Aurelia Butler

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WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen on Wednesday underscored the Biden administration’s commitment to provide Ukraine with the budgetary and military assistance it needs, while calling Republican delays in approving the aid inexcusable.Yellen made the comments after meeting with Ukrainian Prime Minister Denys Shmyhal and Finance Minister Serhiy Marchenko. Their meeting followed a Ukraine conference held on the sidelines of the International Monetary Fund and World Bank spring meetings.She said the officials discussed their shared priorities, including global financial support for Ukraine, Ukraine’s reform progress, and Russia’s obligation to pay for the damages of its war of aggression.”Budgetary assistance from the United States is more critical than ever, as it is inextricably linked to Ukraine’s success on the battlefield and the government’s ability to deliver essential services to its people,” Yellen said.She said Washington and its allies have provided significant support to Ukraine since Russia’s invasion in February 2022, with extensive controls and safeguards in place to ensure the money reached the right people and was being used appropriately.Yellen said that the United States completed an agreement with the World Bank to contribute $255 million to World Bank trust funds to support Ukraine’s critical export transportation needs and fuel private sector investment.She hailed the U.S. Senate for passing additional funding for Ukraine on a bipartisan basis and said the failure of Republicans in the U.S. House of Representatives to act so long “has been inexcusable and detrimental to our national security.””Every moment of delay by House Republicans strengthens (Russian President Vladimir) Putin and emboldens America’s adversaries around the world who are closely watching to see if … the United States, maintains its resolve to support a democratic Ukraine as it fends off an autocratic Russia,” she added.U.S. House Speaker Mike Johnson said he would hold a long-awaited vote on a $95 billion Ukraine-Israel aid bill, including $60.84 billion for Ukraine, as early as Saturday.Finance officials from the Group of Seven advanced economies pledged in a joint statement to continue working on “all possible avenues” to harness the value of frozen Russian sovereign assets to aid Ukraine.Shmyhal underscored the urgency of the U.S. aid in remarks after the meeting, saying Russia was determined to undermine Ukraine’s economy with attacks on infrastructure, including its power grid, ports, farms and factories.”There is a risk of even greater destruction. If Russia destroys Ukraine’s economy, it will cripple the Ukrainian state to the point where it cannot defend itself on the battlefield,” Shmyhal said.He said Ukraine was ready to work with all parties including the World Bank to ensure the transparency of U.S. aid and was aiming for “zero tolerance” of any potential misuse.Yellen lauded Ukrainian officials for maintaining economic stability and implementing ambitious reforms under what she called incredibly difficult circumstances. Finance officials echoed that sentiment during the closed-door Ukraine meeting, sources familiar with the matter said.Yellen said Washington and its allies needed to remain vigilant to block Russia’s ability to acquire the goods and resources it needed to continue its war, and said the coalition would keep raising costs on Russia through sanctions, while working to clamp down on evasion networks around the world.Shmyhal agreed that the U.S. and its allies needed to strengthen sanctions aimed at reducing Russia’s ability to wage war, adding: “specifically, it is necessary to completely block the supply of Western technologies to the Russian military industrial complex.”He also called for sanctions against the entire Russian banking sector and Russia’s nuclear sector.Shmyhal said he also expected the U.S. Congress to pass the “Repo Act,” which would grant the Biden administration the authority to confiscate frozen Russian assets to support Ukraine. More

WASHINGTON (Reuters) -Finance leaders from the Group of Seven industrial democracies on Wednesday condemned Iran’s attack on Israel and pledged to continue work on “all possible avenues” to harness frozen Russian sovereign assets to aid Ukraine. In a joint statement issued after a meeting, the G7 finance ministers and central bank governors said they would “ensure close coordination of any future measure to diminish Iran’s ability to acquire, produce, or transfer weapons to support destabilizing regional activities.”The ministers met on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington and said that they view risks in the global economy as “more balanced” amid recent resilience to multiple shocks, with inflation receding.”Central Banks remain strongly committed to achieving price stability and will continue to calibrate their policies in a data-dependent manner. Price and financial stability are a pre-requisite for sustainable and balanced growth,” the G7 officials said.But the group said there were significant geopolitical risks to the outlook, primarily from Russia’s war in Ukraine and conflict in the Middle East, which “could affect trade, supply chains and commodity prices.”The G7 finance officials said they were strongly committed to help Ukraine meet urgent short-term financing needs as it struggles against Russia’s invasion, including harnessing extraordinary revenues stemming from frozen Russian assets.”We reaffirm our determination to ensure that Russia pays for the damage it has caused to Ukraine. Russia’s sovereign assets in our jurisdictions will remain immobilized until then, consistent with our respective legal systems,” the G7 officials said.The statement did not include a specific plan for the assets, but said they would “continue working on all possible avenues by which immobilized Russian sovereign assets could