made up of experts from around the world representing a range of sectors: monetary policy; political economy; capital markets; and industry and investment. They support the work of OMFIF in a variety of ways, including omfi f.org/ondemand contributions to the monthly Bulletin, regular Commentaries, seminars and other OMFIF activities. Membership changes annually owing to rotation.

4 BULLETIN WINTER 2021 OMFIF.ORG

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O cial Monetary and Financial Institutions Forum Credible questions for 2021 6-9 Snow Hill, London, EC1A 2AY United Kingdom T: +44 (0)20 700 27898 E: enquiries@omfi f.org www.omfi f.org @OMFIF his edition of The Bulletin aims squarely at the big issues that will Tdominate discussions among policy-makers throughout 2021, and BOARD probably for some time after that. David Marsh, Chairman Will infl ation return? Will digital currencies take root? What impact will John Orchard, Chief Executive Offi cer Phil Middleton, Deputy Chairman the Biden administration have on geopolitics, and especially China’s place Maggie Mills in the world? Will the dollar continue to decline? Can sustainable fi nance Jai Arya Mark Burgess make the impact it needs to help combat climate change? Our cover story this quarter (page 10), written by OMFIF’s chairman ADVISORY COUNCIL David Marsh, directly addresses a question that matters hugely to many of Meghnad Desai, Chairman Mark Sobel, US Chairman our members and readers: what is the role of a central bank today? Frank Scheidig, Deputy Chairman It’s easy to consider issues relating to central bank independence as a Xiang Songzuo, Deputy Chairman Hani Kablawi, Deputy Chairman recent phenomenon, brought on by Covid-19. But the virus has amplifi ed a Otaviano Canuto, Aslihan Gedik, concern that has been present since at least the 2008 global fi nancial crisis, William Keegan, John Kornblum, as Marsh and the policy-making luminaries he interviews point out. Norman Lamont, Kingsley Moghalu, Niels Thygesen, Ted Truman, The Bulletin poll on page 38 confi rms that many members of the OMFIF Marsha Vande Berg, Ben Shenglin, Chair, network share the concerns of central bankers that if monetary policy is OMFIF Economists Network placed at the service of fi scal policy, then trust in central banks - the very EDITORIAL TEAM Clive Horwood, Managing Editor credibility that underpins the fi nancial system - is at risk. & Deputy Chief Executive Offi cer The problem, perhaps, is that central banks are now operating in too Simon Hadley, Director, Production many fi elds. This has limited their room for manoeuvre, and also given Fergus McKeown, Subeditor Sarah Moloney, Subeditor their critics more targets to aim at. Danae Kyriakopoulou, Chief Economist The real crunch will come when central banks have to counter & Director, Research Kat Usita, Deputy Head of Research infl ationary pressures again. Bhavin Patel, Senior Economist & Head According to most experts, of Fintech Research William Coningsby-Brown, Assistant including the authors of our Money Production Editor Matters column (page 34), that Pierre Ortlieb, Economist Chris Papadopoullos, Economist moment approaches. Meghnad Darrell Delamaide, US Editor Desai, chairman of the OMFIF MARKETING advisory board, disagrees, saying ‘If monetary policy Chris Ostrowski, Director, Memberships we have entered a new, long-term & Commercial Partnerships is placed at the Stefan Berci, Communications Manager era of low infl ation (page 31). James Fitzgerald, Marketing Manager service of fiscal As always, OMFIF looks forward policy, then Strictly no photocopying is permitted. It is illegal to to promoting discussion, at our trust in central reproduce, store in a central retrieval system or transmit, meetings and in our publications, at electronically or otherwise, any of the content of this banks - the very publication without the prior consent of the publisher. the highest levels of policy-making. While every care is taken to provide accurate information, credibility that the publisher cannot accept liability for any errors or omissions. No responsibility will be accepted for any loss underpins the occurred by any individual acting or not acting as a result Clive Horwood of any content in this publication. On any specifi c matter financial system - reference should be made to an appropriate adviser. Managing Editor is at risk’ Company Number: 7032533. ISSN: 2398-4236 OMFIF

OMFIF.ORG WINTER 2021 BULLETIN 5 Review: October

»14 October Africa’s ﬁ nancial » 13 October markets Canada and the Americas

OMFIF AND SCOTIABANK’S Global Capital Markets convened a conference on the Canadian and other American economies, and how these relate to developments in Europe and Asia. For sovereign OMFIF LAUNCHED the fourth annual debt issuers and investors, it provided insights on ‘ABSA Africa Financial Markets Index’. It the main policy and investment themes shaping records the openness to foreign investment their sectors in 2020-21, including developments in in countries across the continent. The index fi n t e c h a n d E S G . is a premier indicator of the attractiveness and fl exibility of Africa’s capital markets, for »15 October »19 October use by policy-makers, investors and asset managers around the world. Europe’s sustainable Financial »20 October recovery regulation The sustainability in 2020 agenda for central WITH EVER MORE actors and forces infl uencing fi nancial banks activities, policy-makers and market participants must FOLLOWING the International consider a multiplicity of factors Monetary Fund-World Bank Group annual in their decision-making. This meetings, and as sustainability becomes ON THE OCCASION of the International seminar, convened by OMFIF an increasingly important consideration Monetary Fund-World Bank Group annual and Mazars USA, focused on in Covid recovery plans, Norges Bank and meetings, DZ BANK and OMFIF convened a panel priorities and challenges in Banco de México discussed how to embed discussion on Europe’s recovery plan. fi nancial regulation. climate issues into central bank policies.

»28 October »29 October Overcoming the Integration, investment and roadblocks to CBDC ﬁ nancial market developments OMFIF MET with central bank OMFIF launched a new report, ‘Central America: representatives to discuss implications of Integration, investment and trade opportunities’, central bank digital currency and potential produced jointly with the Central American methods of implementation. The aim of Bank for Economic Integration. It explores the these sessions was to facilitate informal competitive advantages of the Central American exchanges between central banks on key Integration System bloc for foreign investment issues relating to security, ﬁ nancial stability as investors begin to consider opportunities after and public acceptance of a CDBC. Covid-19.

6 BULLETIN WINTER 2021 OMFIF.ORG

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»19 November GPP 2020 launch – Funds face a deﬁ ning moment

OMFIF LAUNCHED the ‘Global Public Pensions 2020’ report. Public pensions are at the centre of changes in global fi nance. The ongoing public health crisis and economic uncertainty have magnifi ed the relevance of these issues, inevitably impacting the ability of pension funds to deliver on their obligations. This launch reviewed the issues covered in the report and presented the fi ndings.

»25 November »18 November Global economic Addressing climate change with crisis and gender capital markets equality AN OMFIF panel discussed sustainable bond standards, innovative ﬁ nance beyond green bonds and how capital can be mobilised for climate change mitigation and adaptation.

»5 November Monetary and ﬁ scal policy in the face of Covid-19

THE PANDEMIC HAS exposed an AS THE Covid-19 pandemic plunges array of economic inequalities, with economies all over the world into crisis, the economic fall-out of Covid-19 governments have had to respond promptly, disproportionately affecting society’s most rolling out large-scale ﬁ scal support. Jens vulnerable groups. The panel discusses the Weidmann, president of the Deutsche gendered effects of the crisis, focusing on Bundesbank, discussed this and other the economic impact and policy responses. developments in monetary policy.

OMFIF.ORG WINTER 2021 BULLETIN 7

BTN_Q1.21_006-009_Review.indd 7 29/01/2021 16:22:55 December

»14 December »14 December Financial services in Covid-19 recovery, the cloud: A summit European and German for regulators economic outlook

THE AWS INSTITUTE and OMFIF hosted an Jakob von Weizsäcker, chief economist invitation-only summit for fi nancial services at the German federal ministry of regulators in Asia Pacifi c. The summit was fi nance, gave an overview of the an opportunity for policy-makers to discuss state of the euro area economy. He cloud adoption, best practice approaches to the discussed the shift in geopolitics that regulation of fi nancial institutions and their Joe Biden’s US presidency will bring, use of cloud and IT, and to hear from cloud and as well as relations with Asia and euro security industry experts. The summit consisted area recovery in 2021. of fi ve 90-minute webinars.

»10 December »16 December The future of payments Analysis of Brexit

OMFIF LAUNCHED ‘The negotiations future of payments’ report and held a panel discussion with DMI members. The panel explored innovations in electronic payments and outlined next steps for national and cross-border governance frameworks. It discussed when and how differing payment innovations are necessary, the role of technologies such as blockchain and the challenges ahead for public- private partnerships.

»9 December William White, former chairman of the economic and China’s global economic development review committee at the Organisation for Economic Co-operation and Development, joined Robert vision AsHolzmann, Brexit negotiations governor cameof the down Oesterreichische to the wire, Ivan Nationalbank, Rogers, JONATHAN HILLMAN and Agatha Kratz of the Reconnecting formerPierre permanent Siklos, professor representative at the Balsillie of the UKSchool to the of EuropeanInternational Asia Project joined Mark Sobel to discuss Hillman’s latest book. Union,Affairs, shared and Danae his thoughts Kyriakopoulou, on what was chief going economist on behind and the They also covered Chinese commercial lending, the debt service scenes.director Rogers of research gave his at perspective OMFIF, to discusson the sentiment his paper onin Brusselsthe ﬁ ve suspension initiative, sustainability. beforeconsiderations the two sides for aﬁ nallysustainable reached recovery. an agreement.

8 BULLETIN WINTER 2021 OMFIF.ORG

BTN_Q1.21_006-009_Review.indd 8 29/01/2021 16:23:16 Agenda

»Wednesday 3 February, Virtual Coming together for sustainability in 2021

An OMFIF-SEACEN roundtable on the actions on the actions needed to support sustainability and impactful change in Asia Pacific in 2021 and beyond. Topics will include the impediments to achieving the United Nations’ sustainable development goals by 2030 and the steps needed to overcome these.

»Monday 8 February, Virtual Euro area stability: view from the IMF

A roundtable with Philip Gerson, deputy director of the International Monetary Fund’s European department, about the effects of the pandemic on the euro area economy, setting out key findings from the IMF’s December report ‘2020 consultation on common euro area policies’. »Tuesday 23 February, Virtual »Thursday 11 February, Virtual Infrastructure in the Covid-19 recovery

Launch of Diem A panel with Jin Liquin, president of the Asian Infrastructure Investment Bank, and OMFIF’s David Marsh, to discuss the A panel discussion with Christian Catalini, chief economist at the emerging infrastructure trends that are shaping Asia’s post- Diem Association, on the launch of Diem. Catalini will outline the pandemic recovery and priorities for the bank as he celebrates his stablecoin’s key features and uses, the regulatory response and second term with the institution. associated risks.

»Wednesday 8 March, Virtual »Monday 15 February, Virtual Monetary policy of central Gender Balance Index 2021 launch eastern Europe The launch of the eighth Gender Balance Index. The discussion will focus on how central banks and public investors can plan A panel with deputy governors from the Czech, Hungarian and and contribute to a more inclusive recovery, given the pandemic’s Polish central banks on how central and eastern European disproportionate impact of the pandemic on women and economies fared with the pandemic and their recovery plans. minorities.

For details visit omfif.org/meetings

BTN_Q1.21_006-009_Review.indd 9 29/01/2021 16:23:34 Cover

The threats to central bank independencE in the LINE of fre The economic battle against Covid-19 has blurred the boundaries between fiscal and monetary policy. But the threats to central bank independence run deeper than the current crisis.

