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MONEY

UK: BANKING RULES ON THE TEST

UK: BANKING RULES ON THE TEST

LONDON - 2021-08-01

After the Brexit, Great Britain is putting banking rules that the EU enacted as a consequence of the financial crisis to the test. On behalf of the London Ministry of Finance, an investigation was launched on Tuesday into the requirements for capital market transactions of large financial institutions such as HSBC and Barclays. In the aftermath of the financial crisis, the institutions were required, among other things, to separate their retail banking from the riskier investment banking.

After leaving the EU, Britain is no longer bound by the rules from Brussels. At the same time, the British are trying to strengthen the competitiveness of London as a financial centre. In the past ten years, the business environment of British banks has changed significantly due to Brexit and the Corona pandemic. According to the report, the enquiry team will ask industry representatives how the current regulations have played out in light of the changes in the British financial sector and the economy as a whole. It will look at intended and unintended consequences for financial stability, competition and the competitiveness of institutions.

At the heart of the rules is proprietary trading, where banks buy and sell securities on their own account rather than on behalf of clients. The separation of these potentially lucrative but also risky capital market transactions from the retail sector was a consequence of the fact that several financial institutions had to be rescued with taxpayers' money during the financial crisis. Any recommendation to relax the rules is likely to meet resistance from the UK central bank. The British Treasury expects the report within a year.

Text: Red. / Photo: Dave Xu by Unsplash

NEW HIGH IN SAVINGS IN EURO-AREA

NEW HIGH IN SAVINGS IN EURO-AREA

GERMANY - 2021-05-15

The development of capital in an economic area is of course not only related to stock market and company data, but also to private households, their consumption behaviour and thus also their savings behaviour or, more precisely, their savings rate. The global pandemic has of course also brought about a very positive development of savings balances in the euro area due to closed shops or a change in consumption behaviour or rather due to a change in consumption needs.

In reference to an analysis, people in the euro area are richer than ever before - and by far the most people save in Germany. Based to calculations by ING Deutschland and Barkow Consulting, savers in the 19 countries invested more than one trillion euros in financial assets for the first time in one year during the Corona crisis in 2020. Adding value increases, financial assets at the European level rose by 4.7 percent to 27.3 trillion euros compared to the previous year. According to the evaluation, private households in Germany are the European savings champions for the eighth time in a row. They put aside 388.5 billion euros last year, 45 per cent more than in 2019, followed by people in France (260.7 billion euros), ahead of Italians (122.7 billion euros) and Spaniards (78.2 billion euros).

One reason for the overall strong increase in spending: because of the pandemic restrictions, many people were unable to spend their money as usual. Many trips were cancelled, the temporary closure of restaurants and shops slowed down consumption. In addition, many households held on to their money for fear of short-time work or unemployment. In reference to the analysis, on average, every European put 3121 euros aside last year. In Germany, the figure was 4671 euros. That was almost a third more than a year earlier and more than ever before. Shares were in particularly high demand in the Corona year, as various other studies have already shown. According to this study, investors in this country invested a record 49 billion euros in shares in 2020. Investments in funds also increased significantly.

Text Red. and Press-release ING Germany / Photo: Mathieu Stern by Unsplash

BREXIT: HISTORIC LOSSES IN LONDON

BREXIT: HISTORIC LOSSES IN LONDON

UK - 2021-07-30

London loses more financial institutions than expected due to Brexit. More than 400 financial institutions relocated to continental Europe, Dublin benefited the most. Amsterdam stock exchange posts further gains, overtaking London.

WHAT IS HUGE? When the US President Biden presented an economic program for the recovery of the US economy and society, the amount of 1.9 trillion US dollars reached very high attention. When the EU Commission presented the "economic aid package" of around 1 trillion euros, criticism was also voiced about the size of the volume.

Brexit has not even been in effect for six months (transition period endet on 31st Dec. 2020) and the shift of assets from the United Kingdom to the financial hubs of Dublin, Amsterdam, Frankfurt and Paris in the European Union has already exceeded the trillion pounds mark by far.

According to a study, Brexit is leading to an unexpectedly strong bloodletting for the financial metropolis of London. More than 400 financial firms have moved their business from the British capital to continental Europe since Britain left the European Union (EU), according to a study published on Friday by the think tank New Financial. This is significantly more than expected.

