Fabio Panetta of the ECB in this speech points how rising digital payments could lead central banks to lose their monetary anchor of cash:
Archive for November 16th, 2021
What happens when cash usage continues to decline? Central banks lose their monetary anchor
November 16, 2021Establishing a Foreign Exchange Futures Market in China: Lessons from India, Russia and South Africa
November 16, 2021Zhongxia Jin, Yue Zhao and Haobin Wang in this IMF paper discuss how China can establish futures markets in foreign exchange. The paper draws lessons from developing economies such as India, Russia and South Africa:
Although foreign exchange (FX) futures markets have been relatively prevalent in many developed countries and emerging markets, some other countries, including China, have not established such a market partly due to concerns about its ability to amplify the risk of the underlying exchange rate’s volatility. This paper analyzes the impact of establishing FX futures markets on the volatility of the underlying spot rate based on data from major developing countries.
Our analysis shows that FX futures market is not empirically associated with an increase in FX volatility and in some cases even with a decrease in FX volatility. Compared with the over-the-counter (OTC) market, the FX futures markets can better meet the hedging needs of small and medium-sized enterprises due to their standardized products, greater transparency, and stronger oversight.
Going forward, it is in China’s interests to accelerate the establishment of an FX futures market and allow for a more market-based approach to ensure the stability and sustainability of such a market.
Changing Tides in the Indian Money Market
November 16, 2021In the the Nov-2021 Monthly Bulletin, Archana Dilip discuses evolution of Indian money markets from 2016 t0 2021:
Money market provides short-term capital to a wide class of financial entities and plays a key role in the transmission of monetary policy. This article reviews the important segments of the Indian money market in terms of volume, rate, microstructure, and dispersion of rates for the period from January-2016 to March-2021.
Highlights
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- The overnight money market volatility, in terms of volume-weighted rates, increased after the declaration of Covid-19 pandemic, and peaked in March-2020. The volatility declined subsequently. A shift away from the unsecured segment to secured segments was also witnessed after the declaration of the Covid-19 pandemic.
- A study of the intraday market activity and network structure of the call money segment suggests increased portfolio diversification after the onset of the pandemic.
- The constructed dispersion index (covering six segments of the money market), that serves as an empirical gauge of pass-through efficiency, suggests a frictionless market with efficient pass-through for the period from January-2020 to February-2020.
The dispersion index that peaked in March-2020 showed a decreasing trend at the end of the sample period considered. The sector-specific, institution-specific and instrument-specific liquidity measures undertaken by the Reserve Bank in the recent times have resulted in the stabilisation of the money market with the market adapting to the new normal.
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