Economy

PARIS (Reuters) – French President Emmanuel Macron’s centrist camp scrambled on Monday to seek support from parliamentary rivals in order to salvage some of his reform agenda and avoid political paralysis, after voters punished them in a legislative election.While Macron’s “Ensemble” grouping secured the largest number of lawmakers in the 577-seat National Assembly, it fell well short of an absolute majority in a vote on Sunday that saw a leftwing alliance and the far-right perform very strongly.There is no script in France for how things should unfold.”It’s going to be complicated,” government spokeswoman Olivia Gregoire told France Inter radio. “We’re going to have to be creative. “What I fear most is that this country be blocked,” she added.Macron himself has yet to comment on the election result. One key question is whether he will try to strike a coalition deal with the conservative Les Republicains – who have for now rejected that option – or enter into messy negotiations with opponents on a bill-by-bill basis.”We will try to bring others on board with us, especially to convince the few moderates in parliament to follow us,” Gregoire said, adding that Macron is set to reshuffle his government in the coming days.If no agreement can be found, the euro zone’s second biggest economy faces political paralysis.Parliament is fragmented, with a broad leftwing alliance and, diametrically opposed to it, the largest far-right group ever elected https://www.reuters.com/world/europe/far-right-sends-shockwaves-france-after-electoral-breakthrough-2022-06-19. If Macron cannot find enough support to make things work, France may face snap elections down the line.A first major test will be a cost-of-living bill which Gregoire said the government will put to lawmakers in eight days, when the new parliament will sit for the first time.Over the summer, proposals on renewable energy will test the solidity of Jean-Luc Melenchon’s broad leftist alliance https://www.reuters.com/world/europe/french-left-pulls-off-election-gamble-unity-going-forward-not-so-easy-2022-06-19, which is divided over nuclear power. Final figures showed Macron’s centrist camp got 245 seats – well below the 289 needed to control parliament, the Nupes leftwing alliance 131, the far-right 89 and Les Republicains 61.PAINFUL SETBACKThe vote was a painful setback https://www.reuters.com/world/europe/macron-faces-tough-battle-control-parliament-france-votes-2022-06-19 for Macron, 44, who was re-elected in April. In his second and final term, he wants to deepen European Union integration, raise the retirement age and inject new life into France’s nuclear industry.Macron’s Ensemble alliance and Les Republicains have compatible platforms on economic matters, including pushing up the retirement age and promoting nuclear energy. Together, they would have an absolute majority. But lawmakers from Les Republicans indicated they were not willing to jump on board just yet. “Forget about this idea that there is some sort of imperative to choose between Emmanuel Macron and the extremists,” Republicans secretary general Aurelien Pradie told franceinfo radio.”The Republicans’ position in parliament will be free and independent.”UNDER PRESSUREFinancial markets took the result largely in their stride, with little impact on the euro and stocks in early trading on Monday. French bond spreads saw some widening pressure.”The hope that some foreign exchange traders placed in Macron in 2017 evaporated some time back, so that election victories or defeats do not play a major role for the euro exchange rates any longer,” Commerzbank (ETR:CBKG) analyst Ulrich Leuchtmann said in a note.Macron’s victory in April made him the first French president in two decades to win a second term, as voters rallied to keep his far-right opponent Marine Le Pen out of power.But, after a first presidential mandate marked by a top-down government style that Macron himself compared to that of Jupiter https://www.reuters.com/world/europe/jupiter-no-more-macron-learns-art-compromising-hard-way-2022-06-19, the almighty Roman god, the president will now have to learn the art of consensus-building. “Such a fragmented parliament will likely result in political deadlock, with a much slower reform agenda, possibly leading to vote of no confidence and/or a dissolution of the National Assembly over the coming year,” said Philippe Gudin of Barclays (LON:BARC).”This will likely weaken France’s position in Europe and endanger the country’s fiscal position, which is already weak.” More

