Aurelia Butler

The writer is general manager of the Bank for International SettlementsUnlike businesses, central banks are designed to make money only in the most literal sense. They have a mandate to act in the public interest: to safeguard the value of the money they issue so that people can make financial decisions with confidence. The bottom line for central banks is not profit, but the public good.Today, following an extraordinary period in economic history, some central banks are facing losses. This is particularly true if they bought assets such as bonds and other securities to stabilise their economies in response to recent crises. Many will not contribute to government coffers for years to come.Does this mean that central banks are unsound? The answer is “no”. Losses do not jeopardise the vital role played by these institutions, which can and have operated effectively with losses and negative equity. And the unique nature of central bank tools means that sometimes losses are the price to pay for meeting their objectives — to support growth and jobs, ensure stable prices and help keep the financial system safe and stable.In normal times, it is possible for central banks to both fulfil their mandates and earn profits without taking on significant financial risk. Traditionally, being the unique issuer of money provides a reliable revenue stream. But central banks with large foreign exchange reserves, built to cushion external shocks, will often experience ups and downs in income from exchange rate fluctuations. This means they sometimes make losses when pursuing their goal of a stable currency.In times of crisis, central banks may also need to take on additional risks. And they do so with their eyes wide open. One example is the purchases of government bonds, including those made during the Great Financial Crisis and more recently during the Covid-19 pandemic, to avert economic disaster by supporting financial stability, keeping credit flowing and boosting economic activity. In the past decade, with inflation and interest rates low for a long period, these bond purchases boosted income. In fact, some central banks were able to transfer unusually large profits to governments. But in the wake of the pandemic and since the invasion of Ukraine by Russia, inflation has returned. This requires higher interest rates to contain spiralling prices — and exposes central banks to losses related to assets purchased in past successful rescue efforts.Central banks should put purpose above profits. Would it make sense for a central bank with large foreign currency reserves to increase their value by haphazardly triggering a devaluation of its own currency just to generate a windfall? Or for a central bank with domestic currency assets to keep interest rates low, even in the face of high inflation, just to preserve low-cost funding and generate profits? Such actions would be wildly inappropriate, violate their mandates and destabilise the economy.The soul of money is trust. To operate effectively, business must maintain the trust of investors. And central banks must maintain the trust of the public.Governments also have a role to play in the face of today’s central banks’ losses. Because these institutions are ultimately backed by the state, trust in money requires sound government finances and good financial management.Losses matter because they may inflict a bruise on public finances but a far greater injury would result from central banks neglecting their mandates to avoid a loss. The public, via elected officials, have given central banks the job of price and financial stability because of their enormous societal benefits. Now, and in the long term, the costs from central bank losses are insignificant compared with the costs of runaway inflation and prolonged economic crisis. More

Can the world reconcile its hunger for energy with the need to fight climate change? The answer depends on whether it can find greener, cheaper, more efficient ways to produce and deliver that energy. But that in turn depends on the level of research and development spending, and overall investment, in this area — and the figures do not look promising.Take the Mission Innovation initiative announced by then US president Barack Obama at the 2015 Paris climate summit — the gathering at which world leaders agreed to limit global warming to well below 2°C above pre-industrial levels. MI’s 20 participant governments pledged to double their clean energy R&D investment in the five years to 2020. But that didn’t happen. Instead, there was a cumulative shortfall over the five-year period of more than $50bn, based on estimates from the Information Technology and Innovation Foundation, a US public policy think-tank. According to the ITIF, of the 34 countries it covers, only Norway spent more than 0.1 per cent of its GDP on low-carbon energy R&D in 2021. But, if all 34 countries had invested at the 0.1 per cent level, it would have equated to an additional $71bn. The latest World Investment Report from the Paris-based International Energy Agency estimates that, in 2021, total public spending on energy R&D was $38bn, of which almost 90 per cent was allocated to clean-energy technologies.Much of the emphasis on clean energy is a response to the climate emergency. However, elevated fossil fuel prices and concerns over energy security — both factors that have come to the fore since Russia’s invasion of Ukraine — also play a part.Public spending on non-fossil fuel energy R&D doubled in IEA member countries between 1974 and 1980, after oil price shocks, and doubled again between 1998 and 2011 — another period when oil prices were elevated.Economic recovery packages have also helped to boost investment — as happened after the global financial crisis of 2008-09, again during the Covid-19 pandemic, and, most recently, after the return of high inflation in 2022. Funding from the US Inflation Reduction Act (IRA), passed last year, is expected to accelerate investment into clean technologies.Although pressure on government budgets may work against this, levels of R&D spending today account for a smaller share of GDP than in previous crisis periods — suggesting that increases should be affordable.

