Vocabulary

a lender of last resort – кредитор последней инстанции: центральный банк в его функции по поддержанию ликвидности и стабильности банковскойсистемы; он обязуется учитывать векселя и предоставлять кредит коммерческим банкам по официальной учетной ставке

money market – денежный рынок: рынок краткосрочных долговых инструментов (ссудно-заемные операции)

financial market – финансовый рынок :рынок капитала, денежный рынок, где происходит обмен деньгами, предоставление кредита и мобилизация капитала, спекуляции или страхование рисков

bank reserves – банковские золото-валютные резервы; to supply bank reserves – создавать банковские резервы; to monitor bank reserves – следить за объемом банковских резервов

reserve account – резервный счет, который коммерческий банк держит в центральном банке для соблюдения резервных требований, а также для проведения расчетов с другими банками

open market – открытый рынок, где могут торговать все желающие, а цены определяются спросом и предложением

overnight (transaction) – сделка “овернайт” на срок до начала следующего рабочего дня (а если в конце недели, то с пятницы до понедельника)

discount rate - учетная ставка: ставка, по которой центральный банк готов учитывать и переучитывать первоклассные векселя или предоставлять кредиты коммерческим банкам под обеспечение векселями; инструмент денежно-кредитной политики, в значительной степени определяющий общий уровень процентных ставок

money supply – объем денежной массы в обращении; money supply target – ориентир роста денежной массы в обращении, официально установленный властями в рамках денежно-кредитной политики

to peg one’s currency to that of another economy – привязать национальную валюту к валюте другой страны

free banking – а) банковская система без центрального банка, когда все банки имеют право выпускать свои банкноты, обеспеченные золотом б) нерегули-руемая банковская деятельность

electronic money – электронные деньги, используемые в Электронной денежной системе (EMS), системе электронных платежей на базе банковских карточек со встроенными микропроцессорами, работает на основе компьютерных сетей

Is the Fed Mostly Smoke and Mirrors?

It may be hard to remember, but it wasn’t so long ago that the Federal Reserve kept its monetary policy decisions to itself. Rather than openly announcing a shift in its stance, the central bank quietly worked its will in the money markets, buying or selling securities to add or drain cash from the banking system. Wall Street dealers employed high-priced Fed watchers (many of them former central bank employees) to monitor the ebb and flow of bank reserves, trying to figure out whether monetary policy was indeed being altered. Sometimes, it took weeks to discern the answer.

All that changed after then Fed Chairman Alan Greenspan decided several years ago to publicize the central bank’s interest-rate moves once they were made. Now, each meeting of the Fed – whether the central bank changes rates or not – triggers a chorus of instant analysis of what it means for the economy and for the financial markets. And Wall Street no more has a monopoly on Fed-watching. Everyone is in on the game, from the CEO managing a global corporation to the cab driver parsing his portfolio while hustling fares. In the process, the Fed’s power and prestige have seemingly reached new peaks.

But that’s an illusion, argues veteran financial journalist Martin Mayer. And he makes a persuaive case in his intriguing, infuriating new book, The Fed: The Inside Story of How the World’s Most Powerful Financial Institution Drives the Markets. Despite the hoopla that surrounds the Fed’s actions, the central bank still carries out policy the old-fashioned way – by adjusting the level of reserves in the banking system. The trouble, according to Mayer, is that banks and bank loans are less important to the economy than they used to be. Now, the financial markets are king, and the Fed’s impact there is more indirect, says Mayer, who has been writing about business and finance for 40 years.

Sure, the Fed Chairman can pump a lot of liquidity into the economy. But he can’t quarantee that it will translate into faster economic growth. If companies are suffering from falling profits and if consumers are worried by rising unemployment, they may opt to save, rather than spend, the money the Fed indirectly supplies. And thanks to the more sophisticated markets, people have a lot more places to park that cash. “The truth is that liquidity, the only significant weapon remaining in the central bank’s arsenal as decision-making moves to the market, will not necessarily go where you want it to go when you need it to go there,” Mayer writes.