be made use of to support Ukraine” with a view to presenting options to G7 leaders at a June summit in Italy.’WORK IN PROGRESS’Earlier on Wednesday, Deputy U.S. Treasury Secretary Wally Adeyemo said the G7 discussions on frozen Russian sovereign assets, estimated at about $300 billion, were still a “work in progress.”Adeyemo told an event hosted by the Semafor news outlet that finance ministers were doing technical work to come up with options that still include building a strong legal foundation for outright seizure of the assets.”We’re talking through a number of different options. One of them is seizure, but another is collateralizing, or even using the windfall profits or the interest from these assets to fund a loan,” Adeyemo said.Because the bulk of the assets are being held in Europe, it was important that the U.S. work closely with European allies on the issue, Adeyemo said.French Finance Minister Bruno Le Maire said on Wednesday that the G7 needed to be in a position to harness the interest earned on the assets.”These revenues are estimated between 3 billion to 5 billion euros per year, depending on the level of the interest rates,” Le Maire said. “So our proposal is to better understand and better define how these 3 to 5 billion euros could be used over the next month to help Ukraine and to help the Ukrainian government. So let’s focus on that question.” More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The writer advises financial institutions on asset allocation and is founder of The Practical History of Financial Markets courseThe world’s second-largest economy is about to move to monetary independence and in so doing it will destroy the current international monetary system. China needs to not just reflate its economy but to inflate away its debts. The country has one of the highest total non-financial debt-to-GDP ratios of any major economy, at 311 per cent of gross domestic product. While the debt burdens of most countries are shrinking relative to output, thanks to high nominal GDP growth and the falling price of debt securities, China continues to report rising debt-to-GDP.On the eve of the global financial crisis in December 2007, China’s total non-financial debts amounted to just 142 per cent of GDP. The exchange rate targeting regime, by restricting the growth in money relative to the growth in total debt, pushed China to ever-higher debt-to-GDP levels that have finally brought it to the verge of a debt deflation. The time has come for the Chinese authorities to take the monetary levers to generate higher nominal GDP growth. This means allowing the exchange rate to adjust to the level of broad money growth necessary to reduce China’s burden. The current international monetary system ends when China assumes this full monetary independence.Recent comments by President Xi Jinping that the People’s Bank of China (PBoC) should launch a bond-buying programme to create more domestic liquidity may be the first sign that exchange rate targeting is slipping down the policy agenda. PBoC action to accelerate the growth rate of broad money and generate higher growth in nominal GDP is not compatible with a stable exchange rate, especially in an era when trade and capital flows are shifting away from China as part of US ‘friendshoring.’ It is time for China to find a different and fully autonomous monetary policy.Since 1994, China has intervened to prevent the appreciation of its exchange rate particularly in relation to the US dollar. It was joined in this monetary policy approach by most of Asia in 1998. This intervention funded the purchase of developed world government debt securities, primarily US Treasuries, through the creation of local currency bank reserves. This forced buying, regardless of price, effectively decoupled the risk free rate from the nominal growth rate in the developed world. The global monetary system created a persistent and artificially large gap between nominal growth rates and the discount rate, thus inflating asset prices and facilitating a rise in gearing. Developed world savers were partially freed from funding their own governments and turned instead to funding the private sector and pushing asset prices higher. The valuation of US equities, as measured by the Shiller price/earnings ratio, moved to a higher plateau under this monetary system and both private and public sector gearing rose to new highs relative to GDP.The excess domestic liquidity created by PBoC foreign exchange intervention was channelled by the Chinese state banking system to fund investment and higher production at the expense of consumption. This state capitalism reduced the role that excess liquidity played in pushing up domestic prices and making China less globally competitive. In this way, China’s external surplus endured for much longer than it would have in a market system. Developed world central bankers adjusted their own monetary policy to fit the global inflation dynamics increasingly determined by China. The Chinese Communist party created a fulcrum, and inflation-targeting central bankers created a “lever long enough”, through interest rate policy and the extension of their own balance sheets, to “move the world”.While the decline in the renminbi exchange rate, in reaction to much higher growth in currency supply, raises the spectre of exported deflation, the rest of the world is very unlikely to permit China to take an even larger share of global trade. The most likely reaction is the imposition of tariffs and a clearer drawing of a line between countries aligned with China and those who see their allegiances elsewhere. The loss of access to Chinese productive capacity brings with it higher global inflation.Developed world authorities are already being drawn into greater interventionism to ensure that the gross imbalances of the old monetary system (primarily excessive debt levels), are unwound with minimal sociopolitical dislocation. Such interventionism is taking us back to the system known as financial repression that reduced excessive debt levels in the aftermath of the second world war. This new global monetary system brings radical challenges for investors which they are ill equipped to navigate without a deep understanding of financial history. More