(it is claimed) increasingly subservient central David Marsh banks seem to be opting for infation over default. OMFIF After all, higher prices infate away debt – shown historically by booming economies running out of control after wars and plagues. ‘Look back spectre is haunting the world of fnance: nostalgically at your time of independence,’ central banks that have lost their power to Goodhart puckishly tells his central banking shock. Charles Goodhart, veteran professor audiences. ‘It was nice while it lasted.’ at the London School of Economics, a grandee of The debate has heated up. Forecasters point to international money, has been proclaiming that, a rise in US infation beyond the Federal Reserve’s when infation starts to rise again, these traditional 2% target later this year as the US economy shifts guardians of rectitude will no longer be able to to major post-pandemic expansion after a decade of raise interest rates. near-constant undershooting. Treasury Secretary Over the past 30 to 40 years, central banks were Janet Yellen will not wish overtly to undermine granted widespread statutory independence from Fed independence, but she will try to swing the Fed political infuence in a sweeping worldwide shift. behind the administration’s pro-growth agenda. But according to Goodhart’s thesis, they will be Yellen knows her Fed chair successor Jay Powell will forced to bow to government pressure to keep not want to upset the government by tightening interest rates low and prevent a ruinous spike in money when bidding for a second term from the servicing costs of debts massively boosted by February 2022. the pandemic. There have been frequent squalls over central Faced with a stark choice, governments and banks’ waning capacity – perceived and real – to

10 BULLETIN WINTER 2019 OMFIF.ORG OMFIF.ORG WINTER 2021 BULLETIN 11 Cover

stand up to governments. The battlegrounds In recent months, including in an OMFIF include emerging market economies like meeting in November, Jens Weidmann, the Turkey, Brazil, Nigeria and Malaysia. Also Bundesbank president and former adviser to included is the UK, where the Bank of Chancellor Angela Merkel, has spoken of a England is widely regarded as carrying ‘dangerous dynamic’ of ‘fscal dominance’. He out monetary fnancing of a gigantic outlines how central banks risk surrendering ‘Fiscal policy empowers monetary policy by Covid-19 budget defcit – a charge it denies. independence as they ‘jump to the rescue’, fostering demand…And However, the independence controversy is becoming permanent buyers of debt issued monetary policy makes most virulent in Europe’s 19-nation economic by big-spending governments unfettered by fiscal policy more and monetary union. After more than 20 market discipline. effective.’ years, the EMU still resembles an enormous To many, in Germany and beyond, such Christine Lagarde fnancial and political experiment. talk is alarmist and exaggerated. François The fulcrum of EMU is Frankfurt, where Villeroy de Galhau scotches fears that the Germany’s Bundesbank was set up after the ECB is in danger of losing clout. At an OMFIF second world war with strong legal powers session in September the silken-tongued to withstand government pressure, guarding Banque de France governor countered against the excesses of the Weimar Republic traditional German views by suggesting the and later the Third Reich. Germany’s Weimar ECB should more directly widen its mandate hyperinfation in the 1920s was part of a grim beyond targeting purely price stability. The chain of money printing episodes ruining Bundesbank, once a synonym for German ‘It is good to have currencies and breaking political systems – monetary hegemony, has lost sway with the implicit co-operation linking ancient empires to modern emerging birth of the EMU. Weidmann has maintained between monetary and fiscal policy. This is markets like Argentina, Venezuela and opposition to some of the ECB’s furthest- not a loss of central Zimbabwe. reaching credit-easing actions. Yet he has bank independence.’ Established in 1998, the European Central accepted that the Bundesbank generally Bank was modelled on the Bundesbank, must give way to a built-in majority on the Marcel Fratzscher with its independence enshrined in the 25-member ECB governing council favouring European treaties. Now, the model appears a relatively accommodative monetary stance to be faltering. Conservative Germans Mario Draghi, ECB president in 2011-19, voice concerns that enormous central bank was frequently embroiled in disputes with government bond purchases before and the Bundesbank chief. Draghi’s successor, during the Covid-19 upheavals (Figure 1) are Christine Lagarde, a former French fnance turning these institutions into appendages of minister and International Monetary Fund fnance ministries. managing director, has taken a far more ‘My worries about independence do not 1. Central bank stem from concern about 25 fiscal dominance, more balance sheets have exploded because of the range of 20 non-traditional fields Asset purchases by that central banks 15 selected central banks, now seek to address, $tn such as climate change 10 Source: respective measures and gender central banks, OMFIF balance. They are 5 analysis dabbling in issues that are more difficult to 0

control, measure and Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 communicate.’ Bank of England Federal reserve European Central Bank Bank of Japan Bank of Canada Swiss National Bank Barry Eichengreen

12 BULLETIN WINTER 2021 OMFIF.ORG 2. Growing NGFS consensual line to heal rifts between council 100 ‘hawks’ and ‘doves’. But Lagarde has dropped signals central 90 banks’ commitment not-so-subtle hints that quantitative easing 80 on climate change purchases of government bonds may continue 70 Number of members of indefnitely. 60 Network for Greening One leading southern European governor 50 Financial System since on the ECB council fercely opposes his 2017 40 colleagues calling for a gradual credit Source: NGFS, OMFIF 30 tightening as Europe slowly brings the analysis 20 pandemic under control. ‘I am a strong hawk,’ 10 he tells OMFIF, ‘in opposing defation.’ There 0 were sharp exchanges at the ECB’s meeting Dec-17 Dec-18 Jul-19 Sep-19 Dec-19 Jul-20 Oct-20 Dec-20 on 10 December when it decided to boost Number of members Number of observers emergency bond buying by ¤500bn and extend it to March 2022. Council members swapped jibes about whether the ECB the ECB. This danger is intensifed if the ECB was taking seriously its mandate to boost is following too many targets in the political infation to ‘below but close to 2%’ – a level it feld, for example in measures to alleviate has undershot for eight years. climate change, (Figure 2) which weaken the Marcel Fratzscher, a former ECB offcial focus on its primary goal of stability.’ who heads the Berlin-based German Institute ‘When inflation Barry Eichengreen, economics professor at for Economic Research (DIW) believes the starts to rise again, the University of California, agrees with the Bundesbank’s narrative on infation and central banks will second part of Schlesinger’s argument. He be unable to tighten independence is overdone. Fratzscher echoes money in response.’ backs the Lagarde and Fratzscher view that a persistent Lagarde theme: the need for central banks can retain independence under coordination between central banks and Charles Goodhart fscal and monetary policy harmonisation. He governments. As Lagarde puts it: ‘Fiscal adds: ‘My worries about independence stem policy empowers monetary policy by not from concern about fscal dominance, fostering demand … And monetary policy critics, a transformation towards a system for more because of the range of non-traditional makes fscal policy more effective.’ permanently channelling wealth and income felds that central banks now seek to address, Fratzscher tells OMFIF: ‘It is good to have from higher- to lower-performing areas of the such as climate change measures and gender implicit co-operation between monetary EMU may be on the way. balance. They are dabbling in issues that and fscal policy. This is not a loss of central Helmut Schlesinger, former Bundesbank are more diffcult to control, measure and bank independence. Even if central banks president, at 96 a Methuselah of monetary communicate.’ were unhappy with fscal polices, they would orthodoxy, tells OMFIF: ‘I am worried there Underlining the diversity of opinions, be breaching their mandate if they raised is no real resistance to the ECB’s very large Athanasios Orphanides, a former governor interest rates to force governments to change purchases of government bonds, which of the Central Bank of Cyprus and member their behaviour. It’s not the job of central represent a form of state fnancing not of the ECB’s council, complains the ECB has banks to discipline governments.’ He adds, ‘If allowed by the treaty. It seems to me that used the broad language of the European infation were to rise for a sustained period Chancellor Merkel and her government treaty to set its own goals, for example in substantially above the ECB’s mandate, then didn’t recognise the concerns raised in this defning ‘price stability’ - and yet has not it would have to act decisively, and I am sure matter in May by the German constitutional done enough to produce higher infation. it will.’ court [when it voiced concerns about illegal He tells OMFIF: ‘Central banks should Behind the divergences over monetary fnancing].’ have the independence to meet their ‘harmonisation’ lies a deeper question. He adds: ‘There seem only two or three goals but not to set them. The ECB has European governments have still not resolved members of the ECB governing council who too much independence and insuffcient whether, longer term, the euro area requires a speak out against these policies. The close accountability.’ He claims that the ECB has fully-fedged political union to back the ECB’s linkage between fscal and monetary policies misused independence by following overly monetary integration. According to German presents a danger for the independence of tight Bundesbank-style policies that have

OMFIF.ORG WINTER 2021 BULLETIN 13 Cover

3. US implied 2.5 infation expectations 2.0 climbing 5-Year, 5-Year Forward ‘The close linkage between 1.5 Infation Expectation fiscal and monetary Rate, Percent, Daily, Not policies presents a danger 1.0 Seasonally Adjusted for the independence of Source: Federal Reserve, the ECB. This danger is 0.5 OMFIF analysis intensified if the ECB is following too many targets 0.0 in the political field.’ p-19 p-20 Jul-19 Jul-20 Jan-20 Jan-21 Jan-19 Se Se Mar-20 Mar-19 Nov-19 Nov-20 May-20 Helmut Schlesinger May-19

raised euro area credit spreads and damaged ECB’s 1998 defnition of price stability as an growth. Now a professor at Boston’s MIT infation rate of below 2% over the medium Sloan School of Management, Orphanides term, but added the refnement of ‘close to’ – who previously worked at the Fed – to safeguard against defation. He believes stresses the contrast with the US: ‘If the the ECB will not signal it is going soft on Fed starts making systematic policy errors, infation. ‘This time I believe the ECB might ‘Central banks should Congress can change the law and hold the simply settle on a fgure of 2%. The question have the independence Fed accountable. The ECB should not be so is: Will the ECB see this goal as symmetric, to meet their goals independent that its policy errors cannot be i.e. will it deal with both overshooting and but not to set them.’ corrected.’ undershooting in similar fashion.’ Athanasios The ECB’s framework is coming under The fundamental problem facing central Orphanides renewed scrutiny in the bank’s strategy banks has been recognised for years: they review due to be unveiled in early September. are operating in too many felds. As veterans The process gives Weidmann and other like Schlesinger and Issing emphasise, the way back – a view gaining ground because of governing council hawks unaccustomed widening of central banks’ sphere of action the Biden recovery plan, signalled by rising infuence. Otmar Issing, the ECB’s frst board since the 2008 Lehman Brothers bankruptcy longer-term US interest rates (Figure 3). member for economics, oversaw the only into areas like banking supervision, as well ‘Once vaccination has overcome the other previous review in 2003. He points as large-scale QE, has limited their room Covid-19 pandemic, say by summer 2021, a out how the council’s stringent minority for manoeuvre. A 2012 OMFIF-EY report, surge in consumer expenditure and demand – normally submitting to the majority on ‘Challenges for central banks: wider powers, could lead to a blip in infation. If that does operational decisions – will have an effective greater constraints’, underlined far-reaching not exceed 5%, central banks will probably veto on the outcome of the strategy review, questions about their operational freedom. welcome the counterbalance to the previous including on the hot topic of climate change, The LSE’s Goodhart sees the threats undershoot, claiming it is purely temporary.’ where Weidmann and other orthodoxists growing mainly outside Europe. ‘The More likely, Goodhart believes, is that oppose interventionism that could expose the central banks in Japan and India have lost infation will remain signifcantly higher ECB to conficts with its monetary goals. ‘The their independence, Latin America never than targeted in 2022-23. This will lead to review should end in unanimous support had it, the US is on the verge of losing it. different scenarios including confict with for the decision,’ Issing tells OMFIF. ‘This The independence of the ECB is protected politicians, most of them with unpleasant will not easily be achieved. Compromises by treaty – but I’m more worried about Jay outcomes. ‘Ultimately the political are needed, but the result must deliver a Powell.’ Faced with Yellen in the Treasury, authorities have the whip hand, whether consistent approach.’ Goodhart says fscal dominance seems on the in authoritarian or democratic countries. The review is expected to result in ‘not way in the US. ‘I think he will do whatever Central banks must be aware where their too much change’ in its infation framework, she likes.’ limits lie.’ Issing says. The 2003 review upheld the As for infation, Goodhart thinks it’s on the David Marsh is Chairman at OMFIF.