Conventional economic theory holds that ageing is disinflationary. Older people and households typically consume less than younger ones, and they often downsize their homes to account for being empty nesters. Therefore, economic models typically factor in an increasing share of old and/or non-working people as being net negative for demand and thus disinflationary, as this long-term IMF study shows.But we may be at an important pivot point in this theory, at least in some rich countries such as the US. Boomers are living much longer, and are increasingly unwilling to downsize. The coronavirus pandemic made those who are still working (and there are many, since today’s older people are healthier and also want to bolster their retirement savings with income) more likely to hang on to their large homes rather than make do in a one-floor apartment. They can certainly afford it, since they still control more than half the country’s wealth, and show little sign of wanting to pass it along to the next generation.What’s more, they are spending more not only on healthcare, but also on other services. Research from the National Transfer Accounts project, which tracks consumption patterns across 40 countries, found that consumption not only doesn’t fall with age in places such as the US, Germany, France and Japan, but also that the young and old typically consume more than they earn as workers, which is inflationary.Some of this involves debt spending and the wealth effect of higher asset prices over the past several decades. We may be leaving that era, perhaps for a long time, what with the Federal Reserve’s interest rate rises driving markets lower. But I still know plenty of older people who are living much larger than their millennial kids (who came of age in the post-financial crises era, and have paid for it with reduced salaries and expectations).Indeed, there are venture capitalists, like the famous Alan Patricof, who are doubling down on older people who are part of a “silver tsunami” of consumers who will continue to spend in good markets and bad. Patricof, who is in his late eighties, is pouring millions into a venture fund that’s investing in health, wellness and financial services for older people.I can see it both ways. I’m 52, but my husband, a writer, is 68. Having chosen creative ventures over a big salary, he’s ready to scale back as his income declines. I myself haven’t been able to put as much away for retirement as my Fidelity advisers say I should have, in part because I’ve had to save nearly $500,000 to send two children to college debt-free (how’s that for consumption?). I’ll be working forever, and spending less after the youngest leaves for college. My husband’s brother, on the other hand, is a retired corporate compensation lawyer who takes several fancy overseas trips a year, has three properties that need maintenance, and seems to have no shortage of energy or money for consumption.I suspect that like most Americans, older people will be quite bifurcated in their consumption habits, with a top tier who will continue to spend like there’s no tomorrow even as inflation bites, and a lower 75 per cent who will, like my own parents in the inflationary 1970s, be penny-pinching. But the bigger problem is that as the proportion of the population able to work starts to shrink relative to those who are no longer productive, as will be the case as the boomers continue to retire, there will be more people competing to consume fewer goods and services. That means prices are likely to rise — as will political battles between boomers and millennials, both of who will want their share of a decreasing national economic pie.Ed, as a Briton living in America long term, I’m curious how you view consumption and production as you move towards your later years (don’t get me wrong, you are nowhere close!)? Will you keep working and spending like an American, or retire to a cottage somewhere in the UK for a more modest life?Recommended readingI was quite fascinated by my colleague Courtney Weaver’s FT Magazine feature on “gentle parenting”, of the kind that involves no punishments, or star charts or much discipline. No prizes for guessing that I didn’t fall into this camp, and am sympathetic to my friend Judith Warner’s take, in her book Perfect Madness, that American parents — whether gentle or firm — are trying way too hard to be perfect.I really enjoyed this Elizabeth Kolbert piece in The New Yorker on how animals see the world, which picks up on The Atlantic writer Ed Yong’s new book on the same topic. If you are into this stuff, as I am, go for broke and watch My Octopus Teacher, which will make you weep.This round-up of non-fiction in The New York Review of Books looking at pain research and the search to understand where pain really comes from (the brain? the body? our imagination?) will be of interest to many, I suspect.I joined the Ezra Klein Show this week to discuss what I’ve called the everything bubble — and why I think it’s popping. You can listen to the episode here. Edward Luce respondsRana, let me start by ruling out a cottage in the English countryside, not least because my Irish wife might find it a little too Anglican for her tastes. I have little sense of where we will end up or whether we’ll be able to afford it. But it will have to be a big city, so London is a high likelihood. Much as I enjoy living in Washington DC, I don’t want to be one of those types who spend their autumn years