by Kuvam Chugh

Cryptocurrencies in general, and Bitcoin in particular, are booming. From its low at under $4,000, the price of a Bitcoin as I write has risen to over $55,000 (although it probably would have changed by the time you read this). Some say it is going to revolutionize the global economy while others are convinced it is a bubble. In this article, I explore Bitcoin from the point of view of monetary economics. I examine its merits as an alternative to government-issued currency.

Note: I will use “cryptocurrency” and “Bitcoin” interchangeably for the rest of this article and…


by Ong Jing Yee and Tan Yong Qi

From 1965 to 1990, the Asian economies experienced rapid export-led growth — Southeast Asian countries in particular experienced a 2–9% average growth in annual real GDP (Summers and Heston, 1991). At the time, most of these countries had their currencies pegged to the USD to prevent price fluctuations and remain competitive in the international export market. As a result, Asia’s share of world manufactured exports surged from 9% in 1965 to a historic high of 21% in 1990 (IMF, 1994). Simultaneously, there were economic slowdowns in Europe and the USA. …


by Mike Tan

An Overview of the Eurozone Crisis

In 1999, the Euro was launched and monetary policy autonomy was surrendered to the European Central Bank which now controlled interest rates of all Eurozone countries. However, countries retained control over their fiscal policies and this lack of coordination lay at the heart of the Euro crisis. Countries like Portugal, Greece and Spain were able to borrow heavily to finance deficit driven spending at much lower rates. This was because creditors believed that the stronger economies like Germany and France, which were now bound by a common currency with these heavy borrowers, would intervene in the case…


By Jason Jia, Callum Renton, Sandra Ng, Sheryl Dong, Brooklyn Han, Birce Akay, Roberto Patiño, Daniel Carey, Pedro Almas, Anna Clarey, Annie Wang and Dillon Oppon-Ferguson

Covid-19 has fundamentally altered our way of lives and is consequently driving much of recent macroeconomic research. In previous articles, the Monetary Policy Research Division delved into monetary policy analysis with a sharp focus on how central banks in the US, UK and EU have responded to the Covid-19 crisis. However, while we often looked to central bankers, economists and experts for insights, we’ve yet to re-examine how the pandemic has affected our personal


By Sheryl Dong, Birce Akay, Daniel Carey and Dillon Oppon-Ferguson

Desired Outcomes of QE

Channels through which QE operates:

QE was first introduced to the UK in 2009 as a way to combat the depressing effects of the financial crisis in the UK economy, in more ways than just conventional monetary policy. At the time, its main aim was to provide confidence to issuers and investors about selling off their assets because of ineffective policy rates that were at the effective lower-bound, so the bank intervened to plug the gap of the dried up liquidity in the markets between investors and financial institutions. The…


By Sandra Ng, Brooklyn Han, Anna Clarey and Pedro Almas

What is Modern Monetary Theory?

Modern Monetary Theory (MMT) is a fringe macroeconomic theory which argues that government spending need not be paid for by taxes. It further posits that governments can run budget deficits as large as they wish without facing adverse consequences, as long as they issue and control their own currency. In this framework, governments, which in most developed economies are run by elected politicians, replace independent central banks as the monopoly issuers of currency.

MMT claims to be applicable to monetarily sovereign countries like the US…


By Callum Renton, Roberto Patiño, Sally Yang and Annie Wang

Introduction

We have chosen to investigate the contemporary phenomenon of negative interest rate policies (NIRP). Intuitively, the notion that a creditor is willing to pay a borrower for the pleasure of lending to them seems nonsensical. In practice, this has been proven to be an effective policy without wrecking havoc in financial markets. It is a policy undertaken extensively at the ECB, tempered at the Bank of Japan, and on the cards at both the BoE and Fed. …


By Oliver Kidd (Research Analyst, Economics Research Division)

Climate change is indisputably one of the greatest, if not the greatest, challenges our generation will face. Purely from an economic perspective, the risks it poses could have severe effects on the financial system. Even ignoring any ecological or environmental effects it may have for generations to come, this is a challenge we must devote resources to, or face a significant impact on the way we live in the future. …


by Kirubaharan Muttusamy, Ong Jing Yee, Tan Yong Qi and Muhammad Husin bin Abd Wahid

In the early to mid-2000s, incentivized by the high-profit margins, many banks in the United States engaged in subprime lending to create more mortgages for the mortgage-backed securities market. The supernormal profits earned from these securities attracted both public/private investors and domestic/foreign investors, accelerating its integration with the world’s financial system. …


By Mike Tan, Park Sung Jae and Hazrul Akmal Hazarudin

What is a stress test?

Stress testing is a risk management tool that focuses on several key areas including credit, market, operational and liquidity risk. It is used to assess the strength of a bank’s balance sheet through its ability to survive during periods of economic stress, ensuring that banks have enough capital to weather worst-case scenarios. Bank stress testing involves creating hypothetical adverse macroeconomic and financial market scenarios to test the resilience of financial institutions to extreme negative conditions. It is performed under the direction of a single official entity (e.g. …

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