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Coping with Global Flows How to Handle Post-Crisis Strains

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Coping with Global Flows How to Handle Post-Crisis Strains September 2017 The Bulletin Vol. 8 Ed. 8 Coping with global flows How to handle post-crisis strains Szilárd Benk and Péter Gábriel on EU migration Gao Haihong on China’s capital account caution Steve Hanke on dangers of greenwashing Imène Rahmouni-Rousseau, Hervé Le Bihan on inflation Arnór Sighvatsson on managing capital flows Plutarchos Sakellaris on countering European populism LIGHTEN THE DEBT – BRIGHTEN THE FUTURE Imagine a world where security would really mean something This world exists. It is CADES Caisse d’Amortissement de la Dette Sociale The French State Social Debt Agency CADES – 15 rue Marsollier, 75002 Paris, France – Website : www.cades.fr Photos: Fotolia - Concept /Design: Actifin Contents - Vol. 8 Ed. 8 September 2017 COVER STORY: Global flows post-crisis Monthly Review 6 6-7 Briefings – OMFIF Advisers Network, OMFIF meetings Flows 8 Risks from cross-border funds Arnór Sighvatsson 9 International capital movements change shape Danae Kyriakopoulou 10 Managing volatile flows Atish Ghosh, Jonathan Ostry and Mahvash Qureshi 11 Questions over renminbi internationalisation Bhavin Patel 12 Uneven impact of EU migration Szilárd Benk and Péter Gábriel 13 Decades of trade opportunities at risk 16 Ben Robinson International monetary policy 14 From deflation to 'lowflation' Hervé Le Bihan and Imène Rahmouni-Rousseau 15 Time to redraw the Phillips Curve Gary Smith US 16 Fed foggy amid Washington turmoil Darrell Delamaide Emerging Markets 17 Improving Chinese investment in Africa Kat Usita Europe 18 Holding back the populist surge Plutarchos Sakellaris 19 Lessons of Black Wednesday David Marsh Sustainable investment 20 Rigour to avoid greenwashing 19 Steve Hanke Book reviews 21 Soft power to further the Fatherland Robert Bischof 21 22 Economic models ‘not up to task’ George Hoguet 23 Too much globalisation gloom Gabriel Stein OMFIF Advisory Board poll 26 Weidmann to head ECB in 2019, say majority September | ©2017 omfif.org CONTENTS | 3 OMFIF Dialogue on world finance and economic policy Official Monetary and Financial Institutions Forum 30 Crown Place, London, EC2A 4EB The Official Monetary and Financial Institutions Forum is an independent think tank for United Kingdom central banking, economic policy and public investment – a non-lobbying network for best T: +44 (0)20 3008 5262 practice in worldwide public-private sector exchanges. At its heart are Global Public Investors F: +44 (0)20 7965 4489 – central banks, sovereign funds and public pension funds – with investable assets of $33.8tn, equivalent to 45% of world GDP. www.omfif.org With offices in both London and more recently Singapore, OMFIF focuses on global policy @OMFIF and investment themes – particularly in asset management, capital markets and financial supervision/regulation – relating to central banks, sovereign funds, pension funds, regulators Board and treasuries. OMFIF promotes higher standards, performance-enhancing exchanges John Plender (Chairman) between public and private sectors and a better understanding of the world economy, in an Jai Arya atmosphere of mutual trust. Pooma Kimis Edward Longhurst-Pierce David Marsh Membership Mthuli Ncube Membership offers insight through two complementary channels – Analysis and Meetings – John Nugée where members play a prominent role in shaping the agenda. For more information about Peter Wilkin OMFIF membership, advertising or subscriptions contact [email protected] Advisory Council Analysis Meghnad Desai, Chairman OMFIF Analysis includes research and commentary. Contributors include in-house experts, Johannes Witteveen, Honorary Chairman Advisers Network members, and representatives of member institutions and academic Phil Middleton, Deputy Chairman and official bodies. To submit an article for consideration contact the editorial team at Louis de Montpellier, Deputy Chairman [email protected] Frank Scheidig, Deputy Chairman Songzuo Xiang, Deputy Chairman Meetings Otaviano Canuto Aslihan Gedik OMFIF Meetings take place within central banks and other official institutions and are Robert Johnson held under OMFIF Rules. A full list of past and forthcoming meetings is available on William Keegan www.omfif.org/meetings. For more information contact [email protected] John Kornblum Norman Lamont Kingsley Moghalu OMFIF Advisers Network Fabrizio Saccomanni Gary Smith Niels Thygesen The 178-strong OMFIF advisers network, chaired by Meghnad Desai, Ted Truman is made up of experts from around the world representing a range Marsha Vande Berg of sectors: Monetary Policy; Political Economy; Capital Markets; Ben Shenglin, Chair, OMFIF Economists Network and Industry and Investment. They support the work of OMFIF in a variety