WASHINGTON (Reuters) -Brazil’s proposal to tax the super-rich globally gained momentum among Group of Twenty members on Wednesday, with France’s finance minister and the head of the International Monetary Fund backing a coordinated push to generate new revenue and build a better common future.Brazilian Finance Minister Fernando Haddad said Brazil, current president of the Group of Twenty (G20), was aiming to build international consensus on the taxation of wealth this year, and would push for a joint declaration at a meeting of G20 finance ministers and central bankers in July.”The G20 declaration that we are going to propose aims to politically back these initiatives,” he told an event during the spring meetings of the IMF and the World Bank, underscoring the importance of winning support from the biggest economies.His French counterpart Bruno le Maire, who had already expressed support for the Brazilian proposal, told the event that moving to tax the rich was the logical next step for a series of global taxation reforms launched in 2017, including agreement on a global corporate minimum tax. He said the G20 should aim to reach an agreement on taxing the rich by 2027.Le Maire said any proposal should be based on the best practices of the Organization for Economic Cooperation and Development to ensure trust in the evolving system.IMF chief Kristalina Georgieva said closing tax loopholes and ensuring that the richest paid their fair share would mobilize funds urgently needed for sustainable and inclusive growth.She said IMF research showed that ending tax avoidance by corporations could generate an additional $200 billion a year in revenue, while implementation of a global corporate minimum tax would result in an additional $150 billion. The IMF also estimated that setting a minimum floor for carbon pricing could boost revenue by $1.4 trillion a year, she said.”When policymakers have the will, there is a way, and we have put out what the way is,” she said.Haddad told Reuters that Wednesday’s G20 working dinner would discuss how using funds raised through the new taxes could address combating hunger and the green transition.He said Nobel Prize-winning economist Esther Duflo would take part in the dinner, along with Gabriel Zucman, director of the European Tax Observatory, who is compiling a report on the matter in time for the next G20 finance track meeting in July.”If we can achieve consensus on this by the end of the year, it’s such an extraordinary thing … it’s historic,” he said.Zucman has proposed that very-high-net-worth individuals – some 3,000 people in the world who have at least $1 billion in assets – pay at least the equivalent of 2% of their wealth in income tax each year. That would generate $250 billion per year – half of the annual revenue projected as necessary for developing countries to address climate change challenges, he said.Joseph Stiglitz, another Nobel Prize-winning economist, told a separate event that climate change and inequality are global problems and need to be addressed on a global agenda. Taxing the rich also made sense because that was where the money was. “You can’t squeeze money out of the poor, and the bottom 50% don’t have any money,” he said.”We need to establish new norms where the very wealthy contribute their fair share,” he said. “The notion that society has to have a certain minimum level of fairness and equity is truly important for social cohesion and the functioning of democracy.”Duflo told the same event that one critical reason to support taxation of the rich was that people in poor and developing countries were dying due to climate change, largely driven by the consumption patterns of richer nations.”I’m very confident that the taxation of the billionaires will happen at some point,” she said. “It might not be at this very moment, it’s a journey.”Susana Ruiz Rodriguez, regional tax coordinator for Oxfam, said it was the first time that taxing the super-rich was being discussed at the IMF-World meetings, although 2% was a very modest target. Oxfam estimates that an annual wealth tax of more than 8% across all countries would have been needed to keep billionaires’ wealth constant over the last two decades. More

(Reuters) – Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday she expects price pressures to ease further this year, allowing the Fed to reduce borrowing costs, but only when it is “pretty confident” inflation is heading sustainably to its 2% goal.”At some point, as we get more confidence, we will start to normalize policy back to a less restrictive stance, but we don’t have to do that in a hurry,” Mester said.Inflation so far this year has run higher than expected, she said, with the personal consumption expenditures price index running at 2.5%, and core PCE – which the Fed uses to gauge where inflation is heading – at near 3% over the last six months on an annualized basis.”Sometimes things don’t cooperate; we just have to sort of be watchful here, and wait until the economy shows itself about where we are,” she said. And with the labor market strong – unemployment was 3.8% in March – and U.S. economic growth solid, the Fed has time to wait for more information before making any move, she said.Mester’s comments mark a retreat from her expectation just two weeks ago that the Fed will likely begin cutting the policy rate from its current 5.25%-5% range “later this year.” Other Fed officials have made similar rhetorical pivots away from guidance on the timing of rate cuts, with Fed Chair Jerome Powell on Tuesday signaling rates may stay higher for longer.Financial markets have gotten the message. Traders of futures contracts tied to the Fed’s policy rate are now pricing a first rate cut in September, with only about a 50-50 chance of one more quarter-point cut before the end of this year. Just a few weeks ago, three rate cuts was the dominant expectation, both in markets and among both Fed policymakers and outside analysts.Mester has a vote on U.S. monetary policy this year until the Fed’s mid-June meeting, after which she will leave her post under the central bank’s mandatory retirement rules. A successor has not been named. More