Number even higher than expected. "We expect the actual number to be much higher and that even more firms will relocate in the future," the study said. "We are only at the end of the beginning of Brexit." Financial centers like Dublin are benefiting the most from the relocation, according to the research. 135 companies had relocated their headquarters there, followed by Paris, Luxembourg, Frankfurt and Amsterdam. The latter has already scored with new gains in trading volume compared to London since January 2021 - and this trend is likely to continue.

Asset shifts Not only Brexit hardliners like Jacob Rees Mogg have moved substantial assets to the EU-Country Ireland through their financial firm, but also banks, insurance companies and fund-service providers have shifted assets in value of Billions of Pounds, to the countries of continental Europe. Frankfurt will be the winner in the long run in terms of asset reallocation. Paris, on the other hand, will be the biggest beneficiary in terms of jobs, and Amsterdam will probably continue to benefit in the stock market business

Text: Red. / Photo Christopher Bill by Unsplash

DOLLAR, EURO, YUAN: WHO WILL WIN?

DOLLAR, EURO, YUAN: WHO WILL WIN?

INTERNATIONAL - 2021-07-10

The dollar is still the world's reserve currency. But since Donald Trump's presidency at the latest, there are doubts as to whether it will remain so for much longer. Who could knock the dollar off its throne?

In order to become a global reserve currency, a currency must fulfill various criteria. It must be internationally accepted as a means of payment, stable in value, and also useful as a unit of account or anchor currency with fixed exchange rates to other currencies. "Most people look at foreign exchange reserves," is the statement of central bank experts. These are stocks of foreign currency that national central banks hoard in order to be able to intervene in the foreign exchange market (e.g. to buy their national currency and thus support it). The US currency dominates here; a good 60 percent of all foreign exchange reserves worldwide are dollars. The euro follows with about 20 per cent. After that comes nothing for a long time, then the British pound and the Japanese yen, and finally the Chinese yuan with about two per cent.

Foreign Exchange means Dollars. Donald Trump had often complained during his term as US president that the US current account deficit was not fair. But with policies of high government spending coupled with tax cuts, he said, that was the inevitable result. The national debt had increased by $3.2 trillion between the fourth quarter of 2016 and the fourth quarter of 2019. The deficit was also financed by foreign investors, who bought a further $838 billion of US government bonds during this period, so that they then held a total of $6.8 trillion of US government bonds at the end of 2019. This development is also due to the status of a reserve currency in which investors have confidence.

Power and Confidence; The fact that the dollar was able to occupy this dominant position is due to the situation after the end of the Second World War. Until then, the British pound was considered the world's means of payment. But the war had severely weakened the economies in Europe. At the conference in the American Bretton Woods, they established a framework of fixed exchange rates to the US dollar, which lasted for thirty years. Since then, there has actually been no official reserve currency, but the dollar has dominated despite all the upheavals. Investments in US government bonds and in the currency itself are considered fail-safe, which is why many investors put their money in US dollars.

Euro as regional Currency; In addition, the capital market is very broad, something the European currency area cannot offer. Within the European Union there are few safe forms of investment such as government bonds. German, Dutch or Austrian government bonds cannot completely satisfy the demand for safe euro investments; harmonisation within the euro area has not yet progressed far enough. However, this could gradually change with the introduction of uniform euro bonds within the framework of the Corona Reconstruction Fund. So far, the euro has been of regional importance at best. Moreover, the currencies of some West African states are linked to Europe for historical reasons. They have pegged their currencies to the European common currency via the French central bank. But there is more of a tendency to want to break away in order to gain more autonomy, to be able to make their own economic and monetary policies, and finally, in some South-Eastern European countries, the D-Mark was strong before the introduction of the euro, and this role has also been taken over by the euro.

And what about China? China is fighting with the USA for world supremacy. According to the latest forecasts, the People's Republic will replace the USA as the world's largest economy as early as 2028. Nevertheless, many Western experts doubt that the national currency, the yuan (renminbi yuan), could take on a more important role or even become the reserve currency in the next few years. In order to gain international importance, the yuan would have to be freely convertible above all. But there is still a domestic yuan and one that is used in international trade. The Chinese government does not want to lose control over its currency. But that would be the case if it freed up the exchange rate.

In this respect, the US dollar is likely to remain the world's reserve currency for the foreseeable future. However, most currency experts assume that it will weaken somewhat in view of the high level of US debt, which is now rising again due to the Biden administration's economic stimulus package. But as long as the solvency of the USA is not in doubt, the dominance of the "greenback" is likely to continue

Text: Red. / Photo: Eric Prouzet by Unsplash

75 YEARS OF BRETTON WOODS

75 YEARS OF BRETTON WOODS

INTERNATIONAL - 2021-05-10

75 years ago, the world community sought for the first time a common framework for the global economy. What about the multilateral institutions created at Bretton Woods - the World Bank, the IMF and the WTO - today?

