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We are approximately a decade since the United States last recession and the U.S. Federal Reserve is coming close to finalizing a plan on how to reduce its balance sheet. At its peak, the portfolio was valued at over $4.25 trillion. The Federal Reserve purchased these securities, of which are mostly mortgage-backed securities in three rounds of stimulus that began in 2008 and finished in October 2016. The selloff of securities began in 2017 and plans to sell the majority of their holdings before the conclusion of 2019.

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During this past November, sales on United States homes have substantially increased, reaching an unexpected ten year high. Buyers have been flooding the market, rushing to invest in homes during this current period of low interest rates, especially with anticipated increases in borrowing costs in the near future. The sudden upsurge in home-buying activity may be a result from the strain of rising prices and mortgage rates.

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On December 4, Italian Prime Minister Matteo Renzi mandated a referendum for a major constitutional reform. The goal was remove certain powers from the Senate—the upper house of the national legislature—so as to establish sole approval power in the lower house and expedite the legislative process. A powerful movement against the referendum was led by populist coalition Five Star Movement, reflective of a global trend of increased populism in national governments over the world. The results mirrored this: 60% of referendum voters chose to reject the measure, causing Renzi to meet with Italian President Sergio Mattarella the following day and offer his resignation. However, the referendum results have not just shaken Renzi's political career; Italy's entire future now lays in the balance, with several potential crises at hand.  Questions have risen over probable political changes, the future of Italy's place in the European Union, and the effects on the banking system.

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Last month we wrote a blog series on Central Banking policy in several regions of the world. One region that was not covered in that series was the second biggest country by population, and the world’s 7th largest economy by GDP; India. India has come into focus in recent weeks as Prime Minister Narendra Modi has called for India to demonetize, particularly calling for a ban on high-value bank notes in an effort to cut down on corruption and tax evasion. This has had several side effects on the Indian economy, most of which seem to be negatively impacting the nation as a whole, and sending India on a path towards cutting interest rates at a time when the US is heading towards possibly a series of rate hikes.

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The Zimbabwe central bank issued its first currency since 2009 on Monday, in an effort to ease the nation’s shortage of US dollars, which is their primary tender. This move, which was first announced back in May, has sparked outrage across the nation, leading to several violent anti-government protests and demonstrations. In order to understand the indignation of the Zimbabwean people, one must look at the past decade of currency history within the South African nation.

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In North America, there are currently two very contradicting states between the Central Banks of Canada and the Federal Reserve of the United States. According to a senior central bank official, the Bank of Canada will not respond mechanically to any future move by the U.S. Federal Reserve to raise interest rates. Deputy Governor Timothy Lane spoke to an audience in Waterloo, Ontario and stated that “tighter monetary policy in the U.S. would lead to higher market interest rates globally, producing a tightening effect for Canada.”

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East Asia is home to three of the biggest economic powerhouses in the world: China, Japan, and South Korea. Thus, the well-being of the global economy often depends on the region's pecuniary health. Central banks already hold the utmost power in this regard; yet, in recent times, each nation's bank has led endeavors to consolidate further economic control. The effects of these measures, along with last week's global market shakeups, have paved a path of economic uncertainty. Here is a look at recent developments in East Asian central banks.

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In conjunction with our blog series on central banking policy throughout the world, today we turn our attention to Central America and the unique fiscal and monetary landscape that is often an afterthought when examining the world economy. For the purposes of this blog, when referencing Central America, we are incorporating Mexico and all other continental countries of North America that are south of the United States of America. While Europe, Japan, and the US are locked into low interest rate environments, Central America offers a unique landscape for central banking.

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Despite the trade agreement disputes, political instability, and concerns about the United Kingdom’s withdrawal from the European Union, the European economies have continued to grow slowly and steadily. During the months of July through August in the third quarter, GDP rose 0.3%, consumer prices rose up to 0.5%, and economic growth as well as inflation occurred as predicted. Global economic growth is based on the productive potential of a country, and the Eurozone economy has, for the past few months, experienced a steady yet sluggish growth.

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Global interest rates currently span a wide range; from Switzerland, at a negative 0.75%, to Belarus at 28.5%. Overall, 45% of the world’s central banks lowered their rates in the last year, 29% increased their rates, and the remaining 26% left their rates unchanged. Central banks are often nationalized institutions that are usually independent from the government, but whose privileges are established and protected by law.

