Editorial

4 pages, 190 KiB

Open AccessEditorial

Currency Crisis: Are There Signals to Read?

by Faridul Islam

J. Risk Financial Manag. 2019, 12(3), 128; https://doi.org/10.3390/jrfm12030128 - 02 Aug 2019

Cited by 1 | Viewed by 2626

Financial crisis is nothing new in the annals of history of the capitalistic path of economic development; it is a part of the business cycle. The theoretical basis is well entrenched in the concept of ‘Keynesian Cross’. The tale of crisis, dating back [...] Read more.

Financial crisis is nothing new in the annals of history of the capitalistic path of economic development; it is a part of the business cycle. The theoretical basis is well entrenched in the concept of ‘Keynesian Cross’. The tale of crisis, dating back centuries, has taken a new turn with the call for more globalization—liberalize trade and open up the financial sector. This has made many nations vulnerable to crises that are likely to be repeated, perhaps frequently. Based on recent experience, warning signs can be read from the dollar-centric exchange rate, the mainstay for the stability of the current global financial system. To a careful observer, fatigue in the system cannot be overlooked. Full article

(This article belongs to the Special Issue Currency Crisis)

Research

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16 pages, 2795 KiB

Open AccessArticle

Investigating the Economic and Financial Damage around Currency Peg Failures

by Colin Ellis and Emilia Gyoerk

J. Risk Financial Manag. 2019, 12(2), 92; https://doi.org/10.3390/jrfm12020092 - 30 May 2019

Cited by 3 | Viewed by 5536

Abstract

The choice and structure of a country’s exchange rate regime has wide implications for the effectiveness and flexibility of monetary policy tools, as well as for economic and financial stability. We examine 21 instances where exchange rate pegs have been abandoned in the [...] Read more.

The choice and structure of a country’s exchange rate regime has wide implications for the effectiveness and flexibility of monetary policy tools, as well as for economic and financial stability. We examine 21 instances where exchange rate pegs have been abandoned in the past, to gauge the potential economic damage associated with pegs failing. The sample includes major exchange rate shifts over the past thirty years, spanning from the Latin America currency crises of the 1990s to the peg abandonment in Egypt in 2016. Given the close interconnection of banks to the sovereign and the real economy, risks often flow through to, and can also be magnified by, the banking system. We therefore examine the interaction of currency peg abandonment with the occurrence of a banking crisis to investigate the different circumstances and impacts of exchange rate pegs failing. We have found that countries that simultaneously suffered a systemic banking crisis during the period of exchange rate regime shift also experienced significantly greater economic and financial damage following the adoption of a freely floating exchange rate. Nevertheless, regardless of whether there was a banking crisis, countries start showing signs of recovery after the same amount of time once the currency floated. Full article

(This article belongs to the Special Issue Currency Crisis)

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17 pages, 299 KiB

Open AccessArticle

A Cointegration of the Exchange Rate and Macroeconomic Fundamentals: The Case of the Indonesian Rupiah vis-á-vis Currencies of Primary Trade Partners

by Agus Salim and Kai Shi

J. Risk Financial Manag. 2019, 12(2), 87; https://doi.org/10.3390/jrfm12020087 - 13 May 2019

Cited by 9 | Viewed by 3548

Abstract

Since the appearance of persistent research finding a disconnection between the exchange rate and its macroeconomic fundamentals, the empirical debate has not stopped. Studies employ various methods to explain the presence of the exchange rate disconnect puzzle, including applying models to the case [...] Read more.