July 1944: While Allied troops are fighting the German Wehrmacht in France after their landing in Normandy, the representatives of 44 states have gathered in the luxurious Mount Washington Hotel in Bretton Woods in the US state of New Hampshire. Their goal: to create the framework conditions for a post-war global economic order. Among them were the economists John Maynard Keynes from Great Britain and his US colleague Harry White. They and the delegates of the then still small United Nations succeed in laying the foundation stone for the Bretton Woods system, which sets the coordinates for the global economy of the post-war period.

Birth of new World Organisation. Birth of the World Bank, IMF and Trade Organisation

Their ideas are finally adopted on 22 July 1944. At that time, the foundation was laid for the International Bank for Reconstruction and Development (IBRD), still a central part of the World Bank Group today, and the International Monetary Fund (IMF), which was to promote international cooperation in monetary policy. Keynes also wanted a third entity to provide for the promotion and regulation of trade and commodity markets. The General Agreement on Tariffs and Trade (GATT) was adopted on 30 October 1947 after the plan for an International Trade Organisation failed to materialise. The GATT came into force on 1 January 1948, but it would take until 1995 for the World Trade Organisation (WTO) to be established. The IMF was officially launched on 27 December 1945 with the signing of a convention by 29 countries and became operational on 1 March 1947.

Crisis financier and global watchdog. According to the agreement of the founding members, the IMF was to facilitate the expansion and balanced growth of world trade, promote exchange rate stability and assist in the establishment of a multilateral payments system. In addition, the IMF was to help ailing member countries with financial injections from the jointly provided financial pot of the International Monetary Fund - but only "temporarily and with appropriate safeguards". This role of a lender of last resort, stepping in at the last second to prevent the financial collapse of a struggling state, has made the IMF hated in many countries, such as Greece. Another task of the IMF means that export-oriented countries like Germany regularly have to be told off by the IMF: Since its foundation, one of the central tasks of the IMF has been to reduce the imbalances in the international balance of payments of its member states.

Balance sheet after 75 years. But where do the Bretton Woods institutions stand today, 75 years after their creation? For many experts from business, science and politics, however, these institutions are under considerable pressure - not only the conflicts of the USA with China and other trading partners have created a situation that is difficult, and in all three institutions there is no euphoria about the current situation. The World Bank has the least problems, and normal business is running pretty smoothly there.

Even if the World Bank has meanwhile got a lot of competition from the Chinese initiatives of the Asian Infrastructure Development Bank (AIIB) and the New Silk Road project. Things are much more difficult at the International Monetary Fund and the World Trade Organisation. The World Trade Organisation is marked by great tensions. The Americans in particular point out that even 18 years after joining the World Trade Organisation, China still does not feel committed to the spirit of the WTO. In particular, China's behaviour in protecting intellectual property and covert state subsidies by Beijing are repeatedly used as a motive for criticism of Beijing.

China as a "game changer". But even if the International Monetary Fund does not currently have to deal with financial crises, economic experts agree that the IMF would be overstretched to save China or Italy from a financial collapse. Reforms are therefore urgently needed at the IMF. For years, China has been competing with the World Bank as a traditional donor for development and infrastructure projects with large-scale projects. The "Asian Infrastructure Investment Bank" and the New Silk Road, also known as the "One Belt, One Road Initiative", are open competition for the World Bank. However, one has to distinguish between the Road Initiative and the Infrastructure Investment Bank.

The AIIB is relatively transparent, non-Chinese actors are also involved. It is a multilateral bank, which of course competes with the established banks, but that is less problematic because transparency mechanisms can be observed. With the AIIB, he says, the Chinese side does not insist on controlling the lending process. Chinese assessment of the Road Initiative, which provides for bilateral agreements between borrowing countries and China, is quite different. Here, the last 12 to 18 months have seen some problematic developments. Overpriced, high-interest loans have been granted to countries such as Kenya or Sri Lanka and then very controversial compensation has been demanded from the countries out of claims that could not be serviced. This is extremely difficult and leads to enormous dependencies of these countries without sustainably improving the credit misery.

