Economics

Capital Flows

  • China
    China’s New Currency Peg
    The peg that shall not be named, and all the trouble that creates.
    Blog Post by Brad W. Setser April 12, 2024 Follow the Money
  • Economics
    C. Peter McColough Series on International Economics With Gary Gensler
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    Gary Gensler of the U.S. Securities and Exchange Commission (SEC) discusses investor protection, fair markets, capital formation, and the role of American capital markets in the global economy. The C. Peter McColough Series on International Economics brings the world’s foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.  
    Virtual Event by Gary Gensler and Michael Froman December 4, 2023 Renewing America
  • Economics
    World Economic Update
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    The World Economic Update highlights the quarter’s most important and emerging trends. Discussions cover changes in the global marketplace with special emphasis on current economic events and their implications for U.S. policy. This series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies and is dedicated to the life and work of the distinguished economist Martin Feldstein.
    Virtual Event by Karen Karniol-Tambour, Jens Nordvig, Alan M. Taylor and Sebastian Mallaby February 15, 2023 World Economic Update

Experts in this Topic

Zongyuan Zoe Liu
Zongyuan Zoe Liu

Maurice R. Greenberg Fellow for China Studies

Brad W. Setser
Brad W. Setser

Whitney Shepardson Senior Fellow

  • Economics
    C. Peter McColough Series on International Economics With Martin Wolf
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    Martin Wolf discusses the global economy, the repercussions of the Russian invasion of Ukraine, and economic recovery from the COVID-19 pandemic. The C. Peter McColough Series on International Economics brings the world's foremost economic policymakers and scholars to address members on current topics in international economics and U.S. monetary policy. This meeting series is presented by the Maurice R. Greenberg Center for Geoeconomic Studies.
    Virtual Event by Martin Wolf and Steven L. Rattner May 5, 2022 C. Peter McColough Series on International Economics
  • India
    Besides China, Putin Has Another Potential De-dollarization Partner in Asia
    Russia’s de-dollarization efforts mean that China and India can help Russia skirt sanctions by jointly building an alternative global financial system, but they risk facing severe consequences on their own financial entities.
    Blog Post by Zongyuan Zoe Liu March 11, 2022 Asia Unbound
  • Economics
    Stephen C. Freidheim Symposium on Global Economics
    The 2022 Stephen C. Freidheim Symposium on Global Economics discusses building an inclusive U.S. economy and reforming capitalism to address inequality. The full agenda is available here. This symposium is presented by the Maurice R. Greenberg Center for Geoeconomic Studies and is made possible through the generous support of Council Board member Stephen C. Freidheim.
    Virtual Event by Megan E. Greene, Steven Pearlstein, Thomas Philippon, Cecilia Elena Rouse, Afsaneh Mashayekhi Beschloss and Sebastian Mallaby January 12, 2022 Stephen C. Freidheim Symposium
  • Nigeria
    Nigerian Lawmakers Consider a Petroleum Investment Bill
    Nigerian lawmakers are seeking passage of a Petroleum Industry Bill (PIB) that would reorganize the oil industry. Since the establishment of civilian government in 1999 after a generation of military rule, repeated attempts at passing a PIB have been made. But the government, the political class, and the industry's leaders (foreign and domestic) have never reached a consensus that would make the reordering possible of such a crucial industry. The technical issues are exceedingly complex. Uncertainty around the bill has contributed to low levels of new investment in the industry.  However, against the backdrop of low international oil prices, the worldwide move away from fossil fuels, and pervasive security and other crises in the country, the Buhari administration appears to believe that passage now has a good chance. More generally, anecdotal evidence suggests that the political class has recognized that oil is likely to be less important in the future than it has been in the past. Oil and natural gas are the property of the state. They are exploited in partnerships and joint agreements between the government-owned Nigerian National Petroleum Corporation (NNPC) and privately owned oil companies, both international (such as Agip, Total, Shell, ExxonMobil, and Chevron) and now numerous small Nigerian firms. In part because of security issues in the oil patch—including attacks on oil facilities reflecting an alienated population—about half of all oil production is offshore. Oil and gas are a relatively small percentage of Nigeria's economy and employ few but are nonetheless central to government revenue. Revenue from oil provides about 65 percent of government revenue (as of 2018), and securing and maintaining access to it is an essential driver of political-class behavior. Further, successive Nigerian governments made use of below-market-price oil to expand the country’s political influence, especially with member states of the Economic Community of West African States (ECOWAS). Hence the PIB is a profoundly political document, with winner and losers.  