Since the appearance of persistent research finding a disconnection between the exchange rate and its macroeconomic fundamentals, the empirical debate has not stopped. Studies employ various methods to explain the presence of the exchange rate disconnect puzzle, including applying models to the case of emerging market economies. However, the exchange rate has different determinants in some countries. To revisit this puzzle in an emerging market currency, we analyzed the cointegration of the exchange rate of the Indonesian Rupiah vis-á-vis currencies of primary trade partners and its macroeconomic fundamentals. The empirical results based on Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL) models show that the fundamental variables consistently drive the exchange rate. The trade surplus as an extended nonlinear variable revealed high feedback to the exchange rate volatility in the long-run. Full article

(This article belongs to the Special Issue Currency Crisis)

14 pages, 533 KiB

Open AccessArticle

Money as an Institution: Rule versus Evolved Practice? Analysis of Multiple Currencies in Argentina

by Georgina M. Gómez

J. Risk Financial Manag. 2019, 12(2), 80; https://doi.org/10.3390/jrfm12020080 - 08 May 2019

Cited by 9 | Viewed by 3976

Abstract

Monetary policies and adjustments during a financial crisis depend on policy-makers’ conceptions on what money is and how it works. There is sufficient consensus among scholars that money is an institution created within the economic system and is in line with other institutions [...] Read more.

Monetary policies and adjustments during a financial crisis depend on policy-makers’ conceptions on what money is and how it works. There is sufficient consensus among scholars that money is an institution created within the economic system and is in line with other institutions that regulate economic action. However, there are different understandings of what institutions are and how they operate, and these understandings imply differences in terms of monetary enforcement, resilience, responsiveness and stability. This paper discusses the two main approaches that conceptualise institutions as rules and as practices presenting an empirically informed discussion of money as an institution drawing on these insights. It grounds the analysis on the empirical case of Argentina as a monetary laboratory and the plurality of currencies that circulate in its economy. The study argues that while the official currency of Argentina corresponds to the institutions as rules approach, the adoption of the U.S. dollar into a bimonetary economy evolved as equilibrium. In between, the massive community currency systems that rose and declined during the economic meltdown between 1998 and 2002 were a hybrid institution that combined rules and practice. All three of them show various degrees of resilience and stability. Full article

(This article belongs to the Special Issue Currency Crisis)

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20 pages, 999 KiB

Open AccessArticle

Simulation of the Grondona System of Conditional Currency Convertibility Based on Primary Commodities, Considered as a Means to Resist Currency Crises

by Patrick Collins, Jameel Ahmed and Ahamed Kameel Meera

J. Risk Financial Manag. 2019, 12(2), 75; https://doi.org/10.3390/jrfm12020075 - 29 Apr 2019

Cited by 1 | Viewed by 2917

Abstract

Currency crises are a significant feature of the present-day world economy, in which financial transactions are many times larger than monetary flows in the “real economy”, so that defending a currency’s exchange-rate is a major challenge for the governments of countries which may [...] Read more.

Currency crises are a significant feature of the present-day world economy, in which financial transactions are many times larger than monetary flows in the “real economy”, so that defending a currency’s exchange-rate is a major challenge for the governments of countries which may be smaller than a single large corporation. It is made even more difficult due to the United States government and its agents openly using economic pressures to try to force other countries to obey its orders, even including regime change. Guaranteed convertibility of a currency, such as maintaining a gold standard, can in principle help to stabilise its value, but this has been absent since the end of US dollar convertibility in 1971. The Grondona system of conditional currency convertibility was not planned as a counter-measure for currency crises. However the simulation of its operation demonstrated in this paper shows clearly how its automatic counter-cyclical stock-holding in response to movements in commodity prices—and so to exchange-rate movements that alter domestic commodity prices—causes monetary flows that would resist large exchange-rate movements (among other effects), and thereby tend to ameliorate a currency crisis. Moreover, it would achieve this without the need for international negotiations, agreements or other geopolitical trade-offs. Full article

(This article belongs to the Special Issue Currency Crisis)

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14 pages, 294 KiB

Open AccessArticle

Monetary Policy, Cash Flow and Corporate Investment: Empirical Evidence from Vietnam

by Linh My Tran, Chi Hong Mai, Phuoc Huu Le, Chi Linh Vu Bui, Linh Viet Phuong Nguyen and Toan Luu Duc Huynh

J. Risk Financial Manag. 2019, 12(1), 46; https://doi.org/10.3390/jrfm12010046 - 19 Mar 2019

Cited by 4 | Viewed by 5943

Abstract

This paper examines the relationships between macroscopic determinants (typically, monetary policies) and microscopic factors (mainly, cash flows and other controlling variables) on corporate investment. By employing system-GMM estimation for the 250 Vietnamese non-financial firms, the authors find that the expansionary monetary policy not [...] Read more.

