Financial Stability

Fixed exchange rates

By Daniel H. Neilson

As we prepare to digest the implications of this week's ECB move, it seems worthwhile to take a look at the monetary economics of fixed exchange rates.

There are two basic ways to hold fixed the exchange rate between the money of two communities: peg the exchange rate or create a monetary union. Read more

Overview of PBoC Instruments

As a seminar focusing on China’s monetary policy, we’ve always been interested in the use of monetary instruments by People’s Bank of China (PBoC). In this posting, we’d like to wrap up the core elements of our past discussions on PBoC instruments.

  Read more

Interday and Intraday Movement of USDCNY

Suggested by our instructor Logan, we draw the following chart, which decomposes onshore USDCNY price movements into two parts, interday and intraday.


            Source: Bloomberg. Data as of Dec 16, 2011.

  Read more

John Whittaker: Eurosystem balances explained

[The following guest post is by John Whittaker, from whom we have learned much of what we know about how the European payments system works.  See his terrific papers here and here, both of which reward close study.  He has been looking over the last couple Money View posts, and the comments to those posts, and has this to say.] Read more

The IMF and the Collateral Crunch

[N.B.:  This post, while intended to stand on its own, should be understood as part of a sustained analysis that we have been carrying on over a series of posts.  Readers who find themselves baffled by this post may want to start with earlier posts in the thread:  specifically here, and here.] Read more

Is there an ECB?

The ECB has always been the protagonist of the eurozone crisis story. At times it has seemed the arch-villain, coldly standing on principle even as the financial system crumbles around it. At other times it has seemed the hero in waiting, ready to step in at the eleventh hour to bring a moral-hazard-free end to the turmoil with its unlimited balance sheet.

What is becoming increasingly clear, however, is that the plot is taking a twist. The question is no longer whether the ECB is villain or hero, but whether it exists at all. (And today's collateral eligibility expansion doesn't resolve the question.) Let me explain. Read more

What a liquidity crisis looks like

Bloomberg's reporters continue their diligent work looking back on the Fed's lending in the subprime crisis. Matt YglesiasYves SmithPaul Krugman, and others have picked up the story. Meanwhile, the world looks ahead to the next development in the eurozone crisis. To read these crises correctly, liquidity should be front and center. It is missing in Bloomberg's work, and it is missing in European policymaking. Read more

Foreign Exchange Purchases: A Burden for Chinese Banks

Chinese FX reserves have reached $3.2 trillion. The majority of the FX reserves are accumulated through financial institutions, such as commercial banks, purchases of dollars from corporations and households. As an article in September 26th edition of the South China Morning Post puts it:

Let's look at one of these assets "left on bank balance sheets", an item obscurely classified in the official statistics as "financial institutions position for forex purchases". This category of assets now amounts to 25.3 trillion yuan.

Foreign Exchange Reserves: A Double-Edged Sword

The recent currency bill passed by the US Senate has once again drawn attention to the Sino-US trade issue and the colossal foreign exchange reserves accumulated by the PBoC, China's central bank, as a result of years of Chinese surplus. Chinese FX reserves have increased by 17.2 times from 166 billion USD in 2000 to 3.2 trillion USD in September 2011, an annual growth rate of 29.5% from 2000 to 2010. The pile of reserve assets on PBoC’s balance sheet is impressive, but is it good policy for China keep such a high foreign reserve?


  Read more

Economics in Uncertain Times

My first TV chat show performance: