Title of Paper: The Great Recession, Capital Market Failure and International Financial Regulation
Abstract: The ‘great recession’ has been a far more significant driver of the crisis than monetary or fiscal policy. This paper analyses the nature of the global capital market failures involved, which reflect the macroeconomic consequences of private sector balance sheet decisions under uncertainty on the one hand, and the particular role of the interstices between regulatory jurisdictions in propagating these shocks on the other. The recent experiences of mature and emerging markets are then contrasted, with particular reference to the consequences of sovereign debt and employment levels. The paper argues that there is a strong case for: (a) close coordination between G20 financial authorities to allow effective prudential regulation of global banks and funds; (b) insulation of long-term household financial services (particularly mortgages and pensions) from short-term speculative forces; and (c) an end to the secrecy offered by ‘offshore’ financial centres on the international assets (and liabilities) of major investors.
Title of Paper: A Progressive International Monetary System: Growth Enhancing, Speculation Reducing and Cross-Country Equity
Abstract: Since the government of the United States unilaterally ended the post-war monetary system of fixed exchange rates in 1970, discussion has waxed and waned over what should replace it. The various ad hoc responses have left the world a system strong on instability, in great part due to so-called flexible exchange rates. This paper dissects the falsely dichotomous fixed/flexible analysis of the mainstream, drawing on Keynes’s, especially but not exclusively, contribution to the debates at Bretton Woods. It argues, like Keynes, that the central focus of international monetary reform should be fostering growth, not price stability. Such a focus implies complete transformation of the International Monetary Fund, whose policies are essentially demand depressing. Second, fostering strong growth requires tight control over speculative activity, which itself requires a suitable nominal anchor. Third, a progressive system would correct the economic and political imbalances between large and small countries, and surplus and deficit countries.
Prof Malcolm Sawyer, University of Leeds, United Kingdom
Title of Paper: The Financial Transactions Tax: Its Potential and Feasibility
Abstract: The ‘great recession’ has re-opened the debate and produced considerable interest in the idea of a tax levied on financial transactions, particularly on those involving foreign exchange dealings. The root of the argument is that many financial market transactions are purely speculative and as such they merely reallocate the ownership of existing financial assets without any beneficial impact on the productive economy. Indeed volatility of prices thereby generated may have adverse effects on the real economy. The purpose of this paper is to evaluate the proposals for a tax on foreign exchange dealings. We assume at the outset that levying such a tax on a national basis would not be feasible and do not discuss that possibility further. We do initially assume that a tax could be levied on a co-coordinated international basis in a workable manner and this enables us to discuss the merits and demerits of the tax. We also discuss the feasibility of such a tax.
Prof Patricia Peinado, Universidad del País Vasco, Euskal Herriko Unibertistatea, Spain
Prof Felipe Serrano, Universidad del País Vasco, Euskal Herriko Unibertistatea, Spain
Title of Paper: Global Imbalances and Capital Movements as Constraints to the International Economic Recovery.
Abstract: The global imbalances are one of the causes of the ‘great recession’. The financial flows associated with these imbalances are in the origin of the generalized crisis in the international financial markets, which are incapable of absorbing efficiently these huge capital inflows. The current experience shows that export-led strategies of growth are unsustainable if they are implemented by big economies whose external disequilibria can generate big systemic risks. An additional element of risk is the fact that the adjustment of these imbalances cannot be made with changes in the exchange rate of the main currencies involved (US dollar and Chinese renmimbi). The generation and the size of the global imbalances are explained by the structural changes registered in the whole world. These changes cannot be solved with just short-term demand-side policies. Supply-side policies, essentially industrial policies that contribute to the match of demand and supply internationally is a better way forward.
Giuseppe Fontana, University of Leeds, United Kingdom, and University of Sannio, Italy
Title of Paper: Current account imbalances, Capital Flows and ‘European Southernification’
Abstract: In the New Economics monetary policy could be seen as focusing on the degree of solvency of the economic system. This process operates asymmetrically within the euro area, creating not only unemployment but also current and capital account imbalances, polarization of production and centralization of capital. In view of this mechanism it is possible to suggest a more general interpretation of the risk of ‘European Southernification’. In this view the assumption of increasing returns to scale and the resulting concentration of physical production in the central areas of the euro area is at the heart of the argument. We propose an approach which shows that the ‘Southernification’ is amplified by a monetary policy conducive to centralization of capital. This view suggests that in the long run capital acquisitions could take the place of external debt. As a consequence, current trade deficits of the peripheral countries will be replaced by capital account surpluses.
Prof Fernando Ferrari-Filho, Federal University of Rio Grande do Sul, Brazil
Title of Paper: Capital Flows, International Imbalances and Economic Policies in Latin America
Abstract: Empirical literature shows evidence that capital flows to Latin America have been mostly determined by push factors (economic policies of developed countries) than to pull factors (associated to domestic factors). After a succession of currency crises, Latin American countries adopted a floating exchange regime but at the same time have made use of foreign exchange reserves accumulation policy in order to reduce the effects of capital flows volatility. More recently, due to the implementation of the ‘easing’ monetary policy in the US, combined with the attraction of FDI due to the commodities boom, capital inflows to Latin America have increased substantially. This trend has put pressure on the economic policy of the relevant countries. The response of governments, however, has differed in each country. This paper aims at analyzing the causes and consequences of the recent capital flows boom to Latin America, focusing on the major countries of the region.
Dr John McCombie, Cambridge Centre for Economic and Public Policy Research and Downing College, United Kingdom
Title of Paper: ‘The Past is Never Dead. It’s Not Even Past’: Global Imbalances and Capital Flows in South East Asia
Abstract: Barely a decade after the Asian crisis the American financial crisis has erupted. These crises have common features, in particular global imbalances, but different causes: excessive corporate borrowing and foreign debt in Asia and reckless securitisation in America. The trigger was the same: investor panic given uncertainty about asset prices followed by a liquidity run and insolvency in the banking system. This paper considers the Asian economies after 1997 and examines how their macroeconomic fundamentals and regulation of the financial systems changed using the New Economics framework. As a result of that institutional change the American financial crisis had little immediate impact, but with the collapse of Lehman’s, capital flowed out of Asia as foreign banks withdrew capital to rebuild their balance sheet at home leading to problems with refinancing their US dollar liabilities. This poses new threats and the way the monetary and government authorities have responded to this ‘old’ crisis are examined. There are some important policy lessons for Western economies.
Title of Paper: Africa and the Perversities of International Capital Flows
Abstract: During the 1980s and 1990s many African countries embraced financial globalization on the promise of accessing flows from developed countries. They removed restrictions on capital accounts, opened up to FDI, privatized state assets often selling off banks to foreign owners and built stock markets. Perversely, capital flowed to the rich developing countries from some of the poorest African countries. Among other things, countries like Nigeria parked billions of dollars of reserves on Wall Street, foreign owned domestic banks augmented their assets abroad, and stock markets have been used as vehicles of capital export; also net lending from international banks have frequently turned negative. Funds generated from FDI have seldom been reinvested with profits rapidly exported out of the country. The paper will not only document and criticise this impact but draw on institutional economic tools to both explain this outcome and generate an alternative framework for generating improved financial-development linkages.