14 BULLETIN WINTER 2021 OMFIF.ORG ECB main task is to follow right policies Fears over fiscal dominance and market neutrality are misguided

Danae This ability is preserved by pursuing Lagarde have pondered whether such Kyriakopoulou the right policy options and delivering assets should be eligible for the ECB’s risk- OMFIF results, not by refraining from doing so to constrained investment universe. Lagarde defend a reputation for independence for warned of market failure and suggested independence’s sake. that financial markets may ‘not actually be accines are a light at the end of the As ECB Executive Board Member Isabel measuring the risk properly’. Vhealth crisis tunnel. But the economic Schnabel says, the euro was built on the Others are more sceptical. Weidmann, effects of Covid-19 remain longer lasting. principle of ‘monetary dominance’, with while acknowledging that ‘central bank Even with the pandemic emergency the central bank’s objectives ‘determined independence is not an excuse for inaction’, purchase programme, asset purchase by its mandate as defined in the European has insisted that ‘it is not up to them to programme and targeted longer-term treaties’. So long as bond purchases make correct market distortions and political refinancing operations on the European economic sense, central bank credibility is actions or omissions’. He questions whether Central Bank’s table, there are limits to what not at risk. And in today’s context, they do. ‘central banks should become engulfed monetary policy can contribute to Europe’s Interest rates are at the lower bound, leaving in politics and undermine their own recovery. Targeted fiscal support remains asset purchases key for delivering price independence’. Instead, he argues that the most powerful tool to address the stability. governments should adjust carbon prices. pandemic’s economic ramifications. Governments have yet to do so but have However, there are worries over ‘fiscal ‘Fears about central committed to action through the Paris dominance’, whereby monetary policy is banks losing their agreement. Central banks evaluating the forced to accommodate high levels of public independence through risk of assets in their portfolios can assume debt. In his OMFIF speech in November, fiscal dominance that the prices are heading in one direction Bundesbank President Jens Weidmann or loss of market only – and it is not one that justifies their neutrality are stated that central bankers need ‘to make misguided. Worse still, presence on the ECB’s CSPP. it very clear that we are not going to place they can be dangerous By focusing on ‘market neutrality’, the monetary policy at the service of fiscal if they discourage them ECB may be missing a chance to reduce policy’, cautioning that ‘if we create a from pursuing the right portfolio risks before a sudden reversal different impression, we are putting both policies.’ prompted by excessive bullishness – our independence and our credibility at economist Hyman Minsky’s feared ‘Minsky risk’ (See this quarter’s Bulletin poll, on The same applies to another source of moment’. In taking action to address market page 38, to learn if OMFIF members agree fear: climate change action. So far, this has failure central banks are not playing politics with Weidmann). Former ECB Executive focused on supervision. Few have addressed and sacrificing independence. Rather, Board Member Otmar Issing argues that climate risks in their own portfolios, they are protecting balance sheets against ‘central banks are caught in a trap of their whether in reserves management or asset underpriced risk. own making’ and wonders whether ‘they purchases. Misguided fears about waning will be able to escape the regime of fiscal For the ECB, this is due to the ‘market independence through fiscal dominance or dominance and retain their independence’. neutrality’ principle that guides its loss of market neutrality can be dangerous. Such fears are misguided. True, the corporate sector purchase programme to be Such concerns could discourage central pandemic is strengthening links between in proportion with the market. Given the banks from pursuing the right policies. fiscal policy, monetary policy and concentration of carbon-intensive industries By using the tools appropriate for the government debt management. But central in the corporate bond universe, this has conditions, central banks will enhance, not bank independence is rooted in institutions’ resulted in a carbon-biased portfolio. lose, credibility and independence. ability to deliver stable prices when there are The ECB should rethink market neutrality. Danae Kyriakopoulou is Chief Economist calls for economically unjustifiable stimulus. Both Schnabel and President Christine and Director of Research at OMFIF.

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BTN_Q1.21_000_Bulletin.indd 15 29/01/2021 15:32 Cover Scepticism opens door for cryptocurrencies Central banks could be overtaken by private substitutes

Steve Hanke trust, particularly in the modern era of fiat most notable is the Swiss National Bank. money—and for good reason. Over the past In the last 120 years, Switzerland has Johns Hopkins 120 years, central banks have produced experienced the world’s lowest average University a great deal of inflation, which has been annual rate of inflation. Unsurprisingly, accompanied by a loss in the purchasing the Swiss franc has appreciated against hen delivering the BBC’s ‘A Question of power of their currencies. At times, bouts of all other currencies over that period. In WTrust’ Reith lectures in 2002, Baroness hyperinflation have reared their ugly heads. consequence, unlike most central banks, the Onara O’Neill recounted advice given by Currencies have been rendered worthless SNB commands a great deal of trust. Confucius to his disciple, Tzu-kung. He overnight. revealed that a government needed three Consider what has happened in Venezuela, Creating order things to survive: weapons, food and trust. Zimbabwe and Lebanon during the past year. The public is always in search of alternative If a ruler cannot hold onto all three, which On 31 December, I measured the annual institutions and reliable arrangements that one should be given up first? For Confucius, inflation rates in those top three inflators work. Carl Menger, founder of the Austrian weapons were the most expendable, and to be 1,945%, 395% and 274% respectively. school of economics, formulated the process then came food. But a ruler should attempt Inevitably, the bolivar lost 94.5% of its value by which institutions are created and evolve. to hold onto trust at all costs, for ‘without against the dollar last year, the Zimbabwean This has come to be known as spontaneous trust we cannot stand.’ dollar lost 79.5% and the Lebanese pound order, an order that is not consciously This is widely understood by central lost 72.6%. It is difficult to trust central designed by anyone. For example, a V bankers. But few have been able to banks that issue currencies such as these. formation of migrating geese does not implement policies that have garnered much There are exceptions, but very few. The exist because one goose ordered it. Menger demonstrated that it was spontaneous order that gave rise to money. No one invented money. Instead, money emerged unplanned out of people’s attempts to improve their condition by moving away from bartering and by engaging in indirect exchange via money. This brings us to the rise of ‘Money emerged cryptocurrencies. Lack of trust in central unplanned out banks and national currencies set the of people’s stage for the spontaneous arrival of private attempts to substitutes. While technology played its improve their part in making cryptocurrencies feasible, it condition by moving is the lack of trust in central banking that away from has paved the way for what might be a new bartering and spontaneous order. by engaging Steve Hanke is Professor of Applied in indirect Economics at Johns Hopkins University exchange via money.’ and a member of the OMFIF Advisory Board.

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BTN_Q1.21_000_Bulletin.indd 16 29/01/2021 15:32 Asia

The end of Covid? The return of inﬂ ation? The rise of digital? Our panel of experts predict what what will deﬁ ne the year ahead OUTLOOK

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What next for reserve managers?

Central bank portfolios have moved into more assets than just government bonds, but further diversifcation looks essential, writes Massimiliano Castelli, head of strategy, sovereign institutions at UBS Asset Management.

OVER the last decade reserve managers which generated a return of more than 4%. have increased diversification. A growing Reserve managers adopting diversification number of central banks are now investing have been able to fulfill their policy goals across a wider range of asset classes. including liquidity preservation, capital According to the most recent UBS Reserve protection and return. Management Survey, in 2020 more than While the inclusion of equity requires an ‘Reserve 90% of central banks surveyed are invested increase in risk limits in terms of maximum managers’ portfolios in US agencies, two-thirds are invested in drawdown, the volatility of the entire look increasingly similar to corporate bonds and nearly half of those portfolio increases only slightly when those of other institutional central banks surveyed are eligible to compared to a fixed income-only portfolio. investors such as pension invest in listed equities. Reserve managers’ This is a result of benefits generated by the portfolios look increasingly similar to those inclusion of equity in a portfolio dominated and insurance funds.’ of other institutional investors such as by fixed income assets. pension and insurance funds. So what’s next for reserve managers? The The sharp market sell-off in February/ main challenge currently faced by reserve of their reserves, or continue along the March 2020 was the first big test of market managers is the low yield environment. diversification path. Reserve managers who stress faced by reserve managers since According to the UBS survey, the majority of are pondering further diversification steps the 2008 financial crisis. And the test was institutions surveyed expect interest rates in should consider: further diversifying away successfully passed. According to the UBS the US and the euro area not to start rising from advanced economies’ government RMS Survey, nearly half of central banks before 2023 as central banks maintain a very bonds; increasing allocations to Chinese and that are invested in equities rebalanced their loose monetary policy stance in the post- other emerging markets bonds; increasing equity holdings to return to their equity Covid world. allocation to equities to above 20%. allocation target. And more importantly, This will lead to a dramatic fall in returns on Central banks with high levels of reserves while a shift to more ‘defensive’ assets is reserves when compared to the last decade and less liquidity constraints should consider visible in 2020, the ‘secular’ trend towards as the fixed income boom ends. According allocations to real estate and infrastructure diversification remains intact with equities to our estimates, in the next five years a to enhance returns and generate further now being an eligible asset class for about portfolio invested into investment grade diversification benefits. 45% of central banks, a new all-time high. fixed income assets only will generate a According to our estimates, over the next The diversification of reserves away from return below 1%. Even a portfolio diversified five years a portfolio with emerging market government bonds has been a winning into equities – as the one discussed above bonds (in hard currency) at 15% and equity strategy so far. Since 2009, according to – will generate a return of less than 2%, less at 20%, with the rest in government bonds our estimations, a liquid portfolio invested than half the return generated since 2009 and investment grade spread products, will 50% into cash and government bonds and lower than inflation. generate a return of 2.4% with a volatility from advanced economies, 35% into Reserve managers face a choice: still below 5%. That is less than in the past, investment grade spread products and 15% either accept much lower returns than but capable of protecting the real value of into advanced economies’ listed equities in past, failing to protect the real value accumulated reserves. ♦

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BTN_Q1.21_000_Bulletin.indd 18 29/01/2021 15:32 Digital dynamism will fuel Asia’s outperformance

A week-long trial of a central bank digital currency in Shenzhen may have been a glimpse of the future, writes Taimur Baig, chief economist at DBS Bank.

FROM digital bank licence approvals in Beijing is on the cards. continue to lead in the area of digital Singapore to the roll-out of the e-RMB PBoC is working with lifestyle apps, currency usage, interesting developments initiative in China, digital finance picked including ride-hailer Didi Chuxing and are afoot elsewhere too. The National Bank up momentum in Asia through the year food delivery company Meituan, with plans of Cambodia recently launched the Bakong of the pandemic. Just like the rest of the to make the digital currency available payment system, a common platform world, the pace of e-commerce adoption for online transactions in the upcoming for commercial banks, microfinance soared as consumers and businesses experiments. The authorities are also institutions and payment service providers favoured remote transactions. Monetary testing new functionalities like offline, to deliver e-wallet and money transfer authorities in Australia, Cambodia, China, phone-to-phone (just by tapping one services to consumers without the need for Hong Kong, Singapore, South Korea, and device to the other) transfers. Indeed, a bank account. It facilitates transactions in Thailand made forays in central bank digital the next step could be to provide access both dollars and riel by scanning QR codes currencies, launching pilots to explore legal to e-RMB even without a phone number or inputting the phone numbers of payees. framework, settlements, and cross-border or bank account information. This makes The platform should simplify payments and payments. sense since CBDC is legal tender that can promote financial inclusion. The developments in China are be exchanged without needing a bank as We expect 2021 to be a year of Asian particularly noteworthy. In October, over an intermediary. Such a development could outperformance as the region surfs 47,000 consumers in Shenzhen spent facilitate CBDC use by foreigners, who can a favourable trade cycle, successful Rmb8.8m at 3,389 designated shops directly exchange foreign currencies for pandemic management and pull from during a week-long trial of People’s Bank the digital yuan without carrying cash or an accelerating China. Digital finance of China’s digital currency. Users also opening an onshore bank account. developments will be a constant, adding transferred credit into the official digital While China’s public and private sectors dynamism to the world’s growth engine. ♦ Renminbi app, which can be used well after the end of the trial. Tests have also taken place in Suzhou, Chengdu and Xiongan. In Suzhou, the e-RMB has been used for paying salaries ‘The developments in to some public servants, while in others the focus has been on retail. More than China are particularly Rmb2bn has been spent using China’s noteworthy. In October, new digital currency in 4m separate over 47,000 consumers in transactions, according to the PBoC. Shenzhen spent Rmb8.8m The next batch of pilot programmes will at 3,389 designated shops likely include other major metropolitan areas such as Beijing, Tianjin, Shanghai, during a week-long trial of Guangzhou and Chongqing. A countrywide People’s Bank of China’s launch by the 2022 Winter Olympics in digital currency.’

