The United States is poised to raise rates much more sharply than markets expect, risking a potential storm for global asset prices and a dollar shock for much of the developing world, the International Monetary Fund has warned.
The IMF fears a “cascade of disruptive adjustments” as the US Federal Reserve finally pulls the trigger for the first time in eight years, ending an era of cheap and abundant dollar liquidity for the international system.
By creating their own multilateral financial institutions, the BRICS emerging-market powers are shaking up global economic governance but remain far from dismantling the post-war system dominated by the West.
For the past 70 years, the International Monetary Fund and the World Bank have been the pillars of the world’s economic system, coming to the rescue of countries in trouble and supporting development projects, respectively.
China, the world’s second-largest economy, continues to have just slightly more voting power in the IMF than Italy, about five times smaller.
And, since their creation in 1944, the IMF and the World Bank have only been led by Americans and Europeans. Continue reading
Wednesday night’s panic in Tokyo, where the Nikkei dropped a stomach churning 7pc, kicking off a global chain-reaction that saw the FTSE fall 143.48 points, demonstrates just how difficult it is going to be for the world’s central banks to exit their loose money policies.
It’s not even as if Ben Bernanke, chairman of the Fed, said he was planning to exit; in fact, initially he said the reverse, in testimony to Congress. It was only in the Q&A, and in minutes to the last meeting of the Fed’s Open Markets Committee, that a clear bias emerged to slow the pace of asset purchases “in the next few meetings”, so long as the economic data were strong enough. Continue reading