Euroisation in Serbia

Euroisation in Serbia is rooted in a long history of macroeconomic instability. Extreme inflation volatility has undermined trust in the dinar and discouraged dinar savings. At the same time, an abundant supply of foreign capital inflows has provided easy access to foreign currency lending at low interest rates in an environment of perceived exchange rate stability – a perception reinforced by the choice of exchange rate regime. As a result, both the asset and the liability side of banks’ balance sheets, and even those of the non-bank sector, is heavily foreign currency-denominated. This paper documents the forces that promote euroisation in Serbia. The paper argues that, in the wake of the global crisis, a window of opportunity has emerged that could foster a process of de-euroisation. The lack of foreign funding and recent exchange rate volatility has tilted borrower incentives towards local currency borrowing. If disinflationary macroeconomic policies gain credibility, with the possible support of regulatory options, euroisation could drop sharply.

Interbank Offered Rate: Effects of the financial crisis on the information content of the fixing

With the onset of the financial turmoil in August 2007, pricing references on the money market interest rates have been shocked. The segment of unsecured deposit transactions, which represent the cornerstone of capital markets, and is used as basis for the setting of money market benchmark essential to the indexing of trillions of derivative contracts and loans, has been particularly damaged by the surge in counterparty risk. The lack of confidence between traders and the growing fear of counterparty’s bankruptcies have led progressively to a drying out of the unsecured market turnover. After a relative improvement in early 2008, market activity in the unsecured market has again dried up with the reinforcement of the financial crisis following the collapse of Lehman Brothers. Although there are good reasons to think that the market activity in the cash unsecured segment of the money market has remained distorted, in particular for maturities beyond the very short-term, the OIS-LIBOR spreads have been declining extremely steadily since January 2009, both in major currencies and at various maturities, seemingly pointing to a normalization of the money market. On the basis of a simple econometric supported by statistical evidence applied to the euro area date, this paper analyses whether recent developments in the unsecured interest rates actually support a diagnosis of renewed market activity, and of normalization of the unsecured market.LIBOR, EURIBOR, secured segment, fixings, market distortions, financial crisis.

Systemic Liquidity Management in the U.A.E.

The paper analyzes the U.A.E.''s liquidity management framework in the context of the 2008 global financial crisis and the measures taken by the Central Bank of the U.A.E. to ease liquidity pressures in the second half of 2008. Drawing also on an empirical analysis of data for 15 U.A.E. banks through end-2008, the paper emphasizes the importance of making available to banks additional instruments to manage their liquidity as well as to strengthen the monitoring of a more comprehensive set of liquidity risk indicators. As regards the former, the paper discusses the merits and scope for the U.A.E. to introduce a domestic bond market.Liquidity management;Banking sector;Central bank policy;Exchange rate regimes;Financial instruments;Global Financial Crisis 2008-2009;Monetary measures;central bank, banking, money market, monetary policy, national bank, banking system, bank lending, reserve requirements, monetary union, foreign exchange, reserve requirement, bank lending rates, monetary fund, money markets, capital adequacy, monetary authority, liquidity ratio, interbank market, bankers, inflation, banking supervision, sovereign risk, banks loan, treasury bonds, bank assets, bank claims, bank operations, monetary policy implementation, banks balance sheets, banks ? assets, monetary conditions, off balance sheet, bank of england, monetary liability, interest expense, bank for international settlements, bank policy, settlement system, short-term government securities, independent monetary policy, global money, government security, treasury notes, domestic liquidity, banking system assets, bank notes, monetary authority of singapore, bank supervision, monetary survey, banks ? loans, monetary authorities, banks assets, monetary regime, aggregate demand, monetary unions, bank competition, money market interest rates, monetary frameworks, regulatory forbearance, monetary framework, domestic money market, government securities, excess liquidity, monetary deposits, monetary financing, bank lending behavior, bank of korea, bank liabilities, bank deposits, banking crisis, capital adequacy ratio, banking supervisors, bank size