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Biden must adopt multilateral tactics for China policy

Relations between the US and China will remain fraught, albeit more diplomatic, writes Nathan Sheets, chief economist and head of global macroeconomic research at PGIM Fixed Income.

AS recently as five years ago, there was a zeitgeist and gave it voice. Even so, Trump’s renewed discussions with partners in Asia, vigorous debate in Washington regarding tactics failed to win broad support. His trade Europe and on World Trade Organisation US policy towards China. Today, that debate war, sanctions against Chinese technology reform. is over. The broad consensus — among both companies and other restrictions have That said, two caveats are necessary. Republicans and Democrats — is that the been criticised as hurting the US as much as First, given US political realities, it would be US-China relationship is necessarily one of China. The pain has been amplified by the difficult for the Biden administration to roll ‘strategic competition’. The US must lean unilateral nature of the actions. back quickly the tariffs and other measures against China’s rise using the broad range of The Biden administration is expected to that Trump has put in place. Second, the tools at its disposal. pursue an alternative path. US concerns recent comprehensive agreement on Some advocates of this view highlight about Chinese actions are broadly shared by investment between the European Union the trajectory of China’s policies under many other countries. The US has scope to and China was no doubt a disappointment to President Xi Jinping — including the stunted work with its allies to press China to reform the Biden team, but the scope for broad co- progress in establishing a level playing and open up. Broad-based diplomatic operation with the US persists nonetheless. field for foreign firms, China’s handling of efforts could seize the moral high ground US-China relations are to remain fraught. foreign technologies and (more recently) and intensify pressure on China. The Biden administration will continue to the actions against Hong Kong. Others What this looks like in terms of concrete press China, but its tactics will be more argue that previous efforts to bring China policy measures remains an open issue. It multilateral in nature. Whether this approach into the global system were fundamentally will clearly entail ‘multilateral jawboning’ but will be more successful than President misdirected and that Xi’s actions are only the could also include increased coordination Trump’s efforts remains to be seen. But, at a latest wake-up call. on tariffs, sanctions and policies on Chinese minimum, it will be more consistent with the The wind was blowing in this direction investment. It may prompt the Biden traditional role of the US as a global leader even before Donald Trump’s ascent to administration to pursue new (or expanded) and restore a measure of normalcy to US power, but he effectively tapped into the trade agreements, potentially including economic diplomacy. ♦

‘The US has scope to work with its allies to press China to reform and open up.’

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BTN_Q1.21_000_Bulletin.indd 20 29/01/2021 15:32 After Covid-19, we require a new form of fnance

As calls from both inside and outside of the sector grow louder, banks need to play their part in socially-responsible growth, writes Joseph Ding, senior researcher at China Construction Bank University in New York.

THE Covid-19 pandemic has revealed Data and artificial intelligence technology, 77 built-in inclusive finance use cases, 11m fissures in the social fabric of economies enable lenders to analyse huge amounts of registered users, 3.6mcertified corporate developed or developing, big or small. The data from disparate sources, and generate customers, and over RMB250bn in total financial industry, thanks to its relatively a multi-dimensional profile for proactive credit approvals. early and broad adoption of technology credit and risk models. These reflect The Yu Nong Tong platform is dedicated and strengthened balance sheets following customers’ credit-worthiness and risk to the agricultural sector and carries relevant the 2008 financial crisis, has so far seen characteristics in an accurate and holistic educational content as well as low-cost relatively few business failures. In fact, manner. credit products for farmers. It operates many banks have posted healthy profits ‘Hui Dong Ni’ and ‘Yu Nong Tong’ are two nationwide in China and has over RMB2tn in throughout 2020, even while setting aside such examples from China Construction total loans outstanding. provisions for future non-performing loans. Bank. The former, meaning ‘Benefit follows The demand for such products and The stark contrast between exuberant you’, is an inclusive finance mobile app services could not be clearer. The challenge equity markets and the dire state of that services a diverse group of SMEs now is to build on what has been achieved the main street economy has brought and retail customers from start-ups to in the Covid crisis. The key to this lies in a renewed sense of urgency in calls for farmers to those closer to the poverty line. collaboration: industry leaders must work social responsibility, sustainable growth Key features such as two-way interaction, together to reshape the next generation and stakeholder capitalism. But it’s not just ‘one-minute’ approval and a 24/7 service of finance, where technology and financial outside activists who are the leading voices. with complete on-line process and costs inclusion are the recipe for a socially- Industry leaders such as Bank of America’s transparency, have elevated ‘Hui Dong Ni’ responsible and sustainable path to long- chairman and chief executive Brian to be an industry-leading platform with term growth. ♦ Moynihan are among the most powerful advocates for responsible banking. It is also a global trend. In Asia, leading financial firms such as China Construction Bank have laid out a vision of ‘new finance’, ‘Industry leaders calling for a deeper impact and longer- must work together term effectiveness of financial inclusion to reshape the next to address social inequality and the misallocation of resources. At the heart generation of fnance, of this vision lie the democratisation of where technology digital technology. Fintech and financial and fnancial inclusion inclusion become the core long-term growth are the recipe for a strategies, and are embodied in many socially-responsible large-scale inclusive service platforms. These innovative platforms, implemented and sustainable path to with nascent technologies in Cloud, Big long-term growth.’

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holds the executive team accountable for achieving them. If our longer-term Making diversity aspiration is to represent the communities in which we operate all around the world, we set ourselves goals that get measured and count tracked, to make sure we are alert to them through hiring, retention and promotion The investment industry can make a decisions. Our executive committee transformative contribution to society and itself members sponsor senior employees from different backgrounds to make sure we’re by embracing a diverse workforce, writes Hani constantly and consciously considering Kablawi, head of international, BNY Mellon. diverse talent for senior roles. And we require hiring managers to have diverse candidate slates and interviewing panels for THE investment industry leads others at resilient, innovative and profitable. all open positions. measuring performance. These metrics A 2019 McKinsey report reveals a clear As the saying goes: ‘Diversity is being are both financial, like investment portfolio correlation between diversity on executive invited to the party and inclusion is being returns, net flows, gross revenues and teams and financial outperformance. It asked to dance.’ We encourage our teams earnings, and non-financial, such as client found that executive teams in the top to join and lead employee resource group satisfaction, technology and operations quartile for gender diversity and their activities, and we give them the time, resiliency, and employee engagement companies outdid those in the bottom space and tools to work together to drive scores. quartile by 25% in profitability. Similarly, engagement around causes that are Investment firms are increasingly aiming companies in the top quartile for ethnically important to them. We ask managers to for more diverse workforces and are diverse executive teams outperformed hold inclusion dialogues, train their teams to applying rigour to measuring and tracking those in the bottom quartile by 36%. identify unconscious bias in themselves and this. A growing weight of evidence supports Driving diversity is not just ‘right’, it is also expect all employees to become inclusion the business case for a diverse workforce. smart. At BNY Mellon, we have set ourselves allies. Only when everyone feels included, Employees from different backgrounds clear goals and strategies to drive diversity. do they belong, and when all 48,000 of our bring new experiences and perspectives, That starts at the very top. The board sets colleagues feel like they belong, that drives helping create organisations that are more our targets and our chief executive officer positive outcomes for all our stakeholders and for society. We are on a journey and there is a significant way to go. Barriers remain to attracting diverse talent into an industry that may not be seen as a viable career option in some communities. As an industry, we need to change that by improving ‘The events representation and creating more diverse of 2020 have role models. highlighted the The events of 2020 have highlighted the discrimination and social injustices discrimination that we would like to think were things of and social the past still exist. But at the start of 2021, injustices that I am optimistic about the transformative we would like to contribution the investment industry can think were things make to society while strengthening itself with the greater experience, creativity and of the past still resiliency that a diverse workforce can exist.’ bring. ♦

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BTN_Q1.21_000_Bulletin.indd 22 29/01/2021 15:32 Making CBDCs a true and trusted currency

Digital currencies are coming, but lessons from experience with cash must be remembered, writes Wolfram Seidemann, chief executive offcer of G+D Currency Technology.

THE race to issue a digital currency is on. openness to new business models. When CBDC piling up, questions remain: What Following the announcement of Libra talking of ‘programmable’ currency, digital about international acceptance of digital (now renamed Diem) in 2019, the Covid-19 cash should not be overengineered and cash? How should we define its regulatory pandemic has given it fresh momentum and should be interoperable, without altering limits? These questions will need to be has reinforced the need for a ubiquitous the currency itself. Defined technical layers answered through experience, a process of public payment option. Nevertheless, digital should be open to outside innovation, novel learning and steady improvement. currency is more than just another electronic business models (such as ‘streaming money’ One thing needs to be kept in mind: We payment method. where there is steady payment over the don’t have centuries to make CBDCs a Currencies are the purest statement period a service is used) or entirely new reality. We need to pick up the pace and set of trust that citizens make. They are not ecosystems. The common denominator is off on the right course. We don’t want to products, rather they are an expression of the basic infrastructure - the definition and sleepwalk into an unwanted future. Using democratic values and faith in the issuing creation of a data format that represents longstanding experience with cash and by institution. It took centuries to establish value and is signed and issued by a central adding the technological opportunities we the secure, resilient, universal and trusted bank. have, there is a bright future for trusted basis for consumer payments that is cash. Even with academic research papers on digital cash. ♦ Since the outbreak of the pandemic, people have turned to cash, finding comfort in its security as a store of value and promise of freedom. More than one-third of people in the euro area keep a cash reserve at home, for example. Cash’s reputation must be kept when it becomes digital. A central bank digital currency could unite the speed and convenience of digital payments with the benefits of cash. Fundamental characteristics, such as privacy and data protection, also apply to digital cash and ‘A central bank are necessary for public acceptance. Even digital currency though the impact on all players in the could unite financial system must be considered, the the speed and citizen is at the centre. We should keep the convenience of properties that make people trust cash rather than letting technical discussions digital payments dominate proceedings. with the benefts Citizens’ trust comes with ease of use and of cash.’