Rethinking in Africa has begun. Many projects were promising at the beginning, for example in Kenya. If you look at the railway line from Mombasa to Nairobi, it is reminiscent of poorly managed development aid projects of the 1960s. There, China has delivered less than it promised and it has also proved to be less altruistic than the Chinese always want the rest of the world to believe. There are a number of signs that a reassessment of China's role and motives is now taking place in Southeast Asia and in Africa. The railway line and the Chinese-projected cargo port in Kenya, which were celebrated with great commitment and pomp, have become considerably more expensive and uneconomical than transport by trucks. In Sierra Leone, West Africa, the government has cancelled the planned construction of an airport by China. The government's argumentation had been very direct: We don't need this airport, it will be built by Chinese workers, by Chinese companies with Chinese capital. What we are left with is an airport, but also a hefty bill for it.

Chinese loans at record levels. IMF researchers and observers are in the dark about China's Silk Road loans. A recent study by the Kiel Institute for the World Economy has found that China is lending much more abroad than previously known. Between 2000 and 2017, foreign debtors' obligations to China increased tenfold from less than 500 billion to more than 5 trillion US dollars - or put another way: from less than one per cent of global economic output to more than six per cent. The worrying thing is that around 50 percent of China's international loans to developing and emerging countries do not appear in official statistics. They are neither recorded by multilateral surveillance institutions such as the IMF or the Paris Club, an informal body of state creditors, nor by rating agencies or private data providers. It is true that many of the projects financed by China are of great benefit to the recipient countries, especially in the area of infrastructure. However, the large volume of debt and its lack of transparency also pose risks to financial stability. Private investors or the IMF can hardly assess the debt sustainability and crisis probability of countries if a considerable part of the external debt to China is simply unknown, it concludes, adding that it is impossible to gain insight into dark connections when analysing country risks.

Tasks for the EU Commission. Experts do not believe, however, that the European Union will lose out in the trade poker between the USA and China. The Americans and the Chinese often dominate the headlines, but as a trading power Europe is still in the lead and there is no need to worry about the competitiveness of European companies. In trade policy, the European Union speaks with one voice and is still on a par with the Americans and the Chinese. Nevertheless, the EU would have to show its colours at some point in the ongoing conflict with the Chinese, which could perhaps become visible in the now suspended procedure for evaluating an investment agreement between the EU and China.

Text: Red / Photo: Alicia Razuri by Unsplash

PERSONAL ECONOMY '21

PERSONAL ECONOMY '21

INTERNATIONAL - 2021-04-29

News reports about major investments by Warren Buffett or hedge funds, whether in Europe, Asia or America, are always at the top of the business pages. Regardless of this, however, the businesswoman or businessman or the average citizen who does not just quickly dispose of a few million for investment is wondering how 2021 can best be mastered financially.

With a pandemic and an economic recession still looming ahead, try to make sure you have enough emergency cash to survive. Even though Warren Buffett always stated as his first investment recommendation that cash (a collective term for readily available funds) is not a good Investment, he does the same thing, except that his emergency fund, or war chest, is in the billions.

A few months after the COVID-19 pandemic began, the US National Bureau of Economic Research (NBER) announced that the US economy was officially in recession. We are still there and while parts of the economy have started to recover, many are still lagging behind. For example, unemployment has fallen dramatically since it hit a record high in April 2020. Yet, almost a year later, the US economy has still lost 10 million jobs. The recovery has also been very uneven, with some Americans escaping virtually unscathed and others still feeling the financial impact of the pandemic.

If you're struggling with job or income losses, you're not alone. This year is best spent getting back on your feet, whether that means paying off debt or focusing on making ends meet. However, if you're lucky enough to be in a position to save money - meaning you can pay the bills and don't have high-interest debt - 2021 is a good year to boost your savings even more than you normally would. Here's why. Keep extra money in the bank during times of economic uncertainty. If you ask pretty much any financial expert what you should do with your money during an economic recession, increasing your cash reserves is probably at the top of the list for several reasons.

For one, it's a good idea to boost your emergency fund whenever you're suffering from financial uncertainty. Whether it's an insecure job, an ongoing medical problem or a recession, having extra cash on hand in case an emergency expense arises will keep you financially secure and help you avoid getting into debt or at least cash shortages.

Loss of job and income are some of the biggest threats during a recession, especially when paired with a global pandemic. If you find yourself in this situation, you don't want to have to deplete your retirement account or resort to credit cards and loans to cover your living expenses while you look for work, new clients or projects. You want to keep a healthy amount of liquidity so that you can access extra money quickly if needed. Also, there is always a high risk that the stock market will fall during a recession. If you don't have enough cash reserves, you might be forced to sell while the stock market is falling.