Central Bank Collateral Frameworks

Central bank collateral policies came under pressure with the 2007-08 financial market crisis. This paper addresses the rationale for and constraints in taking collateral, and recent practices in different collateral frameworks. It then considers the risks of adverse selection. The paper concludes that (i) the collateral framework needs to include market incentives; (ii) central banks face trade-offs between risk and counterparty access; (iii) emerging markets may see pressure on collateral policies in coming years; and (iv) further work is required to develop pricing incentives and the structure of central bank facilities, both during normal times and in periods of market stress.Central bank policy;Risk management;Emerging markets;Price incentives;Liquidity;Capital flows;collateral, credit, repo, pricing, counterparty, prices, payment systems, checks, reserve requirements, refinancing, pools, rtgs, bills of exchange, payment system, purchases, registration, credit cards, secured lending, reverse repo, cash payments, confirmation, cash flows, custody, counterpart, payments, current account, ratings of banks

Requirements for Using Interest Rates As An Operating Target for Monetary Policy:The Case of Tunisia

This paper discusses the use of interest rates as the operating target for monetary policy in Tunisia and the roadmap for establishing the other building blocks of an inflation targeting framework. It argues that strengthening the effectiveness of the current monetary policy framework will facilitate the adoption of inflation targeting over time.Monetary policy;Monetary operations;Economic models;Economic reforms;Financial sector;Inflation targeting;Interest rates;Liquidity management;Money markets;inflation, money market, monetary base, central bank, monetary aggregate, foreign exchange, price stability, monetary fund, money base, foreign currency, money supply, inflation target, monetary policy framework, government securities, monetary policy instrument, monetary policy decisions, monetary shock, annual inflation, monetary policy decision, inflation rate, aggregate demand, monetary program, price level, monetary framework, monetary policy implementation, annual inflation rate, rational expectations, monetary instruments, monetary policy instruments, monetary management, monetary targeting, transmission of monetary policy, monetary financing, money growth, macroeconomic stability, demand for money, measure of inflation, control of inflation, monetary frameworks, inflation targeting framework, inflation forecasts, monetary economics, monetary indicators, monetary policy transmission mechanisms, money demand, monetary transmission, monetary policy rules, monetary authorities, inflation objective, monetary shocks, relative prices, stable price, inflationary shock, monetary policy strategy, monetary transmission process, government securities market, domestic monetary policy, inflation-targeting, monetary targets, low inflation, monetary aggregates, liquidity ratio, monetary policy reaction function, money market interest rate, monetary sector, monetary liability, open market operations, stable prices, reserve requirement, independent monetary policy, holdings of government securities, aggregate demand effects, monetary target, treasury securities, real interest rate, monetary instrument, real money, treasury bonds, relative price, monetary policy regime, monetary stability

Central Bank Response to the 2007-08 Financial Market Turbulence

The paper reviews the policy response of major central banks during the 2007–08 financial market turbulence and suggests that there is scope for convergence among central bank operational frameworks through the adoption of those elements that proved most instrumental in calming markets. These include (i) rapid liquidity provision to a broad range of counterparties; (ii) a congruence of collateral policies with market developments; (iii) an ability to increase the average maturity of liquidity provision; and (iv) central bank cooperation to facilitate the use of cross-border collateral. Flexible use of open market operations was needed to avoid the stigma associated with traditional standing facilities, and allowed central banks to maintain at least basic market functioning. Having a flexible framework, however, requires careful consideration of the desirable limits to market intervention.Monetary operations;Liquidity management;International cooperation;Financial risk;collateral, central bank, credit, monetary policy, pricing, money market, counterparty, repo, inflation, money markets, prices, refinancing, open market operations, national bank, pools, monetary fund, payments, government securities, payment system, discount rate, reserve requirements, purchases, monetary stance, payment systems, transmission of monetary policy, reserve requirement, holdings of government securities, cross border transactions, ccbm, systemic risk, government security, monetary base, monetary policy operations, monetary policy operation