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during periods of political interference. Beware rising Central banks may tighten insufficiently because of miscalculated output gaps or poorly understood lags between churning neutral rates economic dynamics and later inflation. Rising long-term market interest rates would likely occur if central banks stopped Central banks should be prepared to act buying bonds amid a rising neutral short promptly if they don’t want more pain later on, rate. This would increase government debt writes James Sweeney, chief economist service costs, but it would take years for at Credit Suisse. such a change to drive budget deficits. Two unknowns are, first, how sensitive economic activity will be to future interest THE US military has traditionally attempted to levels that were implausible a few years rate increases and, second, how sensitive to stand prepared to fight two major wars at earlier? inflation dynamics will be to profound once. In that spirit, economic policy-makers A sharp rise in apparent neutral rates changes in the composition of government should consider challenging tail scenarios happened in the US in the late 1960s. R* liabilities and bank assets, one-fifth of which in the pandemic recovery, even ones that estimates from the Laubach-Williams model might soon be interest baring Fed reserve are not supposed to happen according to rose by about 1.5% in that period. However, balances, matched by rising bank deposits. certain models. this was the increase in the real rate Future rate hikes might be an One worth attention is a rising neutral rate needed to stop inflation from rising (at full exceptionally unpopular option. The of interest (r*) amid public unrest, political employment), not what was needed to keep expectation of persistently low neutral rates turmoil and disappointing economic activity. it at the initial level. is now embedded in the strategies of many Neutral rates are most likely to rise in a If something similar happens in the next businesses, financial firms and governments. strong economy with soaring business and few years, starting at a point of below neutral This confidence in low future short rates is government revenues. However, there are real rates and amid rising inflation, then useful now through its effect of depressing other plausible situations. the implied necessary nominal rate change long-term interest rates. But if investors and What if full employment is reached could be large. Circumstances in the 1960s policy-makers are disabused of this idea at during higher-than-expected inflation were different in many ways from now, but the same time, great turbulence will ensue. but economic rebalancing has heightened our knowledge of the future rates needed Of course, overshooting inflation might distributional tensions and led to public for stable inflation might be less than is be tolerable compared to other problems. criticism of any potential fiscal or monetary implied from a parade of commentaries But it is this that compels us to think about policy tightening? And suppose that about how low interest rates will persist. this scenario now. Although it is hardly an once monetary policy tightening begins Many central banks are confident that existential risk, from a financial stability it becomes clear short rates need to rise they could stop inflation. They worry perspective it could lead to great volatility. more than expected to keep inflation close more about a limited toolset at the If central banks don’t respond to rising to target. Would central banks tighten effective lower bound. History suggests, neutral rates with sufficient hikes, then sufficiently, even if it meant increasing rates however, that inflation often emerges inflation, asset price bubbles or disruptive late tightening would follow. It is possible that the economy’s interest sensitivity has ‘Circumstances in the 1960s were increased so that even a few hundred basis different in many ways from now, points of interest rate hikes could lead to a but our knowledge of the future slowdown or falling asset prices. This dark scenario is no one’s base case rates needed for stable infation and the most sensible objection to it is that might be less than is implied from yields and neutral rates won’t rise without a parade of commentaries about strong growth. But the ‘wars on two fronts’ how low interest rates will persist.’ idea reminds us that this objection is not a universal law. ♦

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BTN_Q1.21_000_Bulletin.indd 24 29/01/2021 15:32 Sovereign debt can boost euro’s reserve currency status

Rising volumes, including new EU issuance programmes, are beginning to rival US Treasury market, writes Frank Scheidig, global head senior executive banking at DZ BANK and deputy chair of the OMFIF Advisory Council.

THE dollar’s longstanding position as the denominated sovereigns, supranationals fixings. Currently these are published at dominant currency for capital markets, and agencies debt asset class is becoming, 11.15 central European time, too late for foreign exchange reserves and commodities for the first time, a serious challenger to many Asian investors to trade on. Earlier pricing is being challenged once again. US Treasuries and a true alternative for publication would support real economy At the beginning of the century, some institutional investors. euro trading and billing, as well as the institutions tried to take on the dollar by As my OMFIF colleague Philip Middleton liquidity of euro-denominated SSA and promoting the newly introduced euro. The has pointed out, ‘The combination of related debt markets. euro began its life as a reserve currency in massive fiscal deficits, inflation and low Euro area governments will support 1999 claiming about 18% of global reserves. Treasury yields may also diminish the the push to increase the euro’s share in It peaked during the 2008 financial crisis currency’s attractiveness as an investment world reserves and turn it into more of when it represented almost 28% of reserves class.’ A further reason why the dollar a commodity currency, with oil and oil but fell back subsequently to around 20%. may lose ground is that US adversaries futures quoted in euro. The EU’s two big It gained its 10 percentage points boost and allies alike are averse to successive programmes are important in building the from the dollar, only to surrender it to other US governments’ using the currency as a necessary foundations, but more is required. currencies, including the Australian and weapon to attain political and economic Euro area countries, as well as nations Canadian dollars and the renminbi. goals. like Switzerland and the UK which are The volume and liquidity of fixed income The greenback is, however, a long way closely linked to the euro area, are likely to markets, especially for sovereign debt, are from being dethroned. While a sufficient benefit if the euro expands as a reserve crucial factors determining a currency’s volume of euro-denominated sovereign and commodity currency. But another international importance as a reserve asset bonds is available, the short end of the challenger to the dollar is emerging – from and in financial transactions. The euro is maturity curve is not adequately covered. China. Provided it becomes fully convertible, lagging in this regard. But now the European There are not enough short-term sovereign and international laws are fully applicable Union is launching two initiatives to cushion euro instruments with maturities of a year or in China, the renminbi will go down a similar the effects of the Covid-19 pandemic less, analogous to US Treasury bills, which path. In future we may see a triumvirate of and promote the transition to a climate- the EU should introduce. the dollar, euro and renminbi – bringing the neutral economy. The ‘Support to mitigate Another issue is the timing of the three major global time zones, and the world unemployment risks in an emergency’ and Intercontinental Exchange euro swap rate economy, into better balance. ♦ ‘Next generation EU’ programmes have a combined volume of around €850bn. Adding the EU’s macrofinancial and balance ‘Euro area governments will of payments assistance programmes, that support the push to increase amount is close to €1tn. Together with big the euro’s share in world sovereign issuers, such as France, Italy, Germany, and supranationals, including reserves and turn it into more of the European Investment Bank and the a commodity currency.’ European Stability Mechanism, the euro-

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BTN_Q1.21_000_Bulletin.indd 25 29/01/2021 15:32 OUTLOOK 2021

Why rising public debt won’t drive countries into diff culties

Borrowing taken out by nations to cover Covid-19 related costs won’t be an issue once economies start to recover. The currency regime determines risk factors, writes Christian Kopf, head of f xed income fund management at Union Investment.

FISCAL efforts to contain the fallout of output and the price level, borrowing rates debt sustainability gap in most countries. the Covid-19 pandemic are already fuelling and the government’s deficit levels. Due This should be feasible, particularly as tax controversy. In November 2020, the German to their aging populations and already revenues should rise and social welfare supreme audit institution criticised the elevated productivity, advanced economies spending should decline as the economy government’s deficit as ‘inappropriately have little hope of high future economic recovers from the pandemic. high’ and called on policy-makers to put growth. Moreover, central banks have Rising debt levels alone won’t drive a the budget back on an even keel. At the been unsuccessful in boosting inflation country into difficulties – the currency same time, Gita Gopinath, the International for years. The good news, however, is that regime plays an important role too. While Monetary Fund’s chief economist, urged capital market rates have fallen significantly. yields on Italian government bonds shot governments to refrain from withdrawing The average interest rate on the stock up at the start of the crisis in spring 2020, fiscal stimulus prematurely. Which is the of government debt stands at 1.2% for this was not the case in Japan, even right course of action? And is public debt industrialised countries and only 0.6% for with its far higher debt ratio. Japanese spiralling out of control again, as was the Germany. government bonds will remain the safest case with Greece in 2012? Despite last year’s sharp increase in yen investments, even if public debt rises Four factors will determine public debt debt ratios, fiscal adjustments of less than further. Investors in Italian government sustainability: the trend growth of economic 4% of GDP would be enough to close the bonds, on the other hand, can switch to euro-denominated bonds of other member 1: Only small adjustments needed for many countries states of the currency union at any time, thereby triggering market turmoil. Budget balance before Average Nominal trend Required ﬁscal This severely curtailed Italy’s fiscal Forecasts for Government debt interest payments interest rate growth adjustment space. The European Council addressed 2021 (% of GDP) (% of GDP) (% of GDP) this problem by establishing the European Australia 70% -9.5% 1.6% 3.6% 8.3% recovery fund in June 2020. Italy and New Zealand 60% -8.3% 0.8% 4.0% 6.8% other member states can now fund part of UK 112% -8.1% 1.0% 2.9% 6.1% their budget with loans from the European Canada 115% -8.2% 0.4% 3.2% 5.1% Union and will also receive direct grants. US 134% -6.9% 1.4% 3.1% 4.6% Tensions in euro area capital markets eased Spain 121% -5.1% 2.0% 2.8% 4.1% Italy 158% -2.8% 2.1% 1.6% 3.6% significantly as a result. Japan 264% -6.2% 0.1% 1.1% 3.6% By contrast, the government bond France 119% -5.3% 0.9% 2.4% 3.6% markets of countries such as Australia, Germany 72% -2.7% 0.6% 2.8% 1.2% Japan or the UK, which run large deficits Sweden 42% -1.9% 0.2% 3.1% 0.7% funded in their own currency, never faced Switzerland 48% -1.2% 0.4% 2.1% 0.4% such tensions in spite of record-high Portugal 130% 0.0% 1.9% 2.6% -0.9% deficits. The biggest risk associated with Greece 201% 0.0% 1.5% 2.5% -2.1% those markets is not government default but Sources: Interna.onal Monetary Fund, Union Investment, as of January 2021 currency depreciation. ♦

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BTN_Q1.21_000_Bulletin.indd 26 29/01/2021 15:32 Worldview This season’s expert analysis

Mark Sobel on why not to overplay the dollar’s 30 decline in 2021 David Marsh’s 10 reasons why renminbi 28 will keep on rising

50 40 30 20 10 0 -10 -20 -30 -40 July 1997 to Oct 2020 July 1997 to Sept 2008 Sept 2008 to Oct 2020

Ignazio Angeloni on the case for a European 33 banking charter Herbert Poenisch sheds light on China’s 35 capital inﬂ ows

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BTN_Q1.21_000_Bulletin.indd 27 29/01/2021 15:32 Asia

10 reasons why renminbi will keep on rising Bumpy road ahead, but room for further Chinese currency appreciation

David Marsh attempt to seek a competitive advantage 4. China only big country with 2020 OMFIF through currency devaluation have been economic growth scotched. Allegations that Beijing was Although at the heart of the Covid-19 manipulating the currency to maintain outbreak, China is the first major economy undervaluation may have been true in to escape from last year’s severe downturn. n the months before the US presidential the past – but the period of steep foreign It will be the only big country recording Ielection, the general view took hold that, currency reserve accumulation ended in economic growth last year, at around 2%. It should Joe Biden win, one area of continuity 2014. Compared with the period of maximum offers investors a positive interest rate and with Donald Trump would be in policies anxiety in autumn 2018 over fears the the prospect of some currency gain. The on China. With the former vice-president Chinese were depreciating for a competitive economy expanded 4.9% in the third quarter. moving into the White House, there will advantage, the renminbi has gained more This has allowed officials such as Yi Gang, be tension over China’s assertive foreign than 4% on a real trade-weighted basis. PBoC governor, to exude strong elements of policy, human rights, trade, technology and self-satisfaction: ‘China’s continued recovery espionage. But the relationship between 3. People’s Bank aims to be Bundesbank will benefit the world.’ Last year’s growth the two major world players will be more of Asia has, however, been strongly export-led – a organised, less chaotic and more stable than The People’s Bank of China has recognised negative factor for the world economy, under Trump. Against this background, the that renminbi appreciation would help countering the effort to gear Chinese growth factors behind renminbi realpolitik look control inflation as well as foster a shift focus more to domestic demand. positive. There will be plenty of bumps along away from external and towards domestic the way. But here are 10 reasons why the demand. This has been part of a long-term 5. ‘Trade wars’ with the US have led to Chinese currency’s importance on the world drive to gain political and financial clout; export boom stage is likely to rise. Beijing officials have spoken about making China appears to have profited from the PBoC the ‘Bundesbank of Asia’. Following ‘trade wars’ with the US. This has borne 1. Internationalisation brings previous clear undervaluation, statistics out predictions early in the Trump geopolitical merits show that the currency has risen 40% in real administration from Chinese officials that China has recognised the geopolitical trade-effective terms since the 1997-98 Asian the president’s policies would ‘make China merits of attaining reserve currency financial crisis and 28% since 2008 (Figure 1). great again’. China’s 2020 foreign trade status. As I wrote in a 2011 OMFIF paper, The pace of appreciation will slow – but the surplus with the US is likely to be around internationalising the renminbi ‘would legacy is likely to prove long-lived. $310bn, only a little lower than the $346bn set down a convincing and consistent framework for China’s financial interactions 1: Change with the rest of the world.’ China did a deal in leading with Barack Obama’s administration over 50 currencies‘ admittance to the International Monetary 40 real effective Fund’s special drawing right. Greater exchange rates 30 transparency and market-opening were Present-day 20 traded for recognition as a member of the compared with Asia 10 reserve currency ‘club’. Broadly, the bargain crisis (1997-98) and 0 global crisis (2008- has worked, although more needs to be done -10 09), % in advancing domestic market reforms. -20 Source: Bank -30 for International 2. Renminbi ‘weaponising’ fears Settlements overdone -40 July 1997 to Oct 2020 July 1997 to Sept 2008 Sept 2008 to Oct 2020 International fears that the Chinese would