Drug shortages in the UK more than doubled between 2020 and 2023 as Brexit “exacerbated” the country’s ability to tackle squeezes in medicine supplies, according to research by the Nuffield Trust.Since leaving the European Union in January 2020, the UK has faced “constantly elevated medicines shortages” including for key treatments such as antibiotics and epilepsy drugs, the think-tank said on Thursday.Drugs companies issued 1,643 warnings of impending shortages in 2023, compared to 648 in 2020, the research found.The higher number of shortages has also led to the government reimbursing pharmacies for buying drugs above their standard cost more frequently. These price concessions increased from 20 instances per month before 2016 to a peak of 199 per month in late 2022.“We know many of the problems are global and relate to fragile chains of imports from Asia, squeezed by Covid-19 shutdowns, inflation and global instability,” said Mark Dayan, the Nuffield Trust’s Brexit programme lead.But “exiting the EU has left the UK with several additional problems — products no longer flow as smoothly across the borders with the EU, and in the long term our struggles to approve as many medicines might mean we have fewer alternatives available”, he added.The analysis comes as drug shortages have reached near record highs across Europe and the US in recent years. Some drugmakers have warned that prices for off-patent, generic medicines are now so low it has become unattractive to continue making them. Generics make up the majority of drugs used globally. During the pandemic, the severe lockdown in China also contributed to manufacturing delays.The Nuffield Trust report said Brexit had “exacerbated” the “underlying fragilities at a global and UK level” in drug supply chains.Brexit-related challenges that are affecting drug supply include customs checks at the border and additional regulation faced by manufacturers, requirements linked to the UK’s medicines regulator leaving the European Medicines Agency (EMA). These shifts have led some companies to remove the UK from their supply chains.The UK Medicines and Healthcare Regulatory Agency (MHRA) has also struggled to approve drugs at the same rate as the EU, making it difficult for makers of generic medicines to enter the UK market.Of drugs authorised in the year to December 2023, 56 were approved sooner in Europe than in the UK, while eight have not yet been approved. Just four drugs were approved faster by the MHRA. The Nuffield Trust also said that surges in demand for popular drugs, such as hormone replacement therapies, and UK pricing policy had also squeezed supplies in the country.The findings come after the UK set up a Critical Imports Council on Wednesday made up of 23 industry leaders, which will advise on supply chain resilience for vital goods including medicines and semiconductors.But the report added that the UK’s exclusion from EU “solidarity” mechanisms meant it could not rely on European neighbours to “insulate” it from future shortages The Department for Health and Social Care did not immediately respond to a request for comment. More

NEW YORK (Reuters) – Foreign holdings of U.S. Treasuries surged to a record in February, its fifth straight monthly rise, Treasury Department data released on Wednesday showed.Holdings totaled $7.965 trillion, up from a revised $7.945 trillion in January. Treasuries owned by foreigners rose 8.7% from a year earlier.Holdings of Treasuries grew the most in Belgium, by $27 billion, to hit $320 billion. Japan, the largest non-U.S. holder of Treasuries, increased its U.S. government debt to $1.167 trillion, the largest since August 2022 when the country’s holdings were at $1.196 trillion.Investors have been alert to the threat of Japanese intervention in the currency market to boost the yen, which plunged to a 34-year low of 154.79 per dollar on Tuesday.The Bank of Japan intervened three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen slid toward a 32-year low of 152 to the dollar.In September and October 2022, Japan’s Treasury holdings declined $131.6 billion from $1.196 trillion in August.China’s pile of Treasuries also fell in February to $775 billion, data showed. The monthly decline of $22.7 billion was the second biggest among the 20 major countries on the Treasury’s list.Holdings of Treasuries by China, the world’s second largest economy, have been declining, reaching $763.5 billion in February, the lowest since March 2009.Britain listed its Treasury holdings at $700.8 billion, up about $9 billion from January.The benchmark 10-year Treasury yield started February at 3.863% and ended the month at 4.252%, up nearly 39 basis points. Yields rose as a slew of solid economic data was released that month, reflecting expectations that the Federal Reserve will delay cutting interest rates.Major U.S. asset classes had inflows during the month, the data showed.On a transaction basis, U.S. Treasuries posted inflows of $88.8 billion, up from $46.3 billion in January.Foreign buying of U.S. corporates and agencies persisted in February, with inflows of $52.7 billion and $3.7 billion, respectively.U.S. equities showed a minor inflow of $400 million, compared with outflows of $15.4 billion in January. Overall, net foreign acquisitions of long- and short-term securities, as well as banking flows, showed a net inflow of $51.6 billion in February, up from outflows of $30.8 billion the previous month, Treasury data showed. More