attending think-tank seminars about central Asian gas pipelines. I have two broad assumptions. The first is that I’m only halfway through my useful career. Though I’m 54, I would expect to be writing and travelling and contributing into my 80s and have no fear of that. As writers, we don’t mop floors or deliver packages, so the prospect of continuing to work would be a lifestyle choice, not drudgery. This is a fascinating world and I hope I will always have the good fortune to be able to engage with it. Second, we were just too young to have benefited from the exorbitant privilege of high fixed pensions, so we are hostages of asset prices that can go down as well as up (though our generation has until recently only seen them going up). I don’t have massive savings because I’m a happy-go-lucky journalist and not a huge fan of deferred consumption. But I’m beginning to grow up. I only recently found out that the FT’s matching contributions are quite generous if you go for the maximum, which I’ve belatedly done. So I have only myself to blame for the years of free money that I did not bother to exploit. But there are many more to go and my eyes start to glaze over whenever I listen to actuaries. For sure, I plan too little and may pay a price for that when I’m old. But some people plan too much and I don’t envy them. Your feedback And now a word from our Swampians . . . In response to ‘Do no harm’:“ESG and social justice are nice and lovely, but the reality you hint at is that politically activist corporations become a bad and frightening idea when they make threats aimed at directly dictating political decisions and government policies through their economic power. And increasingly they will dictate the political agenda if we continue too far down the road we’re travelling now in the name of purpose and ESG. This is a real threat, and liberals are potentially walking into a big trap here . . . [W]ith the best intentions we’re trashing the idea of electoral democracy in favour of the amoral instrumentalism of ‘my side can do whatever it wants to get the results it wants because it’s right’. And that’s dangerous. Abstract and boring rules about political process are actually important in protecting us from the vagaries of fashion, from moral panics, and from the personal whims of the powerful.” — A reader in the UK More

Investing.com — The dollar stays bid after a Federal Reserve official argues for another 75 basis point hike in July. Germany restarts its coal-fired power stations and will introduce an auction scheme to reduce its gas consumption after Gazprom cut supplies by 60% last week. Emmanuel Macron loses his parliamentary majority in France, while China passes up an opportunity to loosen monetary policy. Bitcoin bounces after dipping below $18,000 at the weekend, but oil’s sell-off continues as fears of a recession meet a slight improvement in the supply outlook. Here’s what you need to know in financial markets on Monday, June 20.1. Dollar stays bid as Waller argues for another 75bp hikeThe dollar stayed close to the 19-year high it posted last week after a Federal Reserve official said he wants another 75 basis point rate hike at its meeting in July.“If the data comes in as I expect, I will support a similar-sized move at our July meeting,” Washington, D.C.-based governor Christopher Waller said on Sunday. However, Waller – a noted hawk – also appeared to take a full percentage point hike off the table, saying there were limits to how fast the Fed can move.Elsewhere, Cleveland Fed President Loretta Mester told CBS it would take two years to bring inflation down to the Fed’s 2% target, and acknowledged that the Fed’s delayed response to the threat had raised the risk of a U.S. recession.2. Germany restarts its coal-fired power stations after gas supplies cutGermany said it will restart some coal-fired power stations in order to guarantee the security of energy supplies, after Russia cut gas flows to its biggest customer by 60% last week.The move threatens to delay Germany’s slow progress toward phasing out coal, which was agreed upon as part of the current government’s coalition agreement. However, it improves the chances of the country filling its gas storage facilities by the start of winter. Gazprom’s (MCX:GAZP) supply cuts had put an abrupt stop to what had been a steady rise in storage injections in recent weeks.Vice-Chancellor and Economy Minister Robert Habeck also said he will introduce an auction system aimed at reducing gas consumption from this summer, but gave few indications as to how it would work.Benchmark European gas prices hit a new three-month high in response.3. Global stocks drift higher as China’s central bank resists temptation to cut; Lagarde testimony eyedWith U.S. markets closed for the Juneteenth holiday, Asian and European markets have drifted mostly higher.China’s central bank overnight declined an opportunity to cut its Prime Loan Rate, the most important of its policy interest rates, signaling that it’s still