of ways, including contributions to the monthly Bulletin, Editorial Team regular Commentaries, seminars and other OMFIF activities. Danae Kyriakopoulou, Head of Research Membership changes annually owing to rotation. Simon Hadley, Senior Production Manager Julian Frazer, Subeditor Catherine Lockwood, Subeditor July-August 2017 May 2017 April 2017 Ben Robinson, Economist The Bulletin Vol. 8 Ed. 7 The Bulletin Vol. 8 Ed. 5 The Bulletin Vol. 8 Ed. 4 Bhavin Patel, Junior Economist Green finance heats up Oil in twilight zone William Coningsby-Brown, Editorial Assistant Public investors to the fore Catalysing Opec reform Darrell Delamaide, US Editor Shock and renewal Challenges for Europe Marketing John Anyanwu on sub-Saharan Africa Meghnad Desai on Greenspan’s flaws Jean-Jacques Barbéris on Macron’s challenge Rabah Arezki on oil price stability Brigitte Granville on Le Pen’s popularity Tiago Berriel on Brazilian economic revival Gautam Sashittal on gold opportunity Felix Hufeld on banking regulation Evelyn Hartwick on financing sustainable investment Ikuko Samikawa on Japan’s monetary policy David Marsh on the Scottish conundrum Bertrand de Mazières on green bond regulation Amando Tetangco on Asia’s ‘new mediocre’ Chris Ostrowski, Assistant Head, Business Development Mthuli Ncube on mobile banking Paweł Kowalewski and Ben Robinson on central bank divergence FOCUS on Portugal Vicky Pryce on Varoufakis’ EU battle Sayuri Shirai on Japan’s yield curve Strictly no photocopying is permitted. It is illegal to reproduce, store in a central retrieval system or transmit, electronically or otherwise, March 2017 February 2017 January 2017 December 2016 Vol. 8 Ed. 3 Vol. 8 Ed. 2 Vol. 8 Ed. 1 Vol. 7 Ed. 11 any of the content of this publication without the prior consent of the The Bulletin The Bulletin The Bulletin The Bulletin publisher. While every care is taken to provide accurate information, Growth, risk, vulnerability World shocks and emerging markets the publisher cannot accept liability for any errors or omissions. No Power of personality responsibility will be accepted for any loss occurred by any individual Tides turning on central banks due to acting or not acting as a result of any content in this publication. On any specific matter reference should be made to an appropriate Coping with change Carlo Cottarelli on financial repression Latin America hopes Mojmir Hampl on multiple mandates adviser. Gender matters Norman Lamont on Iran nuclear deal Øystein Olsen on inflation targeting Women in central banks DeLisle Worrell on benefits of dollarisation Linda Yueh on currency volatility Company Number: 7032533 Global Public Investor Gender Balance Index World leaders in 2017: David Smith on Argentina’s Macri FOCUS on advisory board 2017 forecasts Danae Kyriakopoulou on Greek debt Abdeldjellil Bouzidi on sovereign climate bonds Etsuro Honda on Abenomics challenges Christine Lagarde on women’s empowerment Carlo Cottarelli on demographic shifts John Mourmouras on central bank independence Vicky Pryce on employment quotas Antonio de Lecea on East-West co-operation Mthuli Ncube on African digital financial services ISSN: 2398-4236 Minouche Shafik on the role of experts Veerathai Santiprabhob on financial fragility Vicky Pryce and Danae Kyriakopoulou on Greek debt Tarisa Watanagase on aging demographics FOCUS on Singapore’s global role Edoardo Reviglio and Marcello Minenna on Italian banks FOCUS 2016 in review 4 | ABOUT OMFIF omfif.org September | ©2017 EDITORIAL Managing global flows: post-crisis challenges he defining characteristic of the past two years has been the rise in anti-globalisation sentiment, expressed through the UK’s vote to exit Tthe European Union, the support for Donald Trump’s unilateralist agenda, and the introduction of protectionist trade measures at the fastest pace since the 2008 financial crisis. This month’s Bulletin focuses on global flows – of capital, goods and people – looking at how they have developed in the post-crisis environment and analysing the political and economic challenges. Arnór Sighvatsson, deputy governor of the Central Bank of Iceland, discusses Iceland’s experience with capital flows management and presents the benefits of the special reserve requirement as a means for achieving a beneficial composition of flows. Danae Kyriakopoulou reflects on the changed nature of financial globalisation in the post-crisis period, with a greater role for foreign direct investment compared with cross-border lending. The 2008 crisis exposed the difficulty of modelling global financial markets, writes George Hoguet in his review of Richard Bookstaber’s The End of Theory. Ben Robinson discusses the factors affecting the changed relationship between trade and GDP, forecasting a prolonged period of disappointing trade growth. However, it is easy to overstate the negative scenarios for
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