The Case for an Intermediate Exchange Rate Regime with Endogenizing Market Structures and Capital Mobility

Set in the context of the recent theoretical and policy debates on appropriate exchange rate regimes for emerging market economies in a world of free capital mobility, the paper attempts to present the case for an intermediate exchange rate regime, drawing on recent theoretical and empirical literatures on behavioural finance and currency market structures; and to examine empirically the experiences and evolution of Brazil.s foreign exchange market under different exchange rate regimes.exchange rate management, emerging markets, Brazil

Critical macro-finance, Post Keynesian monetary theory and emerging economies

© The Author(s) 2020. This an open access work distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International licence (CC BY-NC-ND 4.0: https://creativecommons.org/licenses/by-nc-nd/4.0/).In our contribution to this forum, we suggest that critical macro-finance (CMF) scholars and Post Keynesian monetary theorists would profit from a more explicit engagement with each other. Post Keynesian scholars would benefit from the detailed empirical insights that CMF provides, particularly through its analysis of non-bank financial institutions and the conceptual focus on liquidity and liabilities. Meanwhile, the CMF literature would benefit from more explicit grounding in earlier Post Keynesian concepts. In particular, the theory of liquidity preference, the concept of the liquidity premium, and the theory of endogenous money highlight macroeconomic issues missing from CMF scholarship.Peer reviewe

EIB Working Paper 2022/11 - A structural analysis of foreign exchange markets in sub-Saharan Africa

"Many countries in Sub-Saharan Africa have liberalised their foreign exchange markets and capital accounts, and have moved to more flexible exchange rates, in recent decades. In this context, the interaction between non-resident investors and export structures centred on primary commodities create a risk of destabilising exchange rate dynamics and further complications for macroeconomic management. This paper presents detailed insights into the micro-characteristics of several African Lower and Lower-Middle Income Countries' foreign exchange markets and the implications of these characteristics for macroeconomic management. It draws on interviews with foreign exchange experts in central banks, banks, non-bank financial institutions, and research institutions in Ghana, Kenya, Malawi, Sierra Leone, Uganda, and Zambia, as well as the City of London. The results show that whilst most of these countries have functioning foreign exchange interbank markets, these markets are often characterised by low, volatile and “lumpy” liquidity. These liquidity dynamics and uncertainty about future foreign exchange flows can lead to foreign exchange hoarding by market participants, further depriving the market of liquidity. Those with access to foreign exchange liquidity can gain significant market power and the potential to affect price dynamics, which has meant that central banks in these countries have remained key agents in foreign exchange markets, to manage scarce and volatile liquidity patterns. Overall, the results show the difficulties of moving towards floating exchange rates, for African countries characterised by concentrated export structures, low trust in their currencies, and shallow domestic financial markets.

Assessing Financialization under International Financial Subordination: A Mixed-Methods Study of Brazilian and Turkish Non-Financial Corporations

This article investigates the changing financial behaviour of Brazilian and Turkish non-financial corporations (NFCs) in the context of international financial subordination. Recent empirical evidence shows that emerging capitalist economies’ (ECEs) NFCs have increased their holdings of very short-term financial assets (mainly cash), whilst borrowing heavily from (international) financial markets and banks. Drawing on an extensive mixed-method study, we show that rather than paradoxical or driven by speculative carry trade operations, the “wasteful” combination of holding very liquid and lower yielding assets while borrowing at higher costs (largely denominated in foreign currency), can be contextualized in the subordinate integration of ECEs firms into the global economy. Whereas cash holdings protect against macroeconomic uncertainty, ECEs firm borrowing is largely determined by international market conditions in the context of structural financing constraints. Moreover, our results show the dualistic and heterogenous nature of ECEs firm financial behaviour, which mirrors the polarity observed in those economies’ productive structure and structural balance of payments constraints: only firms with secure access to foreign exchange – either through exports or active internationalisation – have the collateral to interact with global – dollar dominated – financial markets. Finally, our paper points to the important, yet contradictory, role of the state in ECEs firm financial behavior. In instances where foreign exchange generating activities in the private sector are not given, the state assumes a crucial role in enabling firms’ engagement with global financial markets; yet it is that same engagement, which – in the context of international financial subordination – create acute macroeconomic vulnerabilities which at times force the state to restrict those same operations

UK pension funds’ patience and liquidity in the age of market-based finance

© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/).Pension funds have often failed to meet expectations in terms of providing ‘patient capital’. Explanations for this lapse have ranged over regulatory and ideational factors. We argue that a new ‘impatient’ phenomenon is emerging that requires further explanation: pension funds are becoming more mindful of their liquidity and collateral management, and engage in pro-cyclical investment behaviour. We show how UK pension funds have adapted their investment strategies, investing significantly in collective funds, including in foreign and in “alternative assets”, and setting aside protection assets as collateral for their derivatives and repo transactions. This behaviour has increased pension funds' exposure to and participation in liquidity spirals, forcing them to dispose of assets during crises and contributing to the overall pro-cyclicality of the contemporary market-based financial system. This was most recently highlighted by the instability of UK government bond markets in September 2022. Drawing from Minsky and the emerging literature on Critical Macro-Finance, we argue that this new pension fund behaviour is in response to structural changes in the financial markets in which they operate.Peer reviewe

Uneven development, financialised capitalism and subordination

n contrast to neo-classical mainstream approaches to economics, this innovative Modern Guide addresses the complex reality of economic development as an inherently uneven process, exploring the ways of theorizing and empirically exploring the mechanisms with which the unevenness manifests itself. It covers a wide array of issues influencing wealth and poverty, technological innovation, ecology and sustainability, financialization, population, gender, and geography, considering the dynamics of cumulative causations created by the interplay between these factors