more concerned about overall levels of leverage in the economy than about the slowdown in consumption due to the spate of COVID-19 lockdowns.European markets, meanwhile, shrugged off the news that French President Emmanuel Macron had lost his parliamentary majority in elections to the Assemblee Nationale at the weekend, with the extreme left and right both making gains at the expense of his centrist faction. French bonds underperformed in a quiet morning session for Eurozone debt.The European Central Bank’s President Christine Lagarde will address the EU Parliament at 09:00 a.m. ET (1300 GMT).4. Bitcoin bounces but DeFi networks still strugglingBitcoin bounced, snapping a five-day losing streak after slumping briefly below $20,000 at the weekend.By 06:30 a.m. ET, the largest asset in the crypto space was trading at $20,502, up 3.0% from late Sunday. However, it had dipped below $18,000 on Saturday, falling for the first time below the peak of its previous cycle in 2018.Pressure on less liquid crypto networks continued to create problems however. Celsius Network, one of a handful of lenders to suspend withdrawals last week, said it would need more time to resume them, while DeFi platform Bancor suspended its so-called ‘Impermanent Loss Protection’ mechanism less than a month after launching it.Solend, a network that runs on the Solana blockchain, said it had taken over an outsize position run by a single participant to reduce its systemic risk.5. Oil selling slows Crude oil prices extended their declines, although the pace of selling slowed a Friday rout that was driven by recession fears.By 06:30 a.m. ET, U.S. crude futures were down 0.4% at $107.53 a barrel, while Brent was down 0.8% at $112.20 a barrel.Newswires reported that Libya had managed to restore its output to 800,000 barrels a day as a wave of protests and disruptions to export facilities subsided. The outlook for rising U.S. supply also continues to improve, with Baker Hughes’ rig count having risen by another 4 to a 26-month high of 584 last week. More

The higher dividend, to be voted on at an annual meeting on June 28, would amount to 25.8 billion crowns ($1.1 billion) rather than the 23.7 billion crowns proposed by the board. The state owns 70% of CEZ.The proposal would also move the payment date by three months to Nov. 1 from Aug. 1 to give CEZ extra time to secure liquidity given high margin requirements on power exchanges in a volatile market, the ministry said.($1 = 23.4760 Czech crowns) More

European corporate leaders are becoming detached from their Chinese operations and less tolerant of Beijing’s diktats as business confidence plummets in the world’s biggest consumer market and factory floor.The warning from the EU Chamber of Commerce in China comes as strict border closures, which have persisted for more than two years under President Xi Jinping’s stringent zero-Covid policy, extend into the third year.“China operations are becoming increasingly isolated due to China-based staff, both foreign and Chinese, being unable to travel to European headquarters for information exchanges, networking, training and the sharing of expertise,” the chamber said in a report released Monday.“Senior decision-makers from HQ are also being deprived of first-hand China experience, which is resulting in less understanding of — and therefore less tolerance towards — China. The loss of diversity among the workforce in China will also impact innovation.”The chamber’s warning highlighted the risks of long-term consequences for international business from Xi’s policy of eradicating the virus, with snowballing economic and social costs from snap lockdowns, closed borders and fastidious mass testing.It also reflected rising fears and greater “attention in boardrooms” over worsening geopolitical tensions stemming from Russia’s invasion of Ukraine. Beijing has refused to join international condemnation of the war and has provided support by bolstering Vladimir Putin’s battered economy.China’s economy is wobbling on the edge of a rare recession this quarter after its zero-Covid policy forced hundreds of millions of citizens into partial or full lockdowns and caused widespread supply chain disruption.The EU chamber report, which drew on a flash survey from late April and an earlier survey, said that more than 90 per cent of its respondents were affected by port closures, road freight decreases and the spiralling costs of sea freight.Almost one-quarter of European companies in China are reviewing their investments.According to the survey, 23 per cent of the region’s companies are “considering shifting” current or planned investments outside China’s borders.Seven per cent of European companies operating in China said they were reviewing investments directly because of the war in Ukraine, and one-third believed the market had become less attractive since Moscow’s invasion in February.But it is not just European companies that are considering decoupling from China and stoking concerns about deglobalisation.