Earlier in this century, oil was at the center of the Washington-Abuja bilateral partnership. The United States typically purchased about half of Nigeria's two million-barrels-per-day production. Further, successive military and civilian governments assured Washington that in the event of a cut in Middle Eastern oil because of a political crisis, Nigeria would do what it could to increase its own production. (Nigeria's capacity to increase production was limited, but the commitment to do so was important politically.) Hence, in those days, a PIB was closely watched in Washington and in American board rooms. Now, however, the United States imports almost no oil from Nigeria, the result of domestic fracking and the expansion of oil production in the Western hemisphere. That reality reduces the political significance for Washington of a PIB—though not for the big American oil companies active in Nigeria. Nigeria now sells oil that once was bound to the United States to India, Indonesia, China, and elsewhere in Asia.  Will the Buhari administration succeed in passing a PIB? The chances would appear to be good for the passage of some sort of legislation. But what the new bill will actually mean will depend on the details—and also on the institutions and schedules required for its implementation. Hence a passed PIB is not over "until the fat lady sings."
    Blog Post by John Campbell March 24, 2021 Africa in Transition
  • Senegal
    How Remittances From Petit Senegal, a Diaspora Community in New York City, Build Wealth Abroad
    Tareian King is an intern with CFR's Africa Program and a student at the Elisabeth Haub School of Law at Pace University. She is also the founder of Nolafrique, an e-commerce platform that enables artisans in African villages to have global exposure and opportunities for scale up. The African diaspora sends more money to Africa than U.S. foreign aid and foreign direct investment. In 2018, sub-Saharan Africa received $25 billion in development assistance. In that same year, immigrants in the United States sent $46 billion in remittances to their home countries in Africa, out of a total of $150 billion sent from the United States globally. In 2017, $85 million in remittances were sent from the United States to Senegal, the seventh-most of any country (France topped the list with almost $650 million). Remittances are the transfer of money, often by a foreign worker, to an individual in their home country. A closer look at a diaspora neighborhood in New York City helps explain that remittances are not only a form of familial aid but also an important investment vehicle that builds wealth. In Petit Senegal, on 116th street between Lenox Avenue and Frederick Douglass, the sound of English is replaced by Wolof and French. “How are you?” is transformed into “Nanga def” and “ca va?” Wolof is the native language of the Wolof people found in the Gambia, Mauritania, and Senegal. French is the language of francophone West African countries, including Senegal, which are former French colonies. American fashion—such as blue jeans and t-shirts—also disappears. Instead, people are dressed in elaborate, traditional West African textiles and fabrics. In the evening, there are Muslim men sitting outside on the sidewalk with foldable chairs drinking attaya tea, a Senegalese drink consumed after meals and with guests. Petit Senegal, located in the heart of Harlem in Manhattan, is not much different from some neighborhoods in Senegal’s capital, Dakar. The cultural link between Petit Senegal and Senegal underpins an economic one.    Petit Senegal is filled with thriving, tax-paying businesses owned and operated by Burkinabe, Gambians, Ivorians, Malians, and Senegalese, though the majority of businesses are owned and operated by the latter. Import-export businesses, supermarkets, seamstress, tailors, phone repair shops, beauty salons, bakeries, Islamic educational programs, and African goods stores fund the remittances to their respective West African countries. Senegalese immigrants have built a substantial amount of wealth for themselves, but to understand their success requires a look back to Senegal. Dakar’s real estate market grew 256 percent between 1994 and 2020, and business owners in Petit Senegal opted out of investing their profits in a house with a white picket fence in America. Instead, they opted to invest in the profitable real estate market in Dakar. Residents return home during holiday breaks to purchase their land in cash instead of sending the money via wire transfers. Once the land is acquired, they return to Petit Senegal and remittances pay for construction. Profits from these properties in Senegal are then invested in local businesses in Petit Senegal, helping them grow, and the investment cycle in Senegal continues. The goal of most residents in Petit Senegal is to build as many properties in Senegal as they can while they are in America. Mr. Jabel Cisse, a seamstress in Harlem for over twenty-five years, has built two villas and an apartment complex since immigrating to America. Mr. Muhammad Fall, the owner of an import-export business, has built two apartment complexes and is now in the process of building a hotel. While these shops are small, their