This paper examines the relationships between macroscopic determinants (typically, monetary policies) and microscopic factors (mainly, cash flows and other controlling variables) on corporate investment. By employing system-GMM estimation for the 250 Vietnamese non-financial firms, the authors find that the expansionary monetary policy not only encourages the borrowing activities but also results in more corporate investment activities over the period from 2006 to 2016. Noticeably, the internal cash flow is also significant factor, which enhances the activities of corporate investment. Finally, there are differences between internal cash flow effects on corporate investments between two groups, divided by three theoretical criteria. To recapitulate, our implications highlight the importance of monetary policy stability for sustainable growth in corporate investment in Vietnam. Full article

(This article belongs to the Special Issue Currency Crisis)

13 pages, 615 KiB

Open AccessArticle

Asymmetric Effects of Policy Uncertainty on the Demand for Money in the United States

by Mohsen Bahmani-Oskooee and Majid Maki-Nayeri

J. Risk Financial Manag. 2019, 12(1), 1; https://doi.org/10.3390/jrfm12010001 - 20 Dec 2018

Cited by 13 | Viewed by 3861

Abstract

A comprehensive measure of economic uncertainty, known as “Policy Uncertainty”, which was constructed by the Economic Policy Uncertainty Group by searching popular newspapers for uncertain terms associated with economic factors and its impact on macro variables, is gaining momentum. Although some researchers have [...] Read more.

A comprehensive measure of economic uncertainty, known as “Policy Uncertainty”, which was constructed by the Economic Policy Uncertainty Group by searching popular newspapers for uncertain terms associated with economic factors and its impact on macro variables, is gaining momentum. Although some researchers have assessed its impact on the demand for money in a few countries, we considered the U.S.A. demand for money one more time and showed that when a linear money demand was estimated, policy uncertainty had no long-run effects. However, when a nonlinear model was estimated, the results showed that while increased policy uncertainty induces the public to hold less money in the long run, decreased uncertainty has no long-run effects, a clear sign of asymmetric response. Full article

(This article belongs to the Special Issue Currency Crisis)

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Other

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15 pages, 289 KiB

Open AccessCommentary

China and Special Drawing Rights—Towards a Better International Monetary System

by Matthew Harrison and Geng Xiao

J. Risk Financial Manag. 2019, 12(2), 60; https://doi.org/10.3390/jrfm12020060 - 09 Apr 2019

Cited by 3 | Viewed by 5042

Abstract

China and the international monetary system need each other. The international monetary system is strained, with crisis just around the corner, yet reform is not on anyone’s agenda. Meanwhile China, deeply invested in the current system, faces narrowing options as trading partners question [...] Read more.

China and the international monetary system need each other. The international monetary system is strained, with crisis just around the corner, yet reform is not on anyone’s agenda. Meanwhile China, deeply invested in the current system, faces narrowing options as trading partners question its moves abroad, debt levels rise at home, and its current account moves from surplus to deficit. RMB internationalization might appear to provide a way out, but the policy has its limits and tends to exacerbate rather than relieve tensions. We argue that a tension-reducing solution is at hand to the problems of both the international monetary system and China—IMF-style Special Drawing Rights (SDRs). If in a unilateral initiative China were to make the SDR central to its next phase of capital account opening, China’s institutions, corporates and individuals—presently restricted in their access to international currency—would likely embrace it. Begun by China, with support from the international community and Hong Kong, promulgation of the SDR would usher in an era of lower tensions, providing space for development and avoidance of conflict within a reordered monetary system in which China would have a more prominent role. Full article

(This article belongs to the Special Issue Currency Crisis)

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