Business Week

Notes

1. smoke and mirrors – обман народа

2. to keep to oneself – to hide, to keep secret

3. stance – policy

4. everyone is in on the game – everyone is welcome to participate in the action

5. a cab driver parsing his portfolio while hustling fares – таксист, который перебирает в уме свои акции, пока везет клиента

Meddling in the Currency Markets

Central banks operate in foreign-exchange markets as well as domestic money markets. But now that most major currencies float, they play a less important role in foreign-currency markets than they did in the Bretton Woods era of fixed exchange rates.When they try to influence exchange rates, their efforts are rarely successful, since they are now only bit players in huge markets.

Exchange rates often fluctuate wildly and remain misaligned for long periods of time. In the past year and a half, for instance, the dollar has risen as high as 147 yen and fallen as low as 104 yen. Such moves are difficult to explain in terms of economic fundamentals, and can damage national economies. What, then, can governments do?

One option is currency intervention. To prop up its currency, a government can sell foreign-exchange reserves to buy that currency. But this rarely works, since rich governments’ combined reserves of $1.6 trillion are dwarfed by the volume of foreign-exchange trading. The average turnover in a single day is now $2 trillion. Since the early 1980s foreign-exchange turnover has multiplied 33-fold, while rich countries’ official reserves have only risen fourfold. Pushing down a currency’s value may be easier, since a government can sell as much of its currency as it wants to print. Such interventions can be “sterilised”, when the central bank offsets its effect on the money supply by selling government securities, or “unsterilised”, when it does not. Sterilised intervention rarely has more than a transitory effect, since it leaves the money supply unchanged. The Bank of Japan, for instance, failed to stem the yen’s rise when it sold yen over the summer. Unsterilised intervention can be more successful. If the Bank of Japan allowed the supply of yen to rise, the yen’s price –its exchange rate – would doubtless fall. But unsterilised intervention is only monetary policy by another name, not an extra policy tool.

A second option is international policy ccordination, which was popular in the late 1980s. But such coordination works only if countries are willing to subordinate their monetary policies to an exchange-rate target. For example, if America and Japan agreed that they wanted a weaker yen, Japan could lower interest rates and America raise them.But in practice, any such agreement is unlikely to last. For large economies, the costs of misaligned exchage rates are rarely large enough to warrant sacrificing the benefits of an independent monetary policy.

For smaller economies, however, the tradeoff is different. The benefits of monetary independence are smaller, and the costs of volatile and misaligned exchange rates potentially far greater. Once, such countries might have tried to keep their currencies within larger bands. But with freely mobile international capital, such arrangements are hard to sustain. The crises in Europe’s exchange-rate mechanism in 1992-93 and the successive devaluations in Asia in 1997 demonstrated the vulnerability of currency pegs to speculative attack. Most economists now argue that countries must choose between floating their currency or fixing it in a credible way, either through a currency board such as Argentina’s or through a single currency such as the euro. Some economists believe that there is a third option: capital controls, which many rich countries used in the 1950s and 1960s. By limiting currency speculation, they can allow a country to peg its exchange rate. However, capital controls have an economic cost (by distorting the free movement of capital) and they are often ineffective. Most rich countries no longer use them.

The Economist

Notes

1. Bretton Woods System – Бреттон-вудская валютная система (созданная в 1944 году 44 странами): международная валютная система, которая ввела золотовалютный стандарт, фиксированные валютные курсы, обратимость валют, создала МВФ и МБРР. Прекратила существование в 1971-73 годах, когда был отменен золотовалютный стандарт и введены плавающие курсы валют

2. to multiply 33-fold – вырасти, увеличиться в 33 раза; to rise fourfold – вырасти в 4 раза

3. to keep the currencies within target bands – держать курсы валют в жестких рамках (band – предел колебания курса)