Lecture 15 International Macroeconomics Econ 340News: Mar 10-16 • Some press to drop Investor-State Dispute Settlement from TTIP -- FT: 3/10 | CTools – TTIP, the Trans-Atlantic Trade and Investment Partnership between the US and EU, has been intended to include ISDS, Investor-State Dispute Settlement, similar to the contentious Chapter 11 in NAFTA. – ISDS would allow multinational companies that believe their rights have been abridged or their investments devalued by governments to complain directly to a dispute settlement mechanism of the trade agreement. This contrasts with other disputes under trade agreements that can only be brought between governments. ISDS has been part of international trade and investment agreements for decades, with the main purpose of preventing governments from expropriating investments. – ISDS is opposed by both NGOs (non-governmental organizations) and some countries, on the grounds that it limits the abilities of governments at all levels (including local) to use policies for environmental and other purposes. Even some groups that favor ISDS in principle are now questioning whether it is worth keeping if it might derail agreement on the TTIP. • Scandal involving price fixing in foreign exchange (Forex) rates -- WSJ: 3/12 | Proquest | FT: 3/10 | CTools – Government authorities across the US, Europe, and Asia are investigating price fixing in the international foreign exchange (forex) market, the world's largest financial market at over $5.3 trillion per day. Some two dozen bank traders have been fired or suspended so far, and banks are expecting both civil and criminal penalties. – The concern is that traders have shared information about orders from clients and agreed to manipulate, for their own benefit, certain benchmark rates that provide the basis for many transactions. One such benchmark is published at 4:00 PM each day and computed from transactions over a 60-second window, then used by large asset managers as the basis for further transactions. – The probe is likely to exceed in size and scope the Libor scandal of recent years which involved manipulation of that international interest rate. It appears that the US Fed, in response to the Libor scandal, looked into forex manipulation but took no further action. • China loosens its currency peg -- NYT: 3/16 | Proquest – China's central bank announced Saturday that it will allow its currency to fluctuate 2% either way from its government-set parity rate. This is twice the size of the 1% band that was being permitted previously. – The result is expected to be greater fluctuations in the dollar/renminbi exchange rate, as well as reduced intervention in the exchange market by the Chinese central bank. – This, together with relaxing some of its controls on international capital movements, is intended to help move the Chinese currency toward becoming accepted as an international currency. Econ 340, Deardorff, Lecture 15: Int Macro 2News: Mar 10-16 • Some press to drop Investor-State Dispute Settlement from TTIP – TTIP, the Trans-Atlantic Trade and Investment Partnership between the US and EU, has been intended to include ISDS, Investor-State Dispute Settlement, similar to the contentious Chapter 11 in NAFTA. – ISDS would allow multinational companies that believe their rights have been abridged or their investments devalued by governments to complain directly to a dispute settlement mechanism of the trade agreement. This contrasts with other disputes under trade agreements that can only be brought between governments. ISDS has been part of international trade and investment agreements for decades, with the main purpose of preventing governments from expropriating investments. – ISDS is opposed by both NGOs (non-governmental organizations) and some countries, on the grounds that it limits the abilities of governments at all levels (including local) to use policies for environmental and other purposes. Even some groups that favor ISDS in principle are now questioning whether it is worth keeping if it might derail agreement on the TTIP. Econ 340, Deardorff, Lecture 15: Int Macro 3News: Mar 10-16 • Scandal involving price fixing in foreign exchange (Forex) rates – Government authorities across the US, Europe, and Asia are investigating price fixing in the international foreign exchange (forex) market, the world's largest financial market at over $5.3 trillion per day. Some two dozen bank traders have been fired or suspended so far, and banks are expecting both civil and criminal penalties. – The concern is that traders have shared information about orders from clients and agreed to manipulate, for their own benefit, certain benchmark rates that provide the basis for many transactions. One such benchmark is published at 4:00 PM each day and computed from transactions over a 60-second window, then used by large asset managers as the basis for further transactions. – The probe is likely to exceed in size and scope the Libor scandal of recent years which involved manipulation of that international interest rate. It appears that the US Fed, in response to the Libor scandal, looked into forex manipulation but took no further action. Econ 340, Deardorff, Lecture 15: Int Macro 4News: Mar 10-16 • China loosens its currency peg – China's central bank announced Saturday that it will allow its currency to fluctuate 2% either way from its government-set parity rate. This is twice the size of the 1% band that was being permitted previously. – The result is expected to be greater fluctuations in the dollar/renminbi exchange rate, as well as reduced intervention in the exchange market by the Chinese central bank. – This, together with relaxing some of its controls on international capital movements, is intended to help move the Chinese currency toward becoming accepted as an international currency. Econ 340, Deardorff, Lecture 15: Int Macro 5Outline: International Macroeconomics • Recall Macro from Econ 102 – Aggregate Supply and Demand – Policies • Effects ON the Exchange Market – Expansion – Interest Rate • Effects OF the Exchange Market – Depreciation via Trade – Depreciation via Net Wealth • Effects THOUGH the Exchange Market 6 Econ 340, Deardorff, Lecture 15: Int MacroRecall Macro from Econ 102 • Aggregate
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