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As well as arguably being too low, current levels of R&D investment may be unbalanced. Data from the IEA shows that research into renewables, such as wind and solar, actually trended down slightly in the decade to 2021. Energy efficiency R&D has risen, mostly in the transportation sector rather than in buildings or industrial processes — both a significant source of emissions. The nascent technologies of carbon capture and storage (CCS) and hydrogen and fuel cells have very low shares of R&D (though some experts say that attention is in any case better focused on more proven areas).A rising trend in government investment is likely to stimulate private investment. Incentives such as tax breaks could also help lure private investors away from fossil fuel projects and towards cleaner alternatives.While the share of non-carbon sources in the energy mix is increasing, global fossil fuel consumption has almost certainly not yet peaked. In fact, it looks likely to keep rising in some developing economies for decades to come. The pressure to develop greener alternatives will only grow.

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The consumer price index (CPI) rose 8.7% in January, way above the 7.7% forecast in a Reuters poll and topping the 8.1% rate in December.Core inflation, which strips out volatile food and fuel items, increased to 7.4% from December’s 6.9%.The Philippine central bank, which had forecast January CPI to be between 7.5%-8.3%, said on Saturday it will focus on inflation rather than the Federal Reserve’s 25-basis point hike when it meets on Feb. 16 to review key interest ratesIts governor has previously signalled further interest rates hikes at the central bank’s first two policy meetings this year to bring inflation back within a target range of 2% to 4%. (This story has been refiled to correct the day to Tuesday, not Monday in paragraph 1 ) More

TOKYO (Reuters) -Japanese real wages rose for the first time in nine months thanks to robust temporary bonuses, but uncertainty remains on whether pay hikes will continue to sustain Japan’s economic recovery.Separate data showed household spending falling for a second month in December, as rising prices offset otherwise robust private consumption fuelled by the country’s reopening from the COVID-19 pandemic.”Real wages would have likely fallen again in January … Rising prices have clearly curbed shopping activities since November, and the overall consumption stays lukewarm,” said Takeshi Minami, chief economist at Norinchukin Research Institute.Japan’s real wages rose 0.1% in December from a year earlier, posting the first gain since March, a labour ministry data showed on Tuesday.Strong winter bonuses pulled the nominal total cash earnings to 4.8%, the fastest growth since January 1997 and slightly above December’s inflation rate the ministry uses to calculate the wages in real terms.”But the wage growth needs to be achieved though rising base salary, rather than relying on bonuses,” said Minami, suggesting the December figures may remain an outlier.The market closely watches wage trends in the world’s third-largest economy as a substantial pay growth in the spring labour talks is seen as an essential condition for the Bank of Japan (BOJ) to scale back its massive monetary stimulus. Japan’s household spending fell 1.3% in December from a year earlier, other data found, versus economists’ median estimate for a 0.2% drop and following a 1.2% fall in November.On a month-on-month basis, spending decreased 2.1% in December, disappointing economists that forecast 0.3% growth. It marked the biggest monthly decline since the 2.8% decrease in Feb 2022.Japan’s private consumption, which occupies more than half of the country’s gross domestic product, has underpinned the economy since last year as COVID-19 restrictions eased.The government lifted all domestic curbs in March and relaxed border controls in October, stimulating a tourism boom supported by a weak yen. But inflation running at a 41-year-high speed has put a lid on domestic consumer spending.Major companies have rolled out one-off inflation allowances and promised higher pay hikes at the spring labour talks season, including Uniqlo parent Fast Retailing Co Ltd that last month announced wage hikes by as much as 40%. But analysts think the pay hikes will remain limited to big firms and will not be sustained, challenging the rosy picture the government and BOJ officials sketch of higher economic growth accompanied by modest price and wage inflation.”Looking ahead, we expect the labour market to soften a little, which suggests that base pay growth won’t accelerate any further,” said Darren Tay, Japan economist at Capital Economics, adding slowing inflation and economic growth ahead would make firms reluctant to labour cost increases.”The upshot is that wage growth should settle around 1% this year”. More