More than a quarter of US manufacturers in China are moving production of their global products out of the country while accelerating localisation of their supply chains inside China, according to a survey published by the American Chamber of Commerce in Shanghai last week.Nine in 10 US companies across the manufacturing, consumer and services sectors have slashed their revenue forecasts for China this year.More than three-quarters of the European companies surveyed said that the zero-Covid measures had also diminished China’s attractiveness as an investment destination. Businesses highlighted longstanding grievances such as forced technology transfers, unfavourable treatment compared with Chinese rivals and ambiguous rules and regulations.However, the survey, which was conducted with German consultancy Roland Berger, also illustrated that even after decades of booming growth, some European companies still predicted a “great deal of potential” in the Chinese market.“The rewards of staying the course and navigating the storm are plain to see,” the report said, pointing out that before the Omicron outbreak and war in Ukraine, about 30 per cent of companies planned to increase their shares in local joint ventures. More

Good morning. In response to Friday’s letter on the persistent strength of the US economy — outside of the housing market — a reader made an obvious point, one we should have made ourselves. The economy’s resilience, though it sounds like good news, is going to make the Fed’s job a lot harder. It might have to tighten very aggressively to get demand below supply. But the Fed can hope for help from markets, as we discuss today. Email us: [email protected] and [email protected] effectsThe bear market in risk assets has been caused, in some part, by fear of a Fed-induced recession. But the causality can run the other way, too: if there is a recession, the bear market will probably be one of the causes. Lower stock, bond and crypto prices make people feel poorer, so they spend less, making the economy smaller than it would otherwise be. For the Fed, at the moment, this is welcome news. They need growth to slow. But how much of a wealth effect can they expect? Might they get more help than they want?Desmond Lachman, an economist and fellow at the American Enterprise Institute, pointed this out in response to last week’s letter about the economic slowdown:The stock market rout of around 25 per cent has caused around $10tn in US household wealth to evaporate. In addition, at least $3tn in bond and $2tn in cryptocurrency wealth has been wiped out by the rout in those markets . . . On the assumption used by the Federal Reserve that a $1 sustained destruction in wealth leads to a 4-cent decline in consumption, if sustained, the recent loss in wealth could reduce consumption by almost 3 percentage points of GDP.That last number struck me as pretty large, so I tried to reproduce it. Here is what I found:According to the Federal Reserve’s distributional accounts, American households held $42.2tn in equities and mutual fund shares as of the end of 2021.The Wilshire 5000, an index that captures virtually all publicly traded US shares, is down 25 per cent since year-end 2021 — a moment that happily coincides almost exactly with the top of the market. The Bloomberg long-term Treasury total return index is down by almost exactly the same amount. So making the simplifying assumptions that (a) Americans are exposed mainly to US stocks (b) Americans get their bond exposure through mutual funds, and (c) returns on that bond exposure has roughly tracked long-term Treasuries, we can assume that household portfolios have lost $10.6tn in value this year. A paper from the Federal Reserve looking at fluctuations in household wealth and spending during the 1990s market boom finds that “groups of families whose portfolios were boosted the most by the exceptional stock market performance over the latter half of the 1990s are the same groups whose net saving flows fell the sharpest from 1995 through 2000,” and that “The [resulting] movements in net worth and saving are consistent with a wealth effect in the range of 3-1/2 to 5 cents on the dollar that applies to all families in the economy.”So assume, conservatively, that every dollar lost in markets translates to 3.5 cents of lost spending. That comes to $370bn in lost spending, or about 2.6 per cent of consumer expenditures or 1.8 per cent of GDP. The total market capitalisation of crypto assets has fallen from $2.9tn to $835bn, according to CoinMarketCap. This translates to another $73bn in lost spending, and another third of a per cent or so of GDP.So for a first, conservative estimate, the bear market’s impact on spending could amount to a 2 per cent drag on GDP.That’s a lot! Recall that in the first quarter GDP grew 2.6 per cent, once some odd fluctuations in inventories and net imports are stripped out. Forecaster consensus calls for GDP to grow 1.8 per cent for the rest of the year, with consumer spending growing a bit faster than that, with the basic pattern to persist for 2023. How much of a negative wealth effect is built into those forecasts I have no idea. It’s a very rough and ready estimate, though. Sensitivity of spending to loss of wealth likely depends on hard-to-measure psychological factors. For example, it must matter how much people are counting on the wealth they have gained in markets, as opposed to thinking of it as a windfall. Did households treat their sudden crypto gains as “found money” rather than hard-earned savings, and therefore change their spending patterns less in response to their appearance and evaporation?About 