Transcript G20 정상회의와 금융산업정책 방향

Reinvigorating Economic Growth:
Some Comments
Sungmin Kim
Graduate School of Finance and Accounting
KAIST
2012. 12. 11
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
1
Introduction
 We are living in extraordinary times
 After the crisis, everything appears to be changed
completely




From
From
From
From
“the Great Moderation” to “the Great Crash”
“Globalization” to “De-globalization”
“Leveraging” to “De-leveraging”
“Deregulation” to “Re-regulation”
 At the same time, extraordinary times justify
extraordinary measures
 Unconventional rather than conventional measures are
mobilized more frequently
 Yet we are not quite sure how effective these measures are
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
2
2
Prospect of the Global Economy
 Even after several years passed, the crisis is still
ongoing process
 Prospect of the global economy does not appear
to be bright for the time being
 Almost every country is affected by aftermath of the
crisis simultaneously
 Unusual uncertainties governing the global economy are
still looming: black swans , grey swans and so on
 However, the worst case scenario is gradually
phased out
 Some uncertainties have been eliminated as time goes
by
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
3
3
Fiscal Austerity
 A measurement of debt sustainability: the
amount of debt relative to income level
 So far, it is fair to say that the numerator has
been overemphasized relative to the denominator
of the measure
 An episode at the G20 CB Deputies dinner: Fiscal
austerity in Greece
 Without adjusting FX rate, adjustment of nominal
incomes & wages is an extremely painful process and
not politically sustainable
 But no policy option is available to mitigate tightening
effect of fiscal austerity
 Need to strike to balance between the
denominator and the numerator of the debt
sustainability measure
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
4
4
Exit Strategies for CBs
 It is too premature to discuss exit strategies for
CBs
 When Korea was preparing for the presidency of
the G20 in the second half of 2009, there were
many talks about exit strategies
 At that time, many people thought that the crisis and
global recession was over
 In the end, it turned out to be a false dawn
 Going forward, exit strategies will not be
implemented in the near future and will be
implemented in a very gradual manner
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
5
5
Cross-Border Capital Movements (1)
 Capital movements have become more volatile after the crisis
 Traditional theory: pull factor, which generally refers to
improvements in the domestic economy’s prospects of host
countries, plays a major role in determining capital inflows
 After the recent financial crisis, push factors, which are related to
home countries, are arguably regarded as key driving forces in
movements of capital flow
 The crisis situation in advanced economies has spilled over to
EME in the form of capital flows
 In the phase of intensifying crisis situation in advanced economies,
EMEs experience massive capital outflows, by deleveraging of
financial institutions of advanced economies
 Local asset prices and currency decline sharply by massive sell-offs
of local assets and currency
 By contrast, the phase of stabilizing crisis situation lead to massive
surges in capital inflow to EMEs
 Local asset prices and currency appreciate sharply
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
6
6
Spill-over Process of Crisis to EME
Phase of
Intensifying Crisis
Pessimistic
Outlook of
Growth in AE
Acceleration of
De-leveraging
Triffin
Dilemma
Decrease of
Export
Increasing Losses
of Foreign
Investors
Massive Sell-offs
by Foreign
Investors
FX Shortage of
Domestic Banks
Dollar Crunch
Decrease of
Growth
Sharp Drop of
Asset Prices
Instability in FX &
Financial Markets
Currency
Depreciation
Flight-to-Quality
Surges in Capital
Inflows
Rapid Rise of
Asset Prices and
Currency
Appreciation
Optimistic
Outlook of Local
Economy
Optimistic
Outlook of
Growth in AE
Highlighting of
Abundant Global
Liquidity
Phase of Stabilizing
Crisis
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
7
Cross-Border Capital Movements (2)
 Although the relative importance of ’pull’ and ’push’
factors in capital movements continues to be debated,
this volatile nature of international capital movements
have raise concerns that volatile capital movements can
destabilize economies
 In September 2010, Guido Mantega, the Brazilian finance
minster, claimed that a currency war had begun
between the developed economies and the developing
economies
 In particular, the use of QE is very controversial
 Other things being equal, the increase in money supply that QE
brings should make the currency worth less and thus lower the
exchange rate
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
8
8
Cross-Border Capital Movements (3)
 Although imposing capital control appears very
controversial, G20 need to explore when and how limits
on cross-border investment might be justified
 Large, temporary capital inflow have been known to pave the
way for big economic trouble
 One obvious risk is that incoming capital inflates bubble
 On the other hand, one risk from imposing capital controls is
that they can be hard to roll back because they suit vested
interests
 A more coordinated approach might mitigate the risks
of the nastier spillover effects
 Coordination should extend to the countries that are exporting
capital as well as receiving countries
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
9
9
New Approach to Financial Regulation (1)
 So far, the progress made on the ongoing G20
agenda for more resilient global financial system
has been very comprehensive and impressive
 Nevertheless, more efforts should be focused on:
1. Completing the regulatory frameworks
2. Implementing them in a globally consistent way
 More efforts need to be focused on completing
the regulatory framework in some areas which
show lack of progress
 Strengthening and converging accounting standards
 Developing effective regulations on non-bank SIFIs and
shadow banking
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
10
10
New Approach to Financial Regulation (1)
 If the reform process in these areas were to be
further delayed,
 The associated regulatory uncertainty could jeopardize a
recovery
 The potential for new risk to be emerged from these
areas will be increased
 Regarding the implementation, need to keep in
mind what history guides us
 The ongoing regulatory reform: “regulatory dialectics”
 A period of financial sector regulation until the early
1980s
 A subsequent period of deregulation
 After the recent financial crisis, entering into a period of
re-regulation
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
11
11
New Approach to Financial Regulation (3)
 A critical question: Is this reform process
sustainable?
 The answer depends on:
 Sustainability of the current regulatory reform in globally
integrated financial markets and rapidly evolving financial
industry
 Utmost important task: To make sure that
regulatory arbitrage in both cross-border &
cross-sector does not jeopardize the
effectiveness of tighter regulation
1. Calls for more coordination of and cooperation at the
international level
2. Need to build an effective system of regulating and
overseeing the shadow banking system
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
12
12
New Approach to Financial Regulation (4)
 International coordination of financial regulation is
particularly challenging, due mainly to different stage
of financial sector development across countries
 This calls for sorting out minimum requirements of
global standards that could effectively prevent crossborder regulatory arbitrage
 Another important task: to ensure that the pendulum
does not swing back too far
 Some critics raise questions about the sustainability of the
current regulatory reform
 Their arguments: many of the reform measures rely too
heavily on financial sector taxation in the forms of capital
regulation and capital surcharges on SIFIs
 Lead to a substantial increase in the cost of capital and
jeopardize recovery
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
13
13
New Approach to Financial Regulation (5)
 At the same time, there is a strong case for
maintaining the momentum of regulatory reforms
 Reversing or derailing could introduce another uncertainty,
regulatory uncertainty
 Important to strike a balance between the risk of
over-regulation and that of under-regulation
 It is more appropriate to reduce burden of financial
industry as possible as we can
 Some suggestions for a more balanced approach
1. Greater emphasis should be placed on the reform of public
policy to prevent future crises: building more robust macroprudential policy framework
2. To identify and correct institutional distortions which
encourage leverage (e.g., tax))
3. To address fundamental weaknesses in the corporate
governance of financial firms
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
14
14
Thank You
KAIST GRADUATE SCHOOL OF FINANCE & ACCOUNTING
15