Aurelia Butler

SINGAPORE (Reuters) – Singapore’s economy likely expanded at a slower pace in the first quarter, but is expected to stay on its recovery path this year as border controls are relaxed further, giving the central bank room to tighten monetary policy to tackle inflation.Advance data on Thursday is seen showing gross domestic product (GDP) expanded 3.8% in January-March from a year ago, according to the median forecast of 15 economists in a Reuters poll, as the manufacturing sector comes off a high base and amid travel curbs to curb a COVID-19 outbreak driven by Omicron.Manufacturing remained the main growth engine, helped in part by demand for semiconductors, analysts said. The city-state’s economy expanded 6.1% year-on-year in the fourth quarter of 2021. Singapore’s recent easing of border controls and COVID-19 rules are expected to boost services from the second quarter, partly offsetting the negative impact of the Ukraine-Russia war, supply disruptions and rising energy prices, Maybank economists Chua Hak Bin and Lee Ju Ye said.The trade-reliant economy grew 7.6% last year, the fastest pace in a decade, recovering from a 4.1% contraction in 2020. The government had projected GDP growth of 3-5% in 2022, though this was before Russia began what it calls “a special military operation” in Ukraine on Feb. 24.Inflation has become the key risk this year and while economists expect GDP to continue to grow they are watching to see whether official forecasts are revised when the central bank gives its monetary policy statement, also on Thursday. Sixteen economists expect the Monetary Authority of Singapore to tighten its policy, but are divided on how aggressive it will be and which of its settings will change.Instead of interest rates, the MAS manages policy by letting the local dollar rise or fall against currencies of its main trading partners within an undisclosed band, known as the Nominal Effective Exchange Rate (NEER). It adjusts its policy via three levers: the slope, mid-point and width of the policy band.DBS Senior FX Strategist Philip Wee expects a third steepening in the slope of the SGD NEER policy band to 3%.”We expect the authority to keep the door open for another tightening in October. The MAS could re-centre the policy band higher six months after returning to a 3% slope, as they did in April 2008 and April 2011,” he said. More

Like many Germans, Otmar Issing is alarmed by the surge in inflation to 40-year highs in his country and worried by the “misguided” response of the European Central Bank. But, as one of the founding fathers of the euro, Issing’s complaints carry more weight than most of his countrymen.The ECB’s first chief economist when it was created in 1998 said the central bank was suffering from a “misdiagnosis” of the factors behind the surge in prices, having “lived in a fantasy” that played down the danger of inflation spiralling out of control.“The ECB has contributed massively to this trap in which it is now caught because we are heading towards the risk of a stagflationary environment,” said the 86-year-old, who is credited with shaping the central bank’s use of money supply measures to decide interest rate policy.His criticism that the ECB is being too slow to raise interest rates underscores the fractious debate in Germany and much of the 19-country euro area about how fast it should reverse eight years of ultra-loose monetary policy, including negative rates and €4.9tn of bond purchases.After struggling to lift inflation up to its 2 per cent target for the past decade, the ECB is now confronting the opposite problem. Consumer prices have been shooting upwards as the European economy rebounds from the deep recession caused by the pandemic. In March, eurozone inflation hit a new record of 7.5 per cent. “Inflation was a sleeping dragon; this dragon has now awoken,” said Issing, speaking to the Financial Times at his home in Würzburg. The ECB’s governing council meets this week in Frankfurt to discuss whether to speed up a plan for gradually withdrawing its stimulus by ending net bond-buying in the third quarter. Some of its policymakers argued at its meeting last month for an earlier end to its bond purchases to prepare the ground for raising interest rates this summer.Many central banks, including the US Federal Reserve and the Bank of England, have already stopped buying bonds and started raising interest rates. “It is obvious the ECB is late to react, while the Fed might be even more behind the curve,” said Issing, who has been president of the Centre for Financial Studies at Goethe University in Frankfurt since leaving the ECB in 2006.His former colleagues at the ECB predict that many of the factors pushing up the price of energy, food and other commodities will fade quickly from the end of this year, helping inflation to fall back below 2 per cent by 2024.But Issing said this ignored the risk that the pandemic and Russia’s invasion of Ukraine will keep inflation higher by reversing 30 years of globalisation as trade tensions rise, companies make supply chains more resilient and Europe accelerates its switch away from fossil fuels.“The ECB relied on its forecasting model and this model cannot give the right signals because it is based on the past and cyclical experience, and the pandemic did not cause a cyclical downturn,” said Issing.“You need a much broader approach to explaining inflation in a time of structural changes. If you have a misdiagnosis, of course, you have a misguided policy.” Other German financial figures have stepped up their criticism of the ECB. Christian Sewing, chief executive of Deutsche Bank, Germany’s biggest lender, said last week that soaring inflation was “poison for the stability of our economy and society” and it was “urgent” for the ECB to act.Axel Weber, the outgoing chair of UBS and former head of Germany’s central bank, told financial newspaper Handelsblatt it was “incomprehensible” the ECB was taking so long to turn its policy around. Bild Zeitung, the country’s top-selling tabloid paper, has started referring to ECB president Christine Lagarde as “Madame Inflation”.Germans have a deep-seated fear of inflation, which Issing said “goes back to the hyperinflation in the 1920s and currency reform in the 1940s . . . It is almost entrenched in the genes of the public”. But he said the concerns were “not just the Germans being pathological about inflation — you can observe this in all countries”.Several ECB policymakers, including chief economist Philip Lane, have said they can do little to address external factors driving up energy prices, while they fear raising interest rates too soon could precipitate a severe downturn — especially if war in Ukraine disrupts the flow of oil and gas from Russia to Europe.Both Lagarde and Lane have said the ECB could even introduce a “new instrument” to support countries facing a sharp increase in borrowing costs as rates rise. Their staff are already working on such a “crisis tool” to make targeted purchases of sovereign or corporate bonds if needed.Issing agreed now was “not the time to raise interest rates to elevated levels”. But he said the ECB had already kept its stimulus in place for too long, which was “very hard to defend” given the rebound in growth and inflation while unemployment has fallen to a record low.