20 years ago, a Fed board member, Edward Gramlich, made the point that in theory, the impact of stock market wealth on consumption should depend on whether stock prices rose because profits rose, or because discount rates fell (or what amounts to the same thing, price/earnings multiples rose):Suppose, for example, that stock prices increase because of a rise in expected profits, say from a spurt in productivity. An individual household that owns stocks will have higher wealth and will want to consume more, just as predicted by the wealth effect . . . [if instead] stock prices increase because households are applying a lower discount rate to future profits [then whether] an individual household will want to consume more is unclear in this case. Intuitively, households are simply discounting the same stream of profits at a different rate; so it is not obvious that they are truly better off and should increase their consumption.I would make sense of this point intuitively as follows. If my stocks have gone up because of strong economic growth, the gains make sense to me. I’m an owner of growing businesses in a growing economy. If they go up because of multiple expansion, that feels chancy. I trust the new wealth less, and might be less inclined to let it change my spending patterns, as a result.I really am not sure if the source of market returns matters to spending or not. But it is a particularly important question right now. During the 2009-2021 bull market, the S&P 500 rose 325 per cent (if you use year-end 2009 as the starting point). Earnings over the period grew 192 per cent. The rest of the gain was down to price/earnings ratios rising from 16 to 24. Much of the latter increase has been given back (the index is now on 18 times trailing earnings), even as earnings have hung in there, for now. How will household spending patterns respond to a shift in valuation without much shift in profits? One good readIf you’re reading this newsletter, decent chance you care about the Fed. Most people don’t, though. Could that matter to inflation expectations? More

The writer is president of Queens’ College, Cambridge, and an adviser to Allianz and GramercyFor the global economy and markets, last week marked a definitive “awakening”.As nice words from central banks about battling inflation gave way to more meaningful policy actions, there was a first awakening with the realisation that, undoubtedly, we were making a transition to a new and more challenging regime for financial conditions.And because this transition is so late in coming, there was a second awakening — a recognition that there is no hiding from the difficulties this poses for policymakers, households, companies and markets.Just look at what occurred last week. In the US, the Federal Reserve hiked its benchmark interest rates by 0.75 percentage points on Wednesday. That went not only against its own forward guidance of a 0.50 point rise but also contradicted something that chair Jay Powell had himself voluntarily dismissed a few weeks earlier, saying a 0.75 point increase was not being actively considered by the central bank.There is now no denying that, after a protracted period of resistance, the world’s most powerful central bank has loudly acknowledged that it has no choice but to address inflation more forcefully, regardless of the impact on markets.The following day in Europe, the Swiss National Bank raised rates by 0.50 points, surprisingly decoupling itself from the European Central Bank. That crystallised what many were starting to suspect. The SNB is a central bank long-accustomed to countering the appreciation of the franc. But after witnessing what has occurred in Japan and the UK, it joined the growing number of its peers wishing to pre-empt a currency depreciation that would make the inflation battle even harder to win.And all this happened in the week that the Fed started implementing the second element of policy tightening — that of reducing its $9tn balance sheet that has been bloated by the protracted programme of asset buying to support markets.It is undeniable that, after years of massive liquidity injections and floored policy rates, the world is in the grips of a generalised tightening of financial conditions that feeds on itself. This is not a cyclical phenomenon that will soon unleash mean-reverting forces.It is a secular regime change forced on reluctant central banks by inflation that has got well ahead of them and threatens livelihoods, worsens inequality and undermines financial stability.As it is late, this shift comes with a heightened risk of collateral damage and unintended consequences. That was evident last week as growth fears gripped markets with more forecasters jumping into the recession camp.The awakening is an important part of navigating through the risks facing the global economy. But the process cannot, and should not, stop here. There is more to be done if the intention is, as it should be, to limit the damage from the historical policy mistake initiated last year by the Fed when it stubbornly held on to its mischaracterisation of inflation as transitory.To continue to regain policy credibility, the Fed needs to follow the example of the ECB and explain why it got its inflation forecasts so wrong for so long, and how it has improved its forecasting capabilities.And to perform its intended and much-needed role of honest adviser, the Fed needs to follow the Bank of England in being frank and open about what’s ahead for the economy. As it persists in failing on both, it is no surprise that so many economists, including former Fed officials, were quick to complain last week