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Tag Archives: FINANCE

The internationalisation of China’s currency has stalled

ON OCTOBER 18TH, President Xi Jinping will preside in Beijing over the most important political event in five years. At the Communist Party’s 19th congress much will be made of the triumphs achieved in nearly four decades of reform and opening up. So expect a glossing over of one part of that process where progress has largely stalled: the “internationalisation” of China’s currency, the yuan.

This seems odd. Just a year ago, the yuan became the fifth currency in the basket that forms the IMF’s Special Drawing Right (SDR). This marked, in the words of Zhou Xiaochuan, China’s central-bank governor, in a recent interview with Caijing, a financial magazine, “historic progress”. Symbolically, China’s monetary system had been awarded the IMF’s seal of approval. A further boost to prestige was the announcement in June this year that some Chinese shares would be included in two stockmarket benchmarks from MSCI.

Yet the yuan’s international reach has in fact fallen in the past two years. It has regained its ranking as the world’s fifth most active for international payments, after slipping to sixth in 2016. But its share of this market has slipped from 2.8% in August 2015 to 1.9% now (see chart). Use of the yuan in global bond markets over this period has fallen by half, as companies have instead raised funds within...Continue reading

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In dirt-poor Myanmar, smartphones are transforming finance

For chats and kyats

MYANMAR’S democratic transition sometimes seems marked as much by continuity as by change. Depressingly, the army continues its bloody persecution of Rohingya Muslims in the west, for example (see article). But elsewhere moves to open the country’s markets, started by the preceding military regimes, have gathered pace. New commercial and financial services are springing up.

Take Khin Hlaing, who owns Global Mobile Shop, a small store surrounded by tarpaulin-covered stalls selling fresh fruit in Hlaing Tharyar, an industrial area outside Yangon, the biggest city. He is one of almost 12,000 agents for Wave Money, Myanmar’s largest mobile-money transfer platform. Most days about 20 people use his shop to send funds to friends or family elsewhere in the country. One...Continue reading

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BBVA, a Spanish bank, reinvents itself as a digital business

OUTSIDE, a patch of grass affording a spectacular view of the Sierra de Guadarrama is littered with cartridge casings. Inside the Club de Tiro de Madrid (Madrid Shooting Club), on the city’s northern edge, over 400 people are fixing their sights for the next three months. Their business is not shooting but banking. Teams sit at 27 tables working on specific projects—to improve the global mobile platform, say, or to share information about job applicants. At another 12 tables are data specialists, in-house lawyers and others whose expertise the teams will need. The targets are on the walls: white boards that are soon covered in yellow and pink Post-it notes, listing tasks for the weeks ahead.

BBVA, Spain’s second-largest bank, began quarterly planning sessions like this three years ago, in its Mexican subsidiary. This is the fourth global gathering. The idea, explains Derek White, head of global customer solutions, is to replicate the nimbleness of financial-technology startups (“fintechs”) at large scale. When a project is conceived, a small group is assembled to work on it within three days. A prototype is created in six weeks. The finished article should be “en las manos de los clientes”—in customers’ hands—within nine months. The quarterly cycle starts with a planning session to thrash out priorities. It ends with a demo...Continue reading

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Brexit will give the derivatives market a nasty headache

FOR all the talk of banks deserting London as Britain’s departure from the EU looms, relatively little attention has been paid to the derivatives market. Yet this is a crucial area of business for British-based banks. The City handles a big chunk of the market, including 39% of the market in interest-rate derivatives alone, where global daily turnover averages $3trn. The rest of the EU accounts for just 9%. Brexit seems sure to cause significant disruption. Mark Carney, the governor of the Bank of England, recently warned that the very “legal validity” of pre-existing derivatives contracts could be put into question.

Brexit-related discussion of derivatives has tended to focus on the role of clearing-houses, which ensure that a contract can be honoured even if one side goes bust. Since the financial crisis, most countries have made it mandatory to clear derivatives trades. LCH, a clearing-house in London, clears over 50% of interest-rate swaps across all currencies; London houses...Continue reading

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Technology is revolutionising supply-chain finance

IN 2015 Kiddyum, a small company from Manchester that provides frozen ready-meals for children, won a contract from Sainsbury’s, a big British supermarket chain. Jayne Hynes, the founder, was delighted. But sudden success might have choked Kiddyum’s cashflow. Sainsbury’s pays its suppliers in 60 days; Ms Hynes must pay hers in only 30.

In fact Kiddyum gets its cash within a few days. Once approved by Sainsbury’s, its invoices are loaded onto the supermarket’s supply-chain finance platform, run by PrimeRevenue, an American company. The Royal Bank of Scotland (RBS) picks up the bills, paying Kiddyum early. Kiddyum pays a fee which, Ms Hynes says, is a small fraction of the cost of a normal loan. Sainsbury’s pays RBS when the invoice falls due.

Suppliers, of course, have always needed finance for the gap between production and payment. Traditionally, they could borrow on their own account, or sell their receivables—unpaid invoices—at a discount to businesses known...Continue reading

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The finance industry ten years after the crisis

MANY people complain that the finance industry has barely suffered any adverse consequences from the crisis that it created, which began around ten years ago. But a report from New Financial, a think-tank, shows that is not completely true.

The additional capital that regulators demanded banks should take on to their balance-sheets has had an effect. Between 2006 and 2016, the return on capital of the world’s biggest banks has fallen by a third (by more in Britain and Europe). The balance of power has shifted away from the developed world and towards China, which had four of the largest five banks by assets in 2016; that compares with just one of the biggest 20 in 2006.

The swaggering beasts of the investment-banking industry have also been tamed. The industry’s revenues have dropped by 34% in real terms, with profits falling by 46%. Return on equity has declined by two-thirds. Staff are still lavishly remunerated, but pay is down by 52% in real terms. (Perhaps it is time for a charity single: “Buddy, can you spare a Daimler?”) The relative importance of different divisions has also shifted, with the revenues of the sales, trading and equity-raising departments shrinking more than the merger-advice or debt-raising divisions.

This last change reflects market developments. In 2016 stockmarkets were smaller, as a proportion of GDP, than they...Continue reading

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Taxing fat and subsidising healthy eating widens inequality

IN RICH countries, people’s diets are getting worse and they are getting fatter. Hence the increasing popularity of a “fat tax”, to make unhealthy food cost more. Since Hungary led the charge in 2011 with a “chip tax” on fatty and sugary foods, other countries have followed. Britain is to join a long list next year.

Since the poor both spend a higher proportion of their income on food and tend to eat less healthily, they are the main targets of such taxes. In France, for instance, adult obesity is seen in over 20% of households with monthly incomes under €1,500 ($1,765) compared with less than 10% of those who earn over €3,000.

Punishing consumers, however, is politically painful. So “thin subsidies” have been gaining ground. But data on the impact of such policies are scarce. A recent study on the distributional impacts of fat taxes and thin subsidies from researchers at the universities of Oklahoma and Grenoble suggests policymakers should be...Continue reading

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