“The ECB lived in the fantasy of continuing this policy without any negative consequences,” he said. “They would be in a better, or at least a less bad, situation if they had started to normalise policy before, the war should not distract from this fact.”The prospect for a “stagflationary” situation of rising inflation and slowing growth is “the worst combination” for a central bank, said Issing, who contrasted monetary policymakers’ responses to the two oil shocks of the 1970s. “The Bundesbank tried to control inflation and the consequence was moderate inflation and a mild recession,” said Issing, who joined the German central bank in 1990. But “the Fed waited too long” and the US had “double-digit inflation and a deep, deep recession”. More

Thomas Piketty put inequality in the advanced market economies at the heart of political debate. The French economist’s 2013 bestseller Capital in the 21st Century used long runs of historical data on incomes and wealth to demonstrate how wide the gap between the rich and the rest has become. Thick with data and the famous “r >g” formula, it was published after a decade or more of median incomes stagnating, validating righteous outrage about the chasms scarring early 21st-century society. It was a rather gloomy book, arguing in effect that as “r” — the rate of return on capital — usually is greater than “g” — the growth rate of the economy and hence labour incomes, it takes a cataclysm to reduce inequality. War, destroying the value of the assets held by the rentier classes, is generally required. That underlying pessimism is also present in this new book, A Brief History of Equality. “[T]he most fundamental transformations seen in the history of inegalitarian regimes involve social conflicts and large-scale political crises,” Piketty writes, referring to the French Revolution and the two world wars: the assets of the wealth are destroyed and, alongside this levelling down, crises generate a more egalitarian sentiment, at least for a while.Yet there is an unexpected seam of optimism too — reflected in the choice of the word “equality” in the book’s title, running counter to the Piketty-the-pessimist brand. This is not because we are currently experiencing pestilence and war (the book was written before the Russian attack on Ukraine). Rather, it is because Piketty focuses instead on the promise of socialism to reduce inequalities. The book advocates for positive political change — though it does not map out any practicalities of how such positive change might be achieved. Rather, social struggles, labour movements and taxes in the mid-20th century are highlighted. “We have to deepen and generalize the institutions that made the movement toward equality, human progress, and prosperity possible . . . starting with the welfare state and progressive taxation,” writes Piketty. These institutions include unions to fight for higher earnings, redistribution through progressive taxes and generous benefits, and universal public services.

The author envisions “a democratic and federal socialism, decentralized and participatory, ecological and multicultural”. Thanks to the revival of the political debate about redistribution and justice, we will have power-sharing in business, reparations for colonialism and slavery, and will have driven the influence of money out of politics and the media, according to this extraordinarily rose-tinted agenda.The tension between the pessimistic and optimistic Pikettys runs through A Brief History. It condenses the 3,000 pages of his previous books (Top Incomes in France in the 20th Century, Capital in the 21st Century and Capital and Ideology) into 250 pages, with a greater focus on the global political perspective of the last of these than on the long-run economic trends of the first two. The sins of empire feature prominently, from the horror of the slave trade to the protection of the imperial centre’s markets and extraction of colonial resources. It is a unidimensional history: exploitation is the only reason for the rise of the west, and that other dimensions exist is not even mentioned. Indeed, the end of empire is introduced as a key explanatory factor for the “Great Redistribution” that occurred between 1914 and 1980. While world wars and the Depression paved the way for subsequent social struggles internal to the west, the liquidation of foreign and colonial assets “helped to reduce inequalities and destroy perceptions of private property as sacred”.