HOW MUCH CASH YOU SHOULD KEEP ON HAND? A typical, healthy emergency fund is about six months' worth of basic living expenses. However, some experts suggest that you should have a larger emergency fund - more like nine months or a year's cash. This could be particularly useful if your financial situation is unstable - for example, if you're a freelancer, your industry is suffering or you're in the middle of a recession. This rule of thumb needs to be adapted to your own situation. If you're paying off debt, especially high-interest credit card debt, it's wise to put extra money into repayment now, even if it means your savings account gets smaller. If you have investments that you can liquidate fairly easily if needed, and you're fairly risk-tolerant, three to six months of living expenses might be fine for you.

INCREASING SAVINGS. To increase your savings, you need to make a habit of putting money aside regularly, whether it's €25 or €250. The best way to do this is to automate your savings so you don't even have to think about it. The best online savings accounts offer higher interest rates than you'd get at a traditional bank, and they have features that let you automate your savings with a few clicks. You can have money transferred from your bank account to your savings account once a week or month - ideally right after you get your salary so you don't have a chance to spend it. Even if you set it up so that you only transfer 25 euros a week, you'll have saved 1,300 euros in a year, and that's without interest.

Saving more can be enhanced by using additional savings features. Some of them round up purchases and transfer the difference to your savings account, while others analyse your spending and identify extra money that can be saved every now and then. Once you have done this, you can start to identify areas in your budget where you can reduce your spending to save even more. There are many different budgeting methods you can try. You'll even find some great budgeting apps that do the hard work for you. Once you've categorised your spending and noticed areas where you can save, commit to budgeting a certain amount each month and set up an alarm in your budgeting or banking app to notify you when you hit your limit. If you really make it a habit to save more and spend less, you can do it. Putting more money aside this year will not only help you when you run into problems - it will also give you more peace of mind at all times. By the way, cryptocurrencies are not a real alternative for safe cushioning in times of crisis.

Text: Guest Writer Wolfgang Schratter / Photo: Firmbee by Unsplash

BREXIT: LONDON CALLING

BREXIT: LONDON CALLING

UK - 2021-03-16

Long feared Brexit consequence: London is no longer Europe's leading stock exchange.

The global world of service, insurance and finance business has always been more important in London since the deregulation of the Thatcher government. However, in the 4 years of talks, negotiations and finally laboriously reached agreements, the "City of London" had no place at the negotiating table and certainly not in the treaties.

The fantasies of the Brexit millionaires of the "Singapore on the Thames" have receded further into the distance as far as trade and the turnover of goods are concerned, because according to the ONS (Office of National Statistics) in London, the UK's exports to the EU in January 2021 fell by 41% and imports by 28%. The situation is even worse for financial services on the Thames: since shares quoted in euros may only be traded within the EU, trading in securities is also shifting to the mainland as a result of Brexit. Therefore, since the beginning of the year, London is no longer the largest marketplace for shares - but neither is its long-time rival Frankfurt.

So the famous "third party" has prevailed again when two quarrel. After the Brexit, London has to cede the leading position among the European trading centres to Amsterdam. More shares were traded on the stock exchanges in the Dutch capital than on the Thames in January, according to data from the futures exchange CBOE Europe.

According to this, the daily trading volume in Amsterdam was 9.2 billion euros, compared to 8.6 billion euros in London. On an annual basis, the British were still clearly in first place with an average of 17.5 billion euros in 2020, Frankfurt am Main came in second with 5.9 billion euros. Amsterdam only made it to sixth place with 2.6 billion.

The financial centre of London had long warned of negative consequences of the UK's exit from the EU single market. Stock exchange representatives suspect that the shift of trade flows from London to Amsterdam is likely to be permanent, as the EU insists that shares quoted in euros must be traded in the EU. Amsterdam's triumph had been heralded when European CBOE equity platforms and London-based Turquoise became active after the Brexit vote in 2016.

London hopes to compensate for a small part of the shortfall with trading in Swiss franc-denominated Swiss shares, which was allowed again this month. On average, 250 million euros change hands daily in the process, which should move the London Stock Exchange back towards one billion. This was the level London ranked at before the EU ended trading in Swiss shares on its markets in June 2019. Since then, Switzerland and the EU no longer recognise each other's exchanges. Now it looks like at least the UK and Swiss exchanges are heading back towards cooperation through mutual recognition and this should be reflected in the London trading venue's books in the coming months.

Text: Red. / Photo: David Vincent by Unsplash