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BTN_Q1.21_000_Bulletin.indd 28 29/01/2021 15:32 in 2016. Chinese exports to the US in May- base – 2% of world reserve assets – and The authorities are belatedly getting to October 2020 were 4% higher than the same therefore gains will be proportionately larger. grips with the complexities of running period in 2019, after both countries recorded Insufficient convertibility still holds it back. a modern international capital market. steep falls in exports and imports over the Yet the gap with both the US currency (61% of In similar fashion the much-publicised, previous three years. US exports to China international reserves) and the euro is likely ill-communicated renminbi ‘devaluation’ were up 21%. Despite the rising renminbi, to shrink. of August 2015 was blamed at the time for China’s share of global exports is now at its catalysing a mini-slump on global stock highest on record. The risk for 2021-22 is that, 8. Wall Street firms counter financial markets. The episode was re-evaluated as the Covid effect fades, market participants ‘decoupling’ afterwards as a necessary, if poorly executed, could cease to regard the renminbi as a one- Constraints on China’s investments abroad step towards a more market-orientated way bet and the currency could fall again. have halted attempts to make a better exchange rate framework. return on its foreign assets. Beijing can 6. World asset managers move funds to be expected to seek understandings with 10. Digital renminbi will advance Asia China the Biden administration to intensify payments US and other large asset owners, managers beneficial technological exchanges. This The digital renminbi will be a major and banks are profiting from China opening will be important if the two countries advance, especially for trading relations its asset management and bond markets. stake out common ground on investments with Asian partners. Although worries October’s oversubscribed $6bn China countering climate change. China’s stock about state control will impede some government bond offering, 15% of which was market offers foreign investors the chance foreign usage, a digital currency will bring sold directly to US investors, was a signal to hedge their bets against overreliance closer implementation of some longer- of success. A ¤4bn offering in November on US tech firms. Access to the Chinese term strategic goals such the Belt and road drew ¤17bn worth of bids at declining equity market will increase. Belying talk of initiative which Beijing officials described yields – a further sign of Beijing’s efforts financial ‘decoupling’, a host of Wall Street as a means of establishing a renminbi zone to diversify funding sources and capitalise firms has been allowed to take control of in Asia and beyond. The BRI is running into on foreigners’ demand for higher-yielding their securities operations in China. Chinese obstacles, with massive Chinese lending to instruments. The PBoC has been enacting companies’ share listings in the US have over-indebted emerging market economies measures since August to boost allocation accelerated during the Trump presidency. slowing dramatically, underlined by a Boston of renminbi assets to foreign investors. This may gain further momentum under University study, and debt rescheduling A well-functioning liquid domestic bond Biden. looming. However, as Gary Smith wrote market is a prerequisite for further currency in an OMFIF commentary in November, internationalisation – an area where China 9. Ant setback shows drive to modernise ‘Longer-term, the Belt and road will has much ground to make up. markets provide the means for an expanded use of The 11th hour November move to suspend digital renminbi for making international 7. Reserve asset appeal rises from low the $37bn listing of Ant Group was widely payments, and in particular, remittances. base interpreted as a setback for capital market The dollar dominates BRI trade and Domestic bond market opening runs development. Despite the embarrassment remittance flows. Beijing will be happy to alongside efforts to increase the renminbi’s for China, the Ant listing postponement see the renminbi have an expanded role.’ appeal as a reserve asset. The euro, making may turn out to be a step forward. Beijing There will be Sino-American co-operation up around 20% of world reserves, may officials hailed the decision as safeguarding in many areas – as well as abundant power make up some lost ground. But worries investors’ interests. It was driven by a tussles. Depending on how seriously the about uneven euro area recovery, negative realisation that potential subscribers had not Treasury and Federal Reserve take this issue interest rates and European Central Bank been sufficiently informed about Chinese under Biden, digital money may emerge as a power struggles will hamper any advance. regulators’ rulebook changes likely to notable battleground. The renminbi starts from a much smaller significantly impede Ant’s lending business. David Marsh is Chairman at OMFIF.

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BTN_Q1.21_000_Bulletin.indd 29 29/01/2021 15:32 US

Don’t overplay the dollar’s decline in 2021 Expect some weakness, but there’s little to suggest a sudden crash

Mark Sobel (roughly 5.5% down against advanced close to peaks associated with past swings. OMFIF economies and up 0.5% against emerging It is still below its 1985 Plaza accord era peak markets). and its 2002 top after the euro tumbled, and Second, as economies rebound from well above its post-great recession lows. Covid-19, risk appetite will favour non-dollar Fifth, US twin deficits will tank the dollar. any observers are converging towards currencies. With the advent of fracking, the US Ma downbeat 2021 outlook for the dollar. This plausible view needs to be tempered. current account deficit has remained around This view is associated with a surging risk America’s growth potential is higher than 2% of gross domestic product per year, appetite, the end of a strong dollar cycle or a Europe’s or Japan’s. Faster US growth often though the Covid-19 pandemic will boost twin deficit crash. supports the dollar. Economic scarring could it. The US will run large fiscal deficits to Given the seeming random walk nature of hold back the recovery. Even in a risk-on overcome the crisis. exchange rates, forecasting the dollar’s 2021 environment there will be bouts of volatility But America has the world’s deepest and outlook could be an act of hubris. and risk aversion. most liquid capital markets. It issues the That said, the dollar may indeed fall this Third, easier US monetary conditions may world’s leading safe asset – US Treasuries. year, but an overly negative narrative is trigger dollar selling. Interest rates are rock bottom and the Fed unwarranted. Many arguments for a future Shifting interest differentials and relative will continue buying a large portion of US slump don’t hold up. monetary policy stances are exchange debt issuance. If demand abates, slight yield First, the dollar is already falling sharply. rate drivers. However, advanced economy increases will draw inflows back. The dollar index (DXY) in 2020 was down central banks have slashed interest rates to Twin deficits might become an issue. In 13% from its March highs and around 7% for the effective lower bound and are pursuing the meantime, America can well finance the year. quantitative easing. Rate differentials are them. The Federal Reserve’s trade weighted compressed. This won’t change soon with Sixth, emerging market currencies may indices show less dramatic central banks remaining on hold. rise on strong risk appetite. movements than the Even assuming significant dollar The outlook for emerging market DXY – the dollar depreciation, Europe and Japan would currencies points to modest appreciation. was down fret about deflation and lost exports. The The renminbi is a good candidate for around European Central Bank and Bank of Japan further appreciation. China’s current account 2.5% in would turn toward further accommodation. surplus is rising. The capital account has 2020 been bolstered by inflows attributed to high Cycles, deficits and appetites government bond yields and the inclusion Fourth, the strong dollar cycle is ending. of renminbi equities and bonds in global In recent decades, there were three periods emerging markets indices. But authorities of major dollar moves. In the late 1970s, the may become wary of further gains and allow dollar plunged amid lost confidence in US more outflows. economic policy. In the 1980s, the dollar The Mexican peso is to remain supported soared after Paul Volcker tightened monetary by high interest rates and the country’s ‘The dollar may policy to curb inflation. Before and after the conservative stance. Asian currencies may indeed fall this global financial crisis, the dollar fell as the experience upward pressures but will limit year, but an overly US pursued monetary accommodation earlier these. negative narrative is and more aggressively than others. Adding it up, the dollar’s trade weighted unwarranted. Many Dollar cycles last a decade or less. Indeed, index may well decline in 2021, but a crash arguments for a the real trade weighted dollar has been on an does not appear likely. Of course, never future slump don’t upswing for the past eight years and is now ignore the random walk. hold up.’ on the strong side. But the dollar is nowhere Mark Sobel is US Chairman of OMFIF.

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BTN_Q1.21_000_Bulletin.indd 30 29/01/2021 15:32 Policy

Era of low inﬂ ation could last for 50 years “We are in a new ruling ﬁ nancial environment”

Meghnad Desai in part be due to the transfer of wealth from much less of a threat, thanks to the growth Chairmain, OMFIF the rest of the population to the rich, which of alternative energy sources. Agricultural Advisory Board has in turn distorted wealth distribution prices may persist as occasional sources of and led to over-saving. Today, a lot of money price shock, but they will be local or short is chasing positive yields and settling for lived. ovid-19 has upended traditional moderately negative ones. Demographic growth is slowing down and, Ceconomic thinking in a way that was Have we entered an era of zero or even in some economies, labour shortages may even harder to anticipate than the virus negative inflation? If so, what are the yet cause problems. But the age of robotics itself. Economists were not prepared reasons and how long will it last? Certainly, is already with us, and the pandemic will for a simultaneous supply and demand the link between government borrowing and encourage production by bodies unlikely shock, alongside a deep fall in income and inflation is broken. to get sick or spread infection. Artificial employment. The traditional Keynesian Is this low inflation phase an exception or intelligence is also supplanting skilled remedy does not work as the problem is is it the new ruling financial environment? I labour in many activities. not one of empty factories looking for am going to stick my neck out and say it will Should we suppose that we have entered demand. Factories cannot open if workers last for 50 years. an inflation-free world? One where money have to socially distance from one another. The elements of the low inflation economy can be created by a click on a computer at Consumers cannot congregate in pubs or have been maturing over the last 50 years - the central bank, and no inflation follows. restaurants either. Shopping is dangerous since the collapse of the dollar standard and Could we afford a welfare state without a unless staggered in time and space. Only oil price shock. Manufacturing has moved large tax burden? How would the global money issued by governments can sustain to Asia, away from developed countries. economy be reorganised? These are the next demand as well as supply. Services, transformed by technology, are questions we will have to address if we truly The old rules no longer apply. Debt-to- enjoying rising productivity with better have entered a new economic era. gross-domestic-product ratios have been products being sold at lower prices. The Meghnad Desai is Emeritus Professor blown away, control over central banks prospect of inflation caused by the growth of Economics at the London School of monetising government debt has been swept of unit labour costs is therefore, in the west Economics and Political Science and aside and fiscal discipline put on indefinite at least, negligible. Rising oil prices are Chair of the OMFIF Advisory Council. leave. Governments are borrowing at unprecedented levels and still markets are lapping up their bonds even when they pay negative interest rates. And yet, the expected alarm bells are not ringing. The ratio of debt servicing charges to GDP (which is a flow-to-flow ratio, and ‘The elements of hence a more accurate one to follow than the the low inﬂ ation debt-to-GDP ratio, which is a stock-to-flow economy have been ratio) is the lowest it has been for decades. maturing over the There is no inflation in the system. last 50 years – since That apparent eradication of inflationary the collapse of the concerns became apparent in the middle dollar standard and of the 2010s. Central banks began to worry oil price shock.’ about inflation being below the target rate, and therefore how they might raise it, an unimaginable scenario for any economist! The reasons for this are complex: it may be