A Brief History of Equality is a route into Piketty’s arguments in his earlier books, with their luxuriantly extensive data and historical detail. Anybody who has not been able to face those tomes (the third so bulky it came with its own sturdy canvas tote bag) should read this one. But it will probably be less influential. Although economists nitpicked holes in the theory and data of Capital in the 21st Century, and while historians challenged the, well, ideological interpretations of global history in Capital and Ideology, the huge mass of detail in those earlier volumes was the source of their rhetorical impact in the inequality debate. There was no need for most people to read them cover to cover — and they did not; it was enough to know that their argument rested on so many pages of evidence. Strip away the detail and what remains is an all-too-apparent underlying abstraction from the practical politics of change, an abstraction emphasised by the book’s very literal translation by Steven Rendall from intellectual French. If “r” really is greater than “g”, then perhaps inequality does have its own internal dynamics, but achieving a turn to “democratic, decentralized socialism” surely demands some attention to how it might come about? The issue is that Piketty’s theory of change is motivated by ideology, so articulating a persuasive alternative ideology is enough. And surely a vision of a fair, green, participatory future is persuasive enough? Sadly, what convinces readers in the salon differs from what drives action on the streets, or even in the corridors of power, where Pessimistic Piketty is likely to prove more persuasive than this newly Optimistic Piketty. A Brief History of Equality by Thomas Piketty, translated by Steven Rendall, Belknap (Harvard) £22.95, 288 pagesDiane Coyle is professor of public policy at the University of CambridgeJoin our online book group on Facebook at FT Books Café More

The writer is a senior fellow at Harvard Kennedy School and chief economist at KrollLike the swallows of Capistrano, the dollar doomsayers have returned. The sanctions against Russia for its war on Ukraine are built around denying Russia access to foreign currencies, particularly the dollar, which dominates global trade and investment. It therefore must follow that countries wanting to avoid a similar fate would seek to diversify away from the US currency. There is a certain logic to that, but the reality is the dollar can’t be avoided and it will remain the dominant currency in trading and transactions.Central banks have been diversifying their reserves and that will continue. The dollar’s share in foreign exchange reserves has fallen from 71 per cent in 2000 to 59 per cent in the third quarter of 2021. But this is still roughly triple that of the second-placed euro. One quarter of former dollar reserves flowed into renminbi. The remainder have gone into smaller economies like Australia, Canada, Singapore, South Korea and Sweden.China excepted, these economies have all joined in the sanctions against Russia. It is difficult to imagine future geopolitical conflicts involving a serious split among these allies. Given the size of their economies, shifting reserves into the loonie, won or krona is unlikely to offer a way around financial sanctions. Anyway, in an emergency, all these currencies are ultimately protected by US dollar swap lines.China has not joined in the sanctions officially, leading some to argue renminbi could be a way around US financial weaponisation. But just because China hasn’t imposed sanctions in this instance doesn’t mean it won’t in others — just ask Lithuania. While renminbi account for less than 3 per cent of global foreign reserves, some see the Russian invasion as an opportunity to increase this. Credit Suisse’s financial plumbing expert Zoltan Pozsar suggests China could buy up cheap Russian commodities and deploy them alongside Chinese commodities to create a global financial system revolving around a commodity-backed renminbi.Even if China wanted to do this, there are major obstacles. Some Chinese banks have restricted financing for Russian commodities, fearing secondary sanctions. It would be difficult for China and Russia to transact just in roubles and renminbi. The Chinese currency isn’t convertible outside the country. And what would China do with roubles? Before the war, the vast majority of Russian exports to China were denominated in dollars and euros. Finally, how would China find the money to purchase Russian commodities en masse? It could sell Treasury holdings, but this would erode the value of China’s remaining US debt. Alternatively, it could print the money, but this would generate inflation at a time when the Communist party is trying to stabilise economic growth.

Beyond this, China shows little interest in giving up the micromanagement of its economy by pegging its currency to commodities it cannot control. There is a reason the gold standard failed. Pegging a currency to a commodity ties one hand behind a central bank’s back in terms of supporting growth or leaning against inflation.Having the renminbi as a global reserve currency would also require full convertibility and an open capital account. As China tries to balance longer-term goals such as financial stability, common prosperity and climate change with shorter-term economic growth, it is unlikely to relinquish control over the financial system and capital account.On the contrary, China seems to have an enduring commitment to the dollar, selling sovereign bonds denominated in greenbacks for five years running. In doing so, the government is creating an offshore dollar bond market with different maturities to make it easier for Chinese companies to borrow in dollars.If there is no fiat, or government-issued, currency that could usurp the dollar, what about a digital one? Cryptocurrencies as a whole are worth roughly $2tn today — and who knows how much tomorrow. That is just over 15 per cent of global foreign exchange reserves. Digital wallets are cumbersome and still can’t be used to buy groceries or pay taxes, let alone a tanker full of oil. Stable coins, meanwhile, could actually bolster King Dollar. According to Bloomberg, there are well over a dozen stable coins with significant market caps linked to the greenback. Their growth only boosts the need for dollars.As Pozsar says, “Empires fall and rise. Currencies fall and rise. Wars have winners and losers.” That is true. And in a multipolar world, we may eventually be talking about alternatives to the dollar. But we won’t be replacing it.  More