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Through October, the Eurozone’s economy grew at the fastest pace of the year. The rally in in United Kingdom government bonds and a higher chance of inflation has caused 10 year government bonds in the UK to now yield more than double the levels they did in August. Due to the interconnected global bond markets, the yields in Eurozone bonds rose as a result. The raise eased pressure on the European Central Bank, whose quantitative easing program prevents it from buying any debt that yields under the deposit rate of -0.4 percent.

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In an age where low and negative interest rates dominate the central banking scene for most of the developed world, one major nation has a target interest rate of 14.25%. The country in question has been all over the news in the past few years, from the World Cup and the Olympics, to the impeachment of a president and a deep recession. It is Brazil whose official interest rate stands at 14.25%, which is entirely counterintuitive given the information that Brazil is mired in a deep recession. Brazil has to maintain such a high official interest rate due to the fact that they are facing issues with inflation that have persisted for years. Since 2000, Brazil has only had three years where average inflation in the country ran below 5%, and in both 2015 and year to date 2016 Brazil has seen inflation run above 9%. The inflation issue has hampered Brazil’s ability to encourage growth through monetary policy and as such Brazil’s recession, which now spans over 2 years dating back to 2014, has persisted. In recent months, however, Brazil’s economy has hit several key targets and as such a rate cut is officially on the table.

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Central banks are responsible for determining the monetary policy by setting the interest rates to balance investments and savings, which helps to keep economies fully employed and inflation stable. The natural rate is the interest rate that helps to achieve the balance, and federal reserve policy makers believe that the rate is at 3%, down from 4.5% prior to the recession. The 1.5 percentage point decline in the natural interest rate provides less ability to counteract future economic shocks.

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Australia's central bank recently cut interest rates from 1.75% to 1.5%, a direct consequence of the country's faltering job market and record-low inflation. The Reserve Bank of Australia hopes to boost the labor market as well as induce economic growth via this interest rate cut. After a decade-long mining boom, the Australian economy gradually shifted towards less commodity-dependant growth, helping the nation avoid a recession. Unfortunately, there are many indicators that Australia's gross domestic product (GDP) is losing momentum. Economic growth of 1.1% in the first quarter of 2016 has been largely attributed to the dominance of net exports. Analysts suspect such exports to contribute minutely to overall economic growth. Data from the Australian Bureau of Statistics reported the country’s trade deficit rose to $3.2 billion ($2.4 billion) in June, while exports declined 1%, and imports increased 2%.

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As early as last year, Japan’s Prime Minister Shinzo Abe announced that the country could expect a rate hike in consumer tax rates. Last year, it was slated to take effect beginning 2017, but the agenda has since then been moved up quite a bit. Economists are predicting the economic plan may take place as early as late 2016 or very early 2017, as opposed to the previously believed mid to late 2017 timeline. Japan is required first and foremost to think about its own economy and whether or not its consumers could handle another rate hike, but other global factors have become more pressing since Abe’s initial announcement in 2015.

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Atiur Rahman, the governor of Bangladesh’s central bank, stepped down Tuesday after over $100 million was stolen from the bank’s account at the New York Fed last month. Approximately 80% of the stolen amount was transferred to personal accounts in the Philippines, while the rest made its way to a bank in Sri Lanka. Official codes were used to facilitate the theft, and a representative from Bangladesh’s ministry of finance confirmed that the currently unknown criminals had the necessary codes to authorize the transfers. The American Fed has been accused of irregular activity, while questions were raised about the quality of security on the Asian country’s end.

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The Bank of Japan reduced interest rates to below zero on Friday, after years of keeping them in the positive range. The negative interest rates will be placed initially on reserves valued at 10-30 trillion yen and will apply only to new reserves that financial institutions deposit at the central bank. The goal is that the reduction would cause the real interest rates to decrease, thus stimulating consumption and investment. This policy will decrease rates for lending and isn’t supposed to negatively affect banks. The Bank of Japan will be dividing the account balances into 3 tiers, and the interest rates placed depending on the type of reserves that are placed in the Bank of Japan.