owners are engaged in international business with Senegal. The people in Petit Senegal selling earrings and soaps and repairing phones are the same individuals financing real estate in Senegal. The $85 million from the United States is about 4 percent of the $2.2 billion Senegal receives as remittances, which together account for 10 percent of Senegalese GDP. One of the sources of that capital, diaspora communities like Petit Senegal, are a natural bridge between the U.S. and their home countries. They know the risks and customs of the market, have local contacts, and know how to invest in their countries in profitable ways. As foreign aid budgets are cut or threatened and immigrants find financial success, remittances have grown in importance; so, too, should the diaspora communities that pay for them.
    Blog Post by Guest Blogger for John Campbell July 1, 2020 Africa in Transition
  • Japan
    A Puzzle in Japan’s Balance of Payments: What Explains Strong Foreign Demand for JGBs?
    Japanese investors have an obvious incentive to search for yield abroad. But why has foreign demand for Japanese bonds almost matched Japanese demand for foreign bonds?
    Blog Post by Brad W. Setser October 24, 2019 Follow the Money
  • United States
    Lessons for the Future: A History of Capitalism in America
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    Alan Greenspan and Adrian Wooldridge discuss the seismic events and trends that formed America's economic history and the insights that can be derived for today's leaders. 
    Event with Alan Greenspan, Adrian Wooldridge and Abby Joseph Cohen October 18, 2018 C. Peter McColough Series on International Economics
  • Global Governance
    Global Governance to Combat Illicit Financial Flows
    Overview As the volume of legitimate cross-border financial transactions and investment has grown in recent decades, so too have illicit financial flows (IFFs or dirty money). IFFs derive from and sustain a variety of crimes, from drug trafficking, terrorism, and sanctions-busting to bribery, corruption, and tax evasion. These IFFs impose large, though hard to measure, costs on national and global welfare. IFFs and their predicate crimes thwart broader national and international goals by undermining rule of law, threatening financial stability, hindering economic development, and reducing international security. The tide of dirty money has drawn attention from a growing number of actors, including national governments, international organizations, civil society organizations, and private financial enterprises, which have constructed an intricate array of national and global measures and institutions to combat IFFs. As the definition of IFFs has expanded and the policy agenda has lengthened, however, deficiencies and drawbacks in these collective efforts to curb IFFs have become apparent. Accurate measurement has not kept pace with the expanding definition of IFFs. Effectiveness of existing policies and programs to counter IFFs is uncertain. Political attention fluctuates, affecting both international and interagency coordination and national implementation. These shortcomings limit the efficacy of global efforts to combat IFFs. Global Governance to Combat Illicit Financial Flows: Measurement, Evaluation, Innovation includes contributions from six authors, who map the contours of global governance in this issue area and consider how best to define and measure flows of dirty money. Improvements in the evaluation of existing policies as well as innovations that would increase the effectiveness of global governance are among the pressing issues covered in this collection. The authors outline an agenda for future action that will inform collective action to combat IFFs on the part of public, private, and nongovernmental actors.
    Report by Miles Kahler , Maya Forstater, Michael G. Findley, Jodi Vittori, Erica Westenberg and Yaya J. Fanusie October 11, 2018 International Institutions and Global Governance Program
  • International Economic Policy
    Gone Fishing
    I am planning to take the next few weeks off—no blogging. That at least is the plan, barring a major financial surprise. It thus seems a natural time to look back at the topics I have covered in the first seven months of the year. And maybe this back catalogue can serve as at least a partial substitute for new content? The bulk of my recent output has focused on China. The coming trade war and all. I put a lot of work into the links in my post on the back story to the trade war. There is also a lot of material on bond market dynamics buried inside my post on China’s options for responding asymmetrically to an escalation in the scale of Trump’s tariffs. The argument that China has more to gain from letting the yuan depreciate than by selling off its Treasury portfolio has held up well so far. Another focus has been the technical details of China’s currency management, and shifts in the pattern of capital inflows to and from China. I think it is significant that financial flows into China were fairly balanced heading into the trade war—with China able to add to its reserves at the margin even while funding Belt and Road related outflows. That though may change in the third quarter (pro-tip: the actual balance of payments numbers for q3 won’t be out until December; watch