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BTN_Q1.21_000_Bulletin.indd 31 29/01/2021 15:32 ESG

Why brown should be the new green The most popular strategies might not be the most effective

Danae To avoid headline risk, negative screening disclosures regulation and data technology. Kyriakopoulou strategies are an easy first step, appropriate Strategies that engage companies more OMFIF for social media- and headline-driven directly have been primarily action- rather markets. than outcome-oriented. This is changing. A 2020 survey of central banks, sovereign Regulation such as the new European rown’ or ‘dirty’ industries could funds and pension funds by OMFIF and Union disclosure rules or the UK’s November ‘Bbecome the most sought-after targets BNY Mellon showed that exclusions and decision to move towards making climate in capital markets. Investors focused on ESG integration were the most popular disclosures mandatory, as well as emerging environmental, social and governance factors responsible investment strategies. frameworks on materiality, will increase are concentrating increasingly on achieving But ‘most popular’ does not mean ‘most transparency. impact through transition, rather than on effective’, and effectiveness is becoming Having information on specific ESG minimising headline risk. They have much to more important than popularity. The aspects will help issuers, companies and gain from steering corporate shifts to more OMFIF-BNY survey found that public investors better understand and value effective lower-carbon strategies. These more asset owners are increasingly drawn to portfolio risk. Improvements in technology targeted strategies are set to take over tactics ESG by superior risk-adjusted returns. The are enabling investors to more accurately of blunt exclusions and integration through pandemic has sharpened awareness of measure whether companies are creating blended scores. Over the next two to three portfolios’ vulnerability to non-financial positive impact, as documented in a years, this could affect market dynamics sources of systemic risk. The emerging September report by OMFIF and Refinitiv. significantly both in terms of asset classes consensus in OMFIF’s Sustainable Policy In an increasingly crowded space, a subtle and sectors. Institute roundtables is that ESG is becoming alteration can significantly impact market Two factors are driving this. First, the more about protecting portfolios and less dynamics. As investors become less reliant motivations behind ESG investment are about promoting values or safeguarding on blended scores and exclusions and better changing. Rising public interest in the reputations. able to measure and tie capital to specific climate agenda over the past two years has Sandy Kaul, global head of business indicators and behaviours, the possibilities forced many to turn to ESG investing to advisory services at Citi, told an OMFIF panel, for ESG investing will grow. As Kaul noted, ‘a manage reputation risk. This has created ‘the whole approach around exclusions and lot of the companies that are being excluded incentives for ‘greenwashing’, where integration of blended ESG scores is resulting today are probably going to become some of pretending to do something is seen as better in unclear linkages between the allocation of the most sought-after investment targets than doing nothing. Still, this has been a capital and the actual impacts on corporate because they have the potential to change positive first step and it is important to behaviour that capital is helping facilitate.’ the most and therefore boost their underlying raise awareness of climate change among A key issue is that such approaches usually long-term valuation.’ This is not to say that investors. evaluate companies based on their current investors should look at ‘dirty’ sectors as performance (such as good investments simply because they could their carbon footprint). improve. This is of limited use The shift will be felt through the relative to determine a firm’s popularity of different asset classes: active ‘Rising public preparedness to deal with ownership strategies have mostly been interest in the future risks. in equities. Bonds and structured loan climate agenda A shift in motivation products will have a greater impact if they has forced is necessary but not are contractually tied to specific outcomes. many to turn to sufficient to change Developments in ESG data will play a vital ESG investing behaviour. The second role in enabling this. to manage enabling factor relates Danae Kyriakopoulou is Chief Economist reputation risk.’ to developments in and Director of Research at OMFIF.

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BTN_Q1.21_000_Bulletin.indd 32 29/01/2021 15:32 Regulation

The case for a European banking charter A new scheme could complete banking union, not undermine it

Ignazio Angeloni supervisory umbrella. The law forbids intra- As a result, credit ratings would become Harvard Kennedy School group cross-border capital movements. country-blind. Unlike other banks, pan-euro and the Leibniz Institute for National ring-fencing hampers efficient groups would be eligible to macroprudential Financial Research SAFE liquidity management. Credit ratings penalise requirements calculated by considering the subsidiaries if the parent company is located banking union as a single jurisdiction. They n 2012, the European Union launched in a country with a lower sovereign rating. I would benefit from mobility of capital and Ithe banking union to prevent devastating have suggested ways to revive the banking liquidity within the group, subject to vetting. upheavals like the euro area sovereign union. The European Commission may re- Preferably, their assets would be subject to a debt crisis. In the background, however, open the dossier once Covid-related concerns harmonised area-wide insolvency regime. lied a wider aim: helping euro area banks become less pressing. Even so, cross-border National laws could initially govern taxation compete on a global scale. This required two barriers won’t disappear soon. In the absence and labour relations. Their impact on banks’ steps. First, removing regulatory barriers of a mutualised deposit insurance scheme, profitability and cross-border functionality which made cross-border activities unsafe countries will retain strong control over their would need to be assessed, but once business and unprofitable. Second, setting up a banking sectors. A dispute on the treatment can be allocated flexibly within the group, the single supervisory and crisis management of sovereign exposures is blocking agreement relevance of these country-specific aspects framework. The second condition was fulfilled. on such a mechanism. But there is no need would diminish. The first was not. for sweeping regulatory changes involving This scheme would complete the banking Eight years on, despite the progress on banking union as a whole. Not all banks aspire union, not undermine it. European directives fixing balance sheets, it has failed to meet to become global players. For those that do, a and regulations would still provide the its broader objective. Euro area banks are as bespoke regime may be the easiest solution. umbrella for further bank harmonisation. ECB national as they were, if not more. Troubled A possible scheme would use European supervision would continue to contribute to a lenders have sought survival by shedding regulation to create a legislative niche for sound banking sector, based on common and foreign operations. No relevant cross-border banks that reach critical size and cross-border transparent supervisory practices. In such an combinations have taken place. Banks diversification thresholds. Banks gaining pan- environment, mid-size banks wanting to grow with global ambitions are turning inwards. euro status would have privileges as well as further could more easily go for the final step, Meanwhile, European banks have lost market obligations. They would need to meet capital applying for membership in the pan-euro shares in areas like investment banking. All requirements set by the European Central ‘club’. have reduced or closed their US operations. Bank, at group level, on a fully-loaded basis. Ignazio Angeloni is Senior Fellow of the Their market valuations have fallen relative to The group would follow, within the banking Harvard Kennedy School and the Leibniz competitors. union, a single-point-of-entry structure, with Institute for Financial Research SAFE, and Yet opportunities abound for cross-border losses up-streamed to the head company. a former Member of the Supervisory Board combinations. Large gaps in price-to-book The latter’s liability structure would meet all of the European Central Bank. values could boost the value of acquisitions. loss-absorbing requirements set by the Single Mergers would lead to considerable synergies. Resolution Board. Loss-absorbing rights and There are still benefits to diversifying in obligations across borders would be set by the uneven euro area economy. In addition, European law. digital transformation requires significant Dedicated deposit guarantee and resolution investments that only large banks can afford. schemes would need to be carved out. The obstacles are regulatory. Banks acquiring foreign subsidiaries or creating new ones face heavy macroprudential ‘There is no need for sweeping regulatory changes requirements. Cross-border participations involving banking union as a whole. Not all banks aspire in the banking union are treated as foreign, to become global players. For those that do, a bespoke even though they are under the same regime may be the easiest solution.’

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BTN_Q1.21_000_Bulletin.indd 33 29/01/2021 15:32 Money Matters

A surge in infation is on the horizon Money supply growth will make an impact eventually

Juan Castañeda and Tim Congdon 10.5% in the euro area and 13.9% in the asset purchases by the Bank of England. Institute of International Monetary Research UK. These figures are incompatible with Consequently, in early 2021, the annual low and stable inflation in the medium rate of money growth in the US is likely to term. Large and rapid changes in the ratio remain between 20% and 25%, and to exceed ntering 2021, severe lockdowns have of money to national income do occur, 15% in the UK. Econtinued or been reinstated in large but over the medium term the ratio of The Federal Open Market Committee’s parts of the world’s leading economies. money to income tends to revert to a minutes did not refer last year to any money However, several vaccines have been long-run average value, which reflects aggregate, although the increases in both approved and extensive inoculation agents’ stable underlying preferences to M1 and M2 (which are still published by the programmes are under way. The expectation hold money. At present, households and Federal Reserve) were extraordinarily high. is that normality should return well before companies have accumulated abnormally By implication, the FOMC does not think entire populations are vaccinated, probably high money balances. Once the pandemic that the money growth explosion of spring by summer 2021. In this scenario, large is under control in the second half of 2021, 2020 has any bearing on the medium-term catch-up rises in demand and output are to the return to pre-crisis patterns of money macroeconomic prospect. No one denies that be expected in the second and third quarters holding will result in them wishing to the relationship between money and the of this year. As emphasised in the Institute dispose of excess cash, leading to increases price level of goods and services is subject of International Monetary Research’s in demand and prices. Although monetary to a time lag that depends on the output monthly notes, the ultimate cause of growth has decelerated in the second half gap, among other influences. A jump in inflation is excessive growth of the quantity of 2020 compared with March to June 2020, money growth in an economy with abundant of money. Given the extraordinary growth recent policy announcements signal further spare capacity and very high unemployment of money in 2020 in the US and, to a lesser accelerations in money growth in the US may therefore not lead to extra goods and extent, other major economies, the coming and UK. In the US, another large fiscal services inflation for many quarters. But on inflation surge will be significant and last package of $900bn has been approved by the balance of probabilities – and hence our for more than a few months. The final Congress, which will be mostly financed central expectation – the annual increase in scale and duration will depend partly on from the US banking system, along with consumer prices in the US, and probably the the policy decisions made by major central the new economic relief bill for nearly $2tn euro area and UK too, will exceed 5% before banks in the next few months. which incoming President Biden will send to the end of 2022. With the latest data available, the Congress. We can already see signs that higher annual increase in M3 money supply in In the UK, the second lockdown was consumer price index inflation is likely in the US is still over 22%, while it stands at accompanied by another £150bn of the second half of 2021. Commodity price changes are good indicators of inflationary trends as they are not predictions but ‘At present, households hard evidence based on actual prices. The and companies have Standard and Poor’s GSCI has reported an accumulated abnormally annualised 250% increase in the last six- high money balances. Once months. This is truly exceptional and central the pandemic is under banks should take note that it foreshadows control in the second half strong inflationary pressures. of 2021, the return to pre- Juan Castañeda is Director and Tim crisis patterns of money Congdon is Chairman of the Institute of holding will result in them International Monetary Research. Further wishing to dispose of excess details on the IIMR’s latest money cash, leading to increases in update can be found at https://mv-pt.org/ demand and prices.’ monthly-monetary-update/

34 BULLETIN WINTER 2021 OMFIF.ORG Asia

Shedding light on China’s capital inﬂ ows Numbers offer insights into Chinese authorities’ strategy