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Over the duration of its rather short history, Bitcoin has gained popularity and economic clout but also its fair share of skeptics. The peer-to-peer lending system utilizes data mining, based on the idea that there is a finite number of bitcoins, and flaunts its decentralized network. Basically, there is a certain point in time when all existing bitcoins will be extracted and there is no single entity, like a central bank, that has the ability to generate more. This important distinction has led to its designation as a commodity by the Commodity Futures Trading Commission (CFTC) in the United States. Regardless of its status, the digital currency has been rallying for about two months now, thanks in part to acceptance by financial institutions like Morgan Stanley and Goldman Sachs. With a current buy price of about  $400, the money system has a record $1 billion invested in it.

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This coming week will provide several indications of the recovery of the global economy, amid increasing concerns of another economic downturn. A major point of worry for economists is that there are limited tools that Central Banks can use globally to avoid another recession. China is expected to release data that is leading to expectations of an increase in stimulus measures to avoid a sharp downturn. The European Central Bank has been attempting to raise inflationary pressure to spike a raise in prices. Inflation numbers for some member countries are expected to be published this coming week and are expected to confirm that prices fell by 0.1 percent annually last month. Banks globally have been taking either a more hawkish stance, where there may not be an extension of quantitative easing, or a stance of allowing more money to enter the economy through increased stimulus.

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Although it’s been a long time coming and an even longer time expected, the Fed decided not to raise rates at the most recent FOMC meeting. This news comes as a bit of a disappointment to investors and economists, especially after the past week of downturn in American stock markets. However, it is the emerging markets that have experienced notable distress. Although some of the issues many of these nations face are chronic or fundamental inadequacies, the currencies have taken the hardest hit.

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The Federal Funds Rate (FFR) is designed to either stimulate saving or spending based on the level of economic growth. Following the 2008 financial crisis, the rate was slashed in attempt to temporarily buoy the markets, but the current economy is calling for an increase in the rate. The series of rate increases proposed by the Federal Reserve were set to be enacted sometime around fall of 2015, although more recently analysts predict that the September 16-17 meeting specifically will reflect any actions taken by the central bank. This rate hike, planned for quite some time now, is becoming increasingly ambiguous as the Fed faces tension following the recent succession of turbulent economic events. Chief among these stressors is the IMF, which is urging the Federal Reserve to cut a little slack for the sake of the global economy.

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The ECB is still struggling to keep Greece above water, while China is dealing with its market crash. The surprise yuan devaluation has agitated global markets further. When the People’s Bank of China (PBOC) decided to weaken its currency to get back on the right track, the USD, JPY, and EUR have been forced to adjust accordingly. Anytime a nation deliberately interferes with its currency, ripples are sent through the markets. China, with its 1.9% devaluation, has made waves. Last year, it was Europe in this position, and in 2013 it was Japan’s Abenomics with a weak yen at the helm of its policy that took center stage. With China’s recent move, countries all over are engaging in competitive devaluations to protect currencies. With an increasing number of countries being involuntary drawn in and a few apparent losers already, this is shaping up to be quite a turbulent currency war.

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The fire may have died down in China, but the burns it left in its wake are still raw, as the Chinese government attempts to bring back some stability by weakening the yuan. Devaluing its currency is proving to be rather injurious for Australian, New Zealand, Singapore, and Taiwanese dollars, as they took a rough tumble earlier this week. Luckily for America though, this drop has proven successful for the USD, as investors are getting bullish on its outcome in coming weeks. But this move on behalf of China’s bank is not to be overlooked or underestimated, since it is being hailed as a one-time fix.

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As the old adage goes “the only way to go is up after rock bottom,” Greece seems unable to stop pushing its economic limits. Despite its previous bailout programs designed jointly by the IMF, ECB, and European Commission, relief arrived coupled with harsh measures. Austerity packages were the fine print for Greece’s lending agreement; yet, unemployment has checked in at 25% this year, while most of the bailout money went toward settling international debt rather than jump-starting the economy. It is perhaps this ineffective past experience that has left Greece resentful toward the idea of another double-edged bailout measure, which is why Greece is currently celebrating its new-found and likely brief freedom from dependence on external problem solvers.

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From the free silver policy issue of the 1800s to the Bretton Woods agreement of 1944, America has always had differing views on how the dollar should be valued and leveraged, as well its role in the global currency exchange. Ever since the eve of World War II, the U.S. dollar has had notable domination in the international marketplace. In nearly all transactions made using more than one currency in the past three years, the dollar was required as a conversion factor to complete trades. The U.S. dollar, for quite some time now, has been the world’s reserve currency. In Currencies After the Crash, Sara Eisen explores the impact of the world’s strongest currencies, the possible ramifications of highly leveraged monies, and the perilous yet profitable realm that is the foreign exchange market.