that the central bank’s revised economic forecasts remained unrealistic.In 2016, I published The Only Game in Town*, which looked at what was already then excessive and protracted reliance on central bank intervention. I detailed why, within the next five years or so, the global economy and markets were likely to confront a “T junction” where an increasingly unsustainable path would give way to one of two contrasting roads.One was the path to high, inclusive and sustainable growth, and the other to recession, rising inequality and financial instability. The sooner policymakers recognised the dividing of the ways and acted accordingly, the greater the likelihood of the better road prevailing.Unfortunately, this was not done. As such, the global economy is now facing growth disruptions, harmful inflation, greater inequality, and unsettling financial market volatility. Having failed to act to prevent this unfortunate turn, policymakers must now step up more firmly to limit the overall damage and to better protect the most vulnerable segments of our society.*The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse More

The writer is chair of Rockefeller InternationalChina’s rise on the world stage is perhaps this century’s most frequently repeated news story. The country’s economic footprint has expanded spectacularly. Its widening military reach has made recent headlines. Yet as an aspiring financial superpower, China is going nowhere.This has not happened before. The US rose as an economic force and then as a financial power, before the dollar became the world’s leading currency in the 1920s. Previous empires, from Britain to 15th century Portugal, followed a similar arc, as investor Ray Dalio recently showed. China is breaking the mould, rising rapidly as an economic force but glacially as a financial power. In doing so, the country is defying expectations. Two decades ago, when China opened to global trade, it seemed on track for global economic and financial supremacy. Around 2010, Beijing began broadcasting its financial ambitions — which included establishing the renminbi as a global currency. Then came a burst of progress, followed by retreat. Since 2000, China’s share of global gross domestic product has almost quintupled from 4 per cent to 18 per cent and its share of global trade has quadrupled to 15 per cent. No other economy has grown faster. Yet its stock market has been among the world’s weakest performers. China’s rise has such a grip on the popular imagination that many analysts still see it everywhere. They depict the renminbi’s tiny 3 per cent share of global central bank reserves as quick progress because it is up from 1 per cent five years ago.But this share is similar to those of far smaller economies like Canada or Australia, and well behind what analysts have been projecting. The hurdle is trust: foreigners are wary of a meddling state, but more importantly, the Chinese distrust their own financial system. China has printed so much money to stimulate growth over the past decade, the money supply now dwarfs the economy and markets. That capital may flee when given the chance. When Beijing was facing significant outflows seven years ago, the government imposed controls to prevent capital flight. It has yet to lift them. Instead, China has turned financially inward. Since 2015, the renminbi share of payments through the Swift network for international bank transactions has fallen by a fifth, from an already negligible level under 3 per cent. A widely followed index that ranks 165 nations by capital account openness puts China at 106th, tied with tiny states like Madagascar and Moldova.While Chinese investors are restricted from investing abroad, foreigners are scared away from China by erratic government attempts to control the market. That helps explain why unlike in other nations, stocks in China do not rise and fall with economic growth.Economist Jonathan Anderson recently wrote that, considering its volatile prices and the vastness of its money supply relative to its markets, China is less comparable to emerging markets such as Brazil and Thailand than to frontier markets like Kazakhstan or Nigeria — and “should not be part of a standard EM portfolio.” Often it is not. Foreigners own about 5 per cent of stocks in China, versus 25 to 30 per cent in other emerging markets, and about 3 per cent of bonds in China, compared to around 20 per cent in other developing nations.Global doubt about China’s markets limits the renminbi’s appeal. Today, over half of all countries use the dollar as their anchor, a soft peg to manage their currencies. None use the renminbi. About 90 per cent of foreign exchange transactions involve the US dollar, while only 5 per cent use renminbi.This differs from the success stories China seeks to emulate. During its boom in the 1980s, Japan was rising both as a financial and economy power. The Japanese yen and stocks reflected that strength, and Tokyo emerged as a global financial centre. Today, the renminbi is not viewed as a safe haven, Chinese stocks languish and no Chinese city is more than a regional financial centre.China still aims to become a financial superpower. Its leaders understand that as a country gets richer, it has greater need for a functional financial system. The Chinese government has seen how the mighty dollar allowed the US to militarise finance in sanctioning Russia, and wants that same leverage.But for now, Beijing doesn’t have the confidence to take the basic steps of lifting capital controls and making the renminbi fully convertible. Until it does, China will never fully realise its superpower ambitions. More