Adam Bouyamourn: Call for US to open up dollar swap lines to emerging market central banks



The United States needs to open up dollar swap lines to emerging-market central banks to lessen the risk of a liquidity crunch amid collapsing commodity prices.

That was the main takeaway from IMF managing director Christine Lagarde’s speech at the University of Maryland on Thursday. Ms Lagarde did not single out the US when she called for an “adequate global financial safety net”, of which new swap lines would form the most important part.

But more than 60 per cent of global foreign exchange reserves are held in dollars, while dozens of countries, including the Arabian Gulf nations, peg their currencies to the dollar.

When foreign currency runs out, financial institutions find themselves unable to meet their obligations, and trade dries up. Egypt, whose economy has suffered as the government creates dollar shortages by defending an overvalued exchange rate, is an example of how damaging currency shortages can be to the real economy.

The US does not have swap lines with many of the central banks of emerging-market countries pegged to the dollar. This means that the ability of emerging-market economies to respond to financial shocks is limited by their stock of foreign reserves.

In good economic times, this is not a problem. But with the commodities slowdown depriving exporters such as Nigeria of their main source of foreign exchange, the inability of the government to obtain dollars from the US could worsen a liquidity crunch.

Ms Lagarde also called for better regulation of capital flows between advanced economies and emerging markets.

About $531 billion of capital flowed out of emerging markets last year, compared to a net inflow of $48bn in 2014. That can be a major blow to economies with large debt piles, which now find demand for debt drying up, raising the cost of servicing it and threatening its sustainability.

The Greek crisis is a simple example of how hot money flows in a country with a fixed exchange rate can be destructive as well as beneficial. In the years up to 2008, capital flowed into the country, which offered higher returns than anywhere else in the euro zone.

But when the financial crisis hit, investors fled Greece en masse. That left Greek banks insolvent, led the state to socialise their debt and left the Greek government with a massive debt burden. EU-imposed austerity then made this debt burden even more difficult to pay off.

Effective regulation of capital flows is exceptionally difficult, however. Capital controls usually make investment flows less efficient, without reducing their volatility. A better solution may be to abandon fixed exchange rates when capital flows become volatile – the Gulf, which is not a major recipient of foreign direct investment, is unlikely to face this particular problem.

Ms Lagarde also called for governments to look at the tax deductibility of interest payments, to encourage more investment in equity rather than emerging market debt.

“There are no easy answers”, she said. The worry is that the emerging market debt pile becomes an emerging market debt crisis. If so, Ms Lagarde will be especially busy over the coming year.

abouyamourn@thenational.ae

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Sarfira

Director: Sudha Kongara Prasad

Starring: Akshay Kumar, Radhika Madan, Paresh Rawal

Rating: 2/5

BULKWHIZ PROFILE

Date started: February 2017

Founders: Amira Rashad (CEO), Yusuf Saber (CTO), Mahmoud Sayedahmed (adviser), Reda Bouraoui (adviser)

Based: Dubai, UAE

Sector: E-commerce 

Size: 50 employees

Funding: approximately $6m

Investors: Beco Capital, Enabling Future and Wain in the UAE; China's MSA Capital; 500 Startups; Faith Capital and Savour Ventures in Kuwait

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Where to buy art books in the UAE

There are a number of speciality art bookshops in the UAE.

In Dubai, The Lighthouse at Dubai Design District has a wonderfully curated selection of art and design books. Alserkal Avenue runs a pop-up shop at their A4 space, and host the art-book fair Fully Booked during Art Week in March. The Third Line, also in Alserkal Avenue, has a strong book-publishing arm and sells copies at its gallery. Kinokuniya, at Dubai Mall, has some good offerings within its broad selection, and you never know what you will find at the House of Prose in Jumeirah. Finally, all of Gulf Photo Plus’s photo books are available for sale at their show. 

In Abu Dhabi, Louvre Abu Dhabi has a beautiful selection of catalogues and art books, and Magrudy’s – across the Emirates, but particularly at their NYU Abu Dhabi site – has a great selection in art, fiction and cultural theory.

In Sharjah, the Sharjah Art Museum sells catalogues and art books at its museum shop, and the Sharjah Art Foundation has a bookshop that offers reads on art, theory and cultural history.

Short-term let permits explained

Homeowners and tenants are allowed to list their properties for rental by registering through the Dubai Tourism website to obtain a permit.

Tenants also require a letter of no objection from their landlord before being allowed to list the property.

There is a cost of Dh1,590 before starting the process, with an additional licence fee of Dh300 per bedroom being rented in your home for the duration of the rental, which ranges from three months to a year.

Anyone hoping to list a property for rental must also provide a copy of their title deeds and Ejari, as well as their Emirates ID.

UAE currency: the story behind the money in your pockets

Challenge Cup result:

1. UAE 3 faults
2. Ireland 9 faults
3. Brazil 11 faults
4. Spain 15 faults
5. Great Britain 17 faults
6. New Zealand 20 faults
7. Italy 26 faults

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While you're here
In Praise of Zayed

A thousand grains of Sand whirl in the sky
To mark the journey of one passer-by
If then a Cavalcade disturbs the scene,
Shall such grains sing before they start to fly?

What man of Honour, and to Honour bred
Will fear to go wherever Truth has led?
For though a Thousand urge him to retreat
He'll laugh, until such counsellors have fled.

Stands always One, defiant and alone
Against the Many, when all Hope has flown.
Then comes the Test; and only then the time
Of reckoning what each can call his own.

History will not forget: that one small Seed
Sufficed to tip the Scales in time of need.
More than a debt, the Emirates owe to Zayed
Their very Souls, from outside influence freed.
No praise from Roderic can increase his Fame.
Steadfastness was the Essence of his name.
The changing years grow Gardens in the Sand
And build new Roads to Sand which stays the same.
But Hearts are not rebuilt, nor Seed resown.
What was, remains, essentially Alone.
Until the Golden Messenger, all-wise,
Calls out: "Come now, my Friend!" - and All is known

- Roderic Fenwick Owen

Paltan

Producer: JP Films, Zee Studios
Director: JP Dutta
Cast: Jackie Shroff, Sonu Sood, Arjun Rampal, Siddhanth Kapoor, Luv Sinha and Harshvardhan Rane
Rating: 2/5

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