Synopsis: A Bigger, More Volatile World
- 14 Downloads
As the World gets bigger, it seemingly becomes more volatile. The 1989 Fall of the Berlin Wall changed the direction of World capital flows, facilitating a productivity ‘catch-up’ across the Emerging Markets and effectively reversing the polarity of financial systems. These effects were reinforced by a second shock following China’s 2001 entry into the World Trade Organisation (WTO). China significantly increased the use of US dollars through her export-led supply chains. One result was the build-up of vast CICPs (corporate and institutional cash pools). These dominated the wholesale money markets, eclipsing high street banks, demanding collateralised ‘safe’ liquid assets and leading to the rise of the repo. Parallel government austerity policies have constrained the supply of government bonds to use as collateral for these repos.