Shares of Spirit rose over 7% to $21 in aftermarket trade.U.S. airlines have been trying to cash in on strong demand for air travel, undeterred by rising interest rates and a looming recession, as pandemic restrictions ease. “Leisure demand has remained strong,” said Spirit’s chief executive Ted Christie.However, adverse weather, worker shortages and technical glitches have snarled operations over the past year. Spirit earned $0.12 per share on an adjusted basis, above analyst estimates of $0.04 per share, according to Refinitiv data. The Miramar, Florida-based airline’s total operating revenue in the quarter rose nearly 41% to $1.39 billion, compared with analysts’ estimates of $1.38 billion. More

CARACAS (Reuters) – Venezuela’s governing and opposition parties are making progress toward the creation of a $3.2 billion U.N.-administrated fund that would aim to use the country’s frozen assets for humanitarian purposes, the top lawmaker from the country’s ruling party said on Monday.During Mexico-based talks in November, representatives for the government of President Nicholas Maduro and the U.S.-backed opposition party agreed to create the fund to support healthcare, food and education efforts needed to overcome Venezuela’s long-running social and political crisis.”If (the fund) happens, and I think we are advancing on some steps in that direction, we can pass to another stage of the conversations,” the government’s lead negotiator and National Assembly President Jorge Rodriguez told television station Globovision.The talks, which cover a range of issues, first began in August 2021 before a 15-month hiatus. They resumed briefly in November 2022 after Washington eased some sanctions on the Maduro government. The opposition hopes the negotiations will help guarantee that elections tentatively scheduled for 2024 are held in fair conditions.Rodriguez did not offer details on what progress had been made toward creation of the humanitarian fund. The United Nations office in Caracas did not immediately respond to a Reuters request for comment, nor did the head of the opposition’s legislature, Dinorah Figuera, who lives in exile in Spain.Rodriguez has previously said there is no reason to return to the talks unless the funds are made available. The opposition’s head negotiator, Gerardo Blyde, has said money from the frozen assets is spread across different jurisdictions, each with their own legal requirements.The opposition has said the money could be moved in small tranches to protect it from creditors. More

NEW YORK (Reuters) -FTX founder Sam Bankman-Fried has reached an agreement with U.S. prosecutors that would let him contact some current or former employees of cryptocurrency companies he once controlled, even as he accepts other restrictive bail conditions.In a letter to the judge overseeing the former billionaire’s criminal fraud case, defense lawyer Mark Cohen said the terms more clearly define how Bankman-Fried can communicate with others as he prepares for his scheduled October trial.Cohen also offered to withdraw a request that Bankman-Fried be able to access and transfer cryptocurrency, if U.S. District Judge Lewis Kaplan approves the agreement over communications.Bankman-Fried, 30, has been free on $250 million bond and required to live with his parents in California since pleading not guilty to looting billions of dollars from the now-bankrupt FTX exchange.Kaplan had last week temporarily barred Bankman-Fried from contacting employees of FTX and his hedge fund Alameda Research, or using apps such as Signal that let users auto-delete messages.Those restrictions were added after prosecutors raised concern that Bankman-Fried might tamper with witnesses.The proposed agreement would still bar Bankman-Fried from entering financial transactions over $1,000, except to pay his lawyers. A spokesperson for U.S. Attorney Damian Williams in Manhattan did not immediately reply to a request for comment.Cohen said prosecutors agreed to exempt some people from the no-contact order, without specifying names. Bankman-Fried’s lawyers had proposed that he not be allowed to talk with select colleagues, including former Alameda chief Caroline Ellison, former FTX technology chief Zixiao “Gary” Wang and former FTX engineering chief Nishad Singh. Ellison and Wang have pleaded guilty and are cooperating with prosecutors. Last month, prosecutors first sounded the alarm about possible witness tampering.They cited a Jan. 15 message that Bankman-Fried sent to the general counsel of the FTX U.S. affiliate, proposing that they speak on the phone to try to “have a constructive relationship” or “vet things with each other.” Bankman-Fried’s lawyers countered that their client was simply trying to provide help.Monday’s agreement would let Bankman-Fried communicate by phone and email, use WhatsApp if he installed monitoring technology and preserved his messages, and use Zoom, iMessage and Facebook (NASDAQ:META) messenger. He would remain unable to use Signal. More