Herbert Poenisch ‘A stronger renminbi Formerly Bank should help for International the currency’s Settlemnets internationalisation, as holders of renminbi assets will be rewarded. ast year saw massive portfolio For the partner Linvestment flows into China. This has countries in Asia as been driven by the Chinese economy’s well as Belt and Road bright prospects and higher returns on countries this means a investments, as well as the country’s sharper choice between financial opening up and expectations that following the dollar or the renminbi will appreciate. The exact the renminbi.’ amounts are unclear. According to the People’s Bank of China, foreigners increased their holdings of Chinese financial assets from January to September by $204bn. Of these, equities went up $94bn and debt securities $110bn. At 4%, these holdings represent a small share of total equities and debt securities, and 2019, with inflows of $44bn in the second Third, these moves demonstrate that are therefore unlikely to affect prices in the half of that year. The first quarter of 2020 China’s capital account is opening up, market. The share is higher for government was a slight reversal of this trend. Foreign though more on the capital inflows which bonds at 9% than for corporate bonds at 1%. direct investments inflows and outflows are more or less liberalised than on capital Foreign exchange reserves and the balance were roughly balanced. However, other outflows. While official institutions face of payments are not fully reflected in these investments, such as overseas currency and hardly any restrictions on outflows, private figures, as some investments might be deposits, loans and trade credit expanded by residents are still subject to an annual reinvested in China instead of crossing the $61bn, indicating a repatriation of incoming $50,000 limit. border. funds. This occurred in the books of financial Fourth, renminbi appreciation helps Over the same period, China’s official intermediaries rather than in the official Chinese borrowers repay debt securities. foreign exchange reserves went up by a sector. Close to $10bn in offshore corporate bonds, comparatively modest $27bn, to $3.142tn While this is not a complete picture, it where stress has emerged in the domestic from $3.115tn. This seems to suggest that offers some insights into Chinese authorities’ corporate bond market come, was due in the massive inflow was absorbed by the strategy. First, they are not worried about 2020. exchange rate and non-official holders renminbi appreciation or repercussions for Finally, a stronger renminbi should help rather than as addition to foreign exchange the export sector. They want to demonstrate the currency’s internationalisation, as reserves. During this time, the renminbi that renminbi investment is a two-way bet, holders of renminbi assets will be rewarded. rallied to Rmb6.5 against the dollar, from encouraging market participants to hedge For the partner countries in Asia as well as close to Rmb7, an appreciation of 7.7%. their foreign exchange positions. Belt and Road countries this means a sharper Markets could start driving China’s exchange Second, the inflows allowed Chinese choice between following the dollar or the rate. financial intermediaries to increase their renminbi. In the balance of payments portfolio, overseas holdings and lending without Herbert Poenisch is a former Senior liabilities rose by $66bn in the second affecting foreign exchange reserves or the Economist at the Bank for International quarter. This followed a trend from mid- monetary policy framework. Settlements.

OMFIF.ORG WINTER 2021 BULLETIN 35

BTN_Q1.21_000_Bulletin.indd 35 29/01/2021 15:32 OMFIF Advisers Network

COUNCIL CAPITAL MARKETS MONETARY POLICY

Meghnad Desai Ben Shenglin John Adams Couro Janus Iain Begg House of Lords; Zhejiang University China Financial International London School of chairman, OMFIF Academy of Internet Services Finance Economics Advisers Finance Corporation

Frank Xiang Yaseen Anwar Marek Belka Scheidig Songzuo Soh Kian Industrial & Tiong former prime DZ BANK; deputy International Commercial Bank DBS Bank minister of Poland chair, OMFIF Advisers Monetary Institute of China

Otaviano Irena Canuto Niels Thygesen Asmundson Stuart Harald University of Copenhagen World Bank Group California Mackintosh Benink Department Group of Thirty Tilburg University of Finance Aslihan Gedik Ted Truman Georgina Peterson Institute for OYAK Anker Baker International Economics Louis de Bank International Mario Blejer Finance Montpellier Banco Hipotecario MontRoz Corporation Marsha Hani Kablawi Vande Berg Stewart BNY Mellon Stanford University Stefan Paul Newton Fleming Bielmeier London & Oxford St Antony’s DZ BANK Capital Markets College, University of Oxford William Keegan William White The Observer C.D. Howe Institute Hans Saker José Manuel Blommestein Nusseibeh González- Vivid Economics Hermes Fund Páramo Managers BBVA John Kornblum Noerr Brigitte Mark Burgess Jukka Granville Jamieson Coote Pihlman Queen Mary, Bonds Standard University of Norman London Lamont Chartered Bank House of Lords Michael Cole-Fontayn Colin Graham Association for Robertson Hacche Kingsley Financial Markets SW1 Consulting NIESR Moghalu in Europe Tufts University

Fabio Akinari Horii Thomas Finke Scacciavillani The Canon Barings Oman Investment Institute for Global Fund Studies NETWORK Lutfey Siddiqi Gao Haihong Harold James Bahar Alsharif Frederick Hopson Janusz Reiter National Institute of World Princeton David Badham Matthew Hurn Anthony Robinson University of Economics and University Franco Bassanini Korkmaz Ilkorur Philippe Sachs Politics Singapore Eduardo Borensztein Karl Kaiser Nasser Saidi Consuelo Brooke David Kihangire Pedro Schwartz Hemraz Colin Budd Ben Knapen Vilem Semerak Christian Gärtner Gary Smith Jankee Michael Burda Ludger Kühnhardt Song Shanshan DZ BANK Sovereign Focus formerly Central Shiyin Cai Celeste Cecilia Lo Turco Marina Shargorodska Bank of Mauritius David Cameron Bo Lundgren Paola Subacchi Forrest Capie Mariela Mendez David Suratgar Trevor Volker Stefano Carcascio Murade Miguigy José Alberto Tavares Greetham Wieland Pawel Desmond Cecil Murargy Moreira Royal London German Council Kowalewski Narodowy Bank Efraim Chalamish George Milling-Stanley Jens Thomsen Asset of Economic Management Experts Polski Moorad Choudhry Winston Moore David Tonge John Chown José Roberto Novaes Jorge Vasconcelos de Almeida Gottfried von Bismarck Katarzyna Vladimir Dlouhy George Zajdel- Philippe Obindah Gershon Michael Oliver Jack Wigglesworth Hoguet Kurowska Lagayette CFA Research Jonathan Grant Francesco Papadia Paul Wilson World Bank formerly Banque Foundation de France Peter Gray Robin Poynder John Nugée Group François Heisbourg Poul Nyrup Rasmussen

36 BULLETIN WINTER 2021 OMFIF.ORG

BTN_Q1.21_036-037_AdvisoryBoard.indd 28 29/01/2021 16:33:06 OMFIF Advisers Network

MONETARY POLICY INDUSTRY & INVESTMENT POLITICAL ECONOMY

Andrew Antonio Large Andrew Oscar Armellini Denis Hedge Fund Adonis Lewisohn former MacShane Standards Board House of Lords Soditic ambassador, Avisa Partners OSCE

Kishore Robert Boyd Frits Gerard Lyons Mahbubani Bank of China Bischof McCleary Bolkestein National 39 Essex formerly European (UK) German-British University of Forum Chambers Commission Singapore

Luiz Eduardo Albert Laurens Jan Rakesh Melin Brinkhorst David Owen Mohan Bressand International University of House of Lords Yale University European Economic Leiden Commission Synergies

Willem Vicky Pryce Athanasios Caroline Peter Bruce Centre for Orphanides Middelkoop Business Day Economics MIT Sloan School Butler Commodity Walcot Partners & Business of Management Discovery Fund Research

Célestin Nagpurnanand Jenny Corbett Brian Reading Prabhala Nick Butler Monga King’s College African Australia National independent University of London Development University economist Maryland Bank

Maria Edoardo Danny Quah John Antonieta Del Robert Reviglio Lee Kuan Yew Skidelsky Cassa Depositi e Campbell School of Public Tedesco Lins House of Lords Prestiti Campbell Lutyens Policy University of São Paulo

Olivier Mark Crosby Takuji Tanaka Hans Eichel Michael former German Rousseau Monash Japan Finance Fonds de réserve minister of Stürmer University Ministry pour les retraites ﬁ nance WELT-Gruppe

Miroslav Hans Genberg Daniel Jonathan Christopher Singer The Seacen Generali CEE Titelman Fenby Tugendhat Centre ECLAC TS Lombard Holding House of Lords

Steve Hanke Jeffry Shumpei Pasquale John West The Johns Frieden Takemori Urselli Asian Century Hopkins Harvard University Keio University University Mazars Institute

Hans-Olaf Makoto Paul van Elliot Hentov Henkel William White Utsumi State Street formerly Japan University of Seters OECD Tilburg University Global Advisors Finance Ministry Mannheim

Tarisa Mumtaz Khan Juliusz Watanagase Middle East & Roel Janssen Jabłecki formerly Bank of Asia Capital NRC Handelsblad Nardowy Bank Thailand Partners Polski

Yosuke Ernst Welteke formerly Joel Kibazo Kawakami Deutsche JK Associates formerly Bundesbank Japanese Ministry of Finance

Jürgen Thomas Krönig Kielinger Die Zeit Die Welt

OMFIF.ORG WINTER 2021 BULLETIN 37

BTN_Q1.21_036-037_AdvisoryBoard.indd 29 29/01/2021 16:35:03 Inquiry

In a speech to OMFIF in November, Bundesbank President Jens Weidmann stated that central bankers need ‘to make it very clear that we 93% Ensuring are not going to place monetary policy at the service of ﬁ scal policy’, cautioning that ‘if we create a dif erent impression, we are putting policy both our independence and our credibility at risk.’ Do you agree? 7% harmony Poll of OMFIF website users, OMFIF advisory board and Twitter users Yes No

Talk of monetary policy at the service of fi scal policy is misguided. Both Jens Weidmann correctly frames the issue. As central are at the service of the economy. The real challenge for central banks and banks increasingly engage in quasifi scal operations and fi nance ministries at a time of great fi nancial strain is to work together to their balance sheets grow, it is inevitable that they will be ensure that monetary and fi scal policy are in harmony. subject to more scrutiny and criticism, particularly in a John Nugee, formerly Bank of England populist age. The growing criticism of technology giants by US politicians of both parties is a powerful example of No, I do not agree. Extraordinary circumstances call for extraordinary how sentiment can change. To maximise the prospects of measures, and every central bank needs to work in tandem with fi scal sustained independence, central banks should focus on authorities to ensure that the macroeconomic policy response to the traditional monetary policy objectives and crisis prevention current pandemic-driven crisis is as effective as possible. through prudential regulation. Jeffry Frieden, Harvard University Irena Asmundson, State of California Department of Finance Recent history has shown that monetary policy cannot respond to crises alone. Prompt and credible action by central banks has been crucial to stabilising markets, but fi scal policy has been slower to respond. The future of central banks will depend on the success Irena Asmundson, State of California Department of Finance they have in being seen as far-sighted thinkers and policy- makers. They should avoid insisting on independence ln the wake of Covid-19, large scale government bond purchases by central for its own sake. Central banks cannot act independently banks and elevated debt have blurred the line between monetary and fi scal of government in a time of crisis where the roles of it policy. Authorities in Mauritius have even amended legislation to allow the and the fi nance ministry are intertwined. They should central bank to make an outright grant to the government. Such policies, demonstrate their commitment to the long term, especially conducted under the pretext of Covid-19, only undermine the independence the shift toward green. Climate change impacts all the of central banks and increase the risk of fi scal dominance. variables on which delivery of their exiting mandates rely. Hemraz Jankee, formerly Bank of Mauritius Andrew Large, formerly Bank of England

38 BULLETIN WINTER 2021 OMFIF.ORG

BTN_Q1.21_026_Poll.indd 26 29/01/2021 17:21:42 A revolution in money Central banks and digital currencies The inaugural DMI Symposium, 28-29 April 2021

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At a time when the digitalisation of the economy has accelerated, the DMI utilises its position to facilitate public and private sector dialogue on the future of money. The inaugural DMI symposium is a culmination of these discussions, using our convening power within the central banking community and extensive network of banks, technology solution providers and institutional investors to advance trusted and efﬁ cient innovations in digital solutions.

EVENT AT A GLANCE WHY ATTEND? » Virtual two-day symposium » Hear directly from central banks on » 30+ speakers from OMFIF’s global CBDC initiatives central banking community » Get the latest thought leadership » 1000+ attendees drawn from institutional delivered by industry experts investors, banks, technology providers » Join a global network of digital currency » Public panels and private roundtables stakeholders » Exhibition stand area; open forums; » Have meaningful exchanges with bilateral meetings delegates and speakers all in one place » Examine critical questions which impact all areas of ﬁ nance

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