The benchmark U.S. Treasury market: recent performance and possible alternatives - commentary

Forecasting ; Economic indicators ; Treasury bills ; Government securities ; Budget ; Debts, Public

NAFTA, capital mobility, and Mexico's financial system

Typically the impact of the North American Free Trade Agreement (NAFTA) is analyzed from a macroeconomic perspective, to examine the implications for capital market flows or for the aggregate degree of financial integration. This analysis often involves examining whether certain conditions of arbitrage or efficiency tend to hold, given greater integration of financial markets. Alternatively, other work examines only the effects of greater financial integration for the efficiency with which financial services are provided microeconomically. The two approaches are rarely combined, nor are the effects of integration considered within such a combined framework. The authors combine the two approaches to examine how NAFTA will affect capital flows and the efficiency with which financial services are provided in Mexico. They also call attention to domestic financial systems and monetary and exchange rate policy issues that Mexico must address if greater financial integration is not to result in increased risk for the domestic financial system or greater macroeconomic instability.Payment Systems&Infrastructure,Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,International Terrorism&Counterterrorism,Macroeconomic Management,Banks&Banking Reform,Financial Intermediation,Economic Theory&Research,Environmental Economics&Policies

Pension reform in small developing countries

The authors provide a framework in which small countries can assess the proper role for the state and the private sector in pension policy. Based on industrial organization theory and pension economics, this framework draws on experience in small countries. The authors identify how optimal pension policies can change in small countries (those with fewer than 1 million active contributors to pension funds), explore optimal pension reform design for small countries, and incorporate other stylized assumptions about small countries into the discussion: the relatively greater international mobility of labor and capital, the greater scarcity of human capital specialized in financial supervision and tax administration, fewer independent interests, and higher political volatility and risk over long time horizons. They conclude that: 1) For small countries the Chilean model should be modified to include greater reliance on international trade in financial services -- especially services that benefit from economies of scale and scope, such as collections, account processing, and benefit payments. Such an approach would require a greater harmonization of accounting and regulatory standards between small developing countries and the countries from which financial services are imported. 2) The unbundling of pension services is more advantageous in small than in large countries. 3) The collection of contributions and the payment of benefits (which are subject to substantial economies of scale for small countries) should be mandatorily unbundled from other pension services. 4) Those services should be provided separately to ensure competition in the selection of trustees and competitive investment management services. This type of pension system design may be preferable to having a foreign firm provide all pension services. 5) When other assumptions (such as susceptibility to large gross migration flows) are combined with the assumption of a small-country base, mandatory pension systems or fiscal incentives are found to be less effective in small than in large countries. Large countries have broader contribution bases and much smaller gross migration flows, making them demographically more stable. 6) The relatively greater international migration in small countries makes full funding of pension systems even more important in small than in large countries.Municipal Financial Management,Banks&Banking Reform,Health Economics&Finance,Pensions&Retirement Systems,Public Sector Economics&Finance

Electronic security - risk mitigation in financial transactions : public policy issues

This paper builds on a previous series of papers (see Claessens, Glaessner, and Klingebiel, 2001, 2002) that identified electronic security as a key component to the delivery of electronic finance benefits. This paper and its technical annexes (available separately at http://www1.worldbank.org/finance/) identify and discuss seven key pillars necessary to fostering a secure electronic environment. Hence, it is intended for those formulating broad policies in the area of electronic security and those working with financial services providers (for example, executives and management). The detailed annexes of this paper are especially relevant for chief information and security officers responsible for establishing layered security. First, this paper provides definitions of electronic finance and electronic security and explains why these issues deserve attention. Next, it presents a picture of the burgeoning global electronic security industry. Then it develops a risk-management framework for understanding the risks and tradeoffs inherent in the electronic security infrastructure. It also provides examples of tradeoffs that may arise with respect to technological innovation, privacy, quality of service, and security in designing an electronic security policy framework. Finally, it outlines issues in seven interrelated areas that often need attention in building an adequate electronic security infrastructure. These are: 1) The legal framework and enforcement. 2) Electronic security of payment systems. 3) Supervision and prevention challenges. 4) The role of private insurance as an essential monitoring mechanism. 5) Certification, standards, and the role of the public and private sectors. 6) Improving the accuracy of information on electronic security incidents and creating better arrangements for sharing this information. 7) Improving overall education on these issues as a key to enhancing prevention.Knowledge Economy,Labor Policies,International Terrorism&Counterterrorism,Payment Systems&Infrastructure,Banks&Banking Reform,Education for the Knowledge Economy,Knowledge Economy,Banks&Banking Reform,International Terrorism&Counterterrorism,Governance Indicators