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Ever since the financial crisis of 2008, many large central banks have used quantitative easing in order to help stimulate their respective economies. Quantitative easing is the act of buying financial assets from lower level banks, thus increasing the price of the assets and increasing reserves in the economy. This has remained a common practice in central banks, and these banks have even increased the rates of easing since this year. However, economists are uncertain of how much easing has actually helped the global economy, and are wondering if it is time for a change in monetary policy practices.

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Currently, the United Kingdom is going through its highest level of political elections, the race for prime minister. The frontrunners are the sitting PM David Cameron and the Labour Party’s Ed Miliband. Cameron, who’s long been known to favor the rock bottom interest rates that the country is currently experiencing, is the only PM in the country's history since the 1950s to hold office without even the slightest fluctuation of the interest rates. However, the anticipation of a changing political horizon brings immense speculation in both domestic and international markets.

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Since early 2014, the U.S. Central Bank has been in the process of easing the economy into a rising interest rates program. In an effort to contract the economy while it’s still recovering, the main goal of this initiative is to gently maneuver the United States into a more stable fiscal state, and out of the transitional zone it is currently in. The Federal Funds Rate (FFR) has been flat at a historic rock bottom 0.25% for about six years now, following the financial crisis of 2008. Economic analysts and investors alike are dubious about the unprecedented situation in which the Fed will try to raise rates from such a low point, partially playing it by ear.

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As a summer filled with significant developments in the international system that have been highly influential over global business comes to an end, the world now turns its eyes to the British Isles as the vote on Scottish independence draws nearer. Although inherently a political subject, the vote that will take place on September 18th will also have important ripple effects for international business in Scotland and the United Kingdom should the movement pass. One of the primary economic concerns facing an independent Scotland includes the unresolved question regarding what currency the new state would adopt, which could have significant impacts on the business environment in Scotland.

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Most countries' finances are dominated by their respective central banks. This makes their role, in not only their country but in the world, extremely prominent. They make large, macro policy decisions that affect even the smallest businesses. What role do these policy decisions play in the world though? With globalization and the intermingling of economies across the globe, all of these different policy decisions is sure to dictate how the world interacts.

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Ever since the financial crisis hit the world in 2008 discussion has ensued on who is at fault and how can we make sure something like this never happens again. At the heart of this debate are banks - especially global ones. Legislative bodies across the globe have acted in an attempt to stabilize the banking system and stop financial panics that dry up credit. From Basel III to Dodd-Frank many attempts have been undertaken.

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In his recent article, Michael Burda, a Professor of Economics at Humboldt University Berlin, suggests the European Central Bank (ECB) should be redesigned with regional rather than national central banks. The column proposes that instead of each country having a national bank, boarders should be drawn to create regional banks. The United States, which has 12 regional banks, is a country that uses this central bank system.

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The European Union gave a €10 billion rescue to Cyprus, a small island country in the European Union. It is the fourth of seventeen Eurozone states to receive a bailout by the European Union and the International Monetary Fund. In order to gain more time to convince parliament to back a new tax on deposits, Cyprus said that they would not open up their banks until Thursday the 21st of March.  This controversial tax is on bank deposits and in order for it to come into effect they must have the support of parliament.  Investors reacted poorly to the news as shares fell, and there was a run on cash machines over the past couple days.  

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The global economy came to a stall earlier this summer with China slowing and the European debt crisis worsening, many investors and business owners were expecting the worst.  The Federal Reserve has already promised to keep short-term interest rates at zero until 2014 and flattened the yield curve through Operation Twist. If that can’t spark any economic growth, then what is there left to do?

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After the official unpegging of the Renminbi (Also referred to as the yuan) to the dollar mid-way through last year, China has surprisingly started to increase the flexibility of the Renminbi and is actively encouraging the globalization of the currency.  Much of this change has come for two reasons. The first is as China has become the world’s second largest domestic economy, the need for a globalized currency becomes exponentially more important. Also, international pressures on the Renminbi and China, especially from the U.S., have started to force change.