the banking data for higher frequency clues). Trump’s multi-front trade war has not been limited to China. I don’t see the argument for pulling out of NAFTA even on Trumpian terms; trade within North America is far more balanced than global trade. But, well, there is the inconvenient fact that, thanks to China’s unloved stimulus, the biggest aggregate trade imbalances these days are found in America’s Asian allies and in Europe. China’s domestic imbalances have, for now, limited its contribution to global payments imbalances. I still think the policies needed to allow China to pull back on its stimulus without returning to a large surplus don’t get enough attention (they sort of got relegated to the back pages in the latest IMF article IV). And Korea, Taiwan, Sweden, Switzerland, and the Eurozone (both its surplus countries and in aggregate) really could benefit from a somewhat looser fiscal policies. The gap between the United States’ fiscal stance (too loose) and the fiscal stance of most surplus countries (too tight) is currently the number one underlying cause of currency misalignments and trade imbalances. I ended up writing more about emerging economies than I expected—the ability of the Turkish banking system to transform dollar funding into lira lending is fascinating, and the persistence of the financing that allows Turkey to sustain ongoing deficits remains a mystery. I should have been paying more attention to Argentina’s current account and external debt dynamics last year—its current account deficit was rising even before this year’s bad harvest, putting its external debt on a potentially explosive path. Its need to turn to the IMF shouldn’t have been a surprise.[1] The IMF is doing a better job assessing most countries’ balance of payments positions these days—big surpluses are getting a bit more attention alongside big deficits, and I like many of the methodological refinements that have been made to the Fund’s methodology for assessing external balances. But the IMF continues to be let down by its (newish) reserve metric. It missed Argentina’s vulnerability, for example, and overstates Vietnam’s need for reserves. I worry that many analysts are using it uncritically: China in no way needs a buffer of $3 trillion given its limited external debts.[2] I had fun taking a technique usually applied to emerging economies—charting cumulative flows to estimate stocks—and applying it to capital flows to the United States over the last thirty years. It turns out to provide a useful window into the net international investment position data—net FDI flows into the U.S. have been flat, so it shouldn’t really be a surprise that the U.S. doesn’t have a large positive net FDI position anymore. It will be interesting to see if rising rates start to have a material impact on the size of the United States current account balance; I certainly expect this effect to become more visible soon. I hope to soon start charting cumulative contributions from real net exports too. Finally, I think there is now growing technical consensus that FDI flows are deeply distorted by tax—most flows globally are to and from a low tax jurisdiction, and even after the tax reform, most of the profits booked by U.S. firms abroad continue to appear in a few low tax jurisdictions, and well, the resulting data distortions are getting pretty big. I am pretty confident the U.S. tax reform didn’t solve the issue of profit-shifting. Now if there were just a consensus on what to do to fix the problem. I want to do a bit more on the role tax arbitrage plays in the generation of dark matter (to use Hausmann and Sturzenegger’s phrase) going forward—and to get back to writing on the Eurozone a bit more. And I plan to continue delving into the risks hiding on the balance sheets of Asian insurers. Japan is almost as interesting as Taiwan. But with $200 billion in tariffs on China lined up for early September, I have a feeling that I may not be able to entirely escape trade. Especially as China’s retaliation against the U.S. will really start to bite when the harvest comes in. Endnotes ^ I am impressed that the IMF determined that Argentina was not sustainable with a high probability—and still found enough flexibility inside the latest access decision to provide large scale financing without a bond restructuring (on the sensible grounds that most of Argentina’s bonds were already long-term and thus the bond holders were not a source of short-term balance of payments pressure). I worried that the IMF would be compelled by the new access policy to find most countries sustainable with a high probability. ^ The reserve metric consistently overstates the reserve needs of Asian surplus economies and consistently understates the reserve need of liability dollarized emerging economies with current account deficits. This is largely because the ratio of m2 to GDP varies enormously across countries. High savings Asian economies tend to have high m2 to GDP ratios and thus current account surpluses, and low saving emerging economies with small domestic banking systems tend to have both external deficits and a high level of liability dollarization. Reserves to short-term external debt, or even a “naïve” variable like reserves to GDP, works better.
    Blog Post by Brad W. Setser July 30, 2018 Follow the Money