Archive | January, 2013

Migration matters: the race to ensure a future supply of workers in Asia

While there has been strong promotion of free global trade in goods and services as well as in capital inputs, the case has not been made so forcefully for increasing the international mobility of the other factor of production, labor. A recent article in The Economist, Free Exchange—Border Follies, surveys the latest research on the potential benefits of increasing international labor migration (The Economist 17 November 2012). The estimates are staggering, with possible increases in world output and income ranging from 30% to 100% (amounting to an additional $20 trillion to $70 trillion) depending on the level of migration assumed. These calculations swamp the potential benefits of increasing international trade, which is estimated to be less than 3% of global output. The research shows that the gains come from migration-induced productivity increases in the host country and the additional incomes are more than sufficient to compensate for any adverse effects, for example, if wages for some host country workers fall in the short term. Remittances (worth around $300 billion a year) are also sent to the migrant source countries to compensate those who stay behind. Read more.


The Bank of Japan’s new monetary policy framework: Less than meets the eye

The Bank of Japan (BoJ) announced its much-awaited new monetary policy framework on 22 January 2013, following heightened pressure from newly-elected Japanese Prime Minister Shinzo Abe for it to pursue “unlimited” monetary easing in order to finally overcome deflation. The new framework has two major elements: a “price stability target” of 2% for the consumer price index (CPI) and an “open-ended asset purchasing method” for its Asset Purchasing Program (APP). Although the BoJ did not commit itself to a deadline for achieving 2% inflation, it said that it would aim to achieve this target “as early as possible.” The main innovation of the “open-ended” purchasing method is that the BoJ does not set a target date for ending the program, unlike previous programs. Read more.


Calming volatile international capital flows

The International Monetary Fund (IMF) has just released a new policy paper on capital flows (IMF 2012). A recent editorial in the Financial Times describes it this way: As far as intellectual shifts go, the U-turn by the International Monetary Fund on capital controls is remarkable. In the 1990s, the IMF came close to including the promotion of capital account liberalisation in its rule book. On Monday, after a thorough three-year review, the fund has accepted institutionally that direct controls can play a useful role in calming volatile, international capital flows. (Financial Times. 3 December 2012) Read more.


Internationalization of emerging market currencies: A way forward

During the 2008 financial crisis, Asia experienced exchange rate volatility and liquidity shortages of the key currency—the US dollar—that severely affected trade within the Asia-Pacific Economic Cooperation (APEC) region. The dollar is crucial to maintaining financial market stability at an appropriate liquidity level. While the dollar is expected to remain the key currency in the foreseeable future, the crisis has led to a rethinking of the global economy’s over-reliance on the dollar and its capital and financial markets, and the need to enhance the role of emerging currencies and their markets.

While it will take time for emerging market currencies to become significant reserve currencies, their growing importance in the settlement of cross-border trade and investment can no longer be ignored. Read more.