Daily Archives: June 7, 2010

Venezuela's bolivar fuerte notesBy Benedict Mander

They said it would take Venezuela two weeks to come up with the new currency trading rules for its multi-tiered exchange rate. Instead it took three – not bad for Hugo Chávez’s Bolivarian revolution, whose track record on following through with announcements on time is shaky.

But, then again, the new rules are incomplete.

Most important, they don’t explain how the central bank will determine the value of the bolívar against the dollar in its “free market”, alongside Venezuela’s two other fixed exchange rates.

Nor is it clear when trading itself on the Bloomberg E-bond platform will actually begin. Monday is a bank holiday in Venezuela. Read more

Dear readers,

The Money Supply blog will become subject to FT.com’s subscription rules from Wednesday June 9. The Money Supply homepage will remain visible to all readers and those of you who aren’t yet subscribers can register here to view 10 articles a month for free across FT.com. This brings Money Supply in line with the majority of FT.com content. Read more

David Cameron, prime minister, gave his big speech on his economic inheritance (bad) and plans (bold) today. And the one piece of news in the speech was the following number regarding debt interest:

“Based on the calculations of the last government, in five years’ time the interest we are paying on our debt is predicted to be around £70 billion. That is a simply staggering amount.”

This is a very useful number, one which the previous government shamefully hid from the public. What does this mean? For a start it implies the Treasury expects to pay an average interest rate of around 5 per cent on the £1,406bn deficit it expected in 2014-15. But Mr Cameron had a more vivid explanation of the figure’s relevance.

“Let me explain what it means. Today we spend more on debt interest than we do on running schools in England. But £70 billion means spending more on debt interest than we currently do on running schools in England plus climate change plus transport.”

Though these figures of departmental spending are extremely difficult to get, there are ways to make his claim add up with the combined total of the three spending groups coming in just below £70bn. I won’t bore you with them. But the important point is that the prime minister has just announced the new coalition government’s first fiscal rule.

If debt interest in five years’ time is more than 2001-11 spending on schools, transport and climate change, this is terrible. But if it is lower, things are fine. This fiscal rule is weird.

If you think I am exaggerating Read more

Sometimes energy price rises translate into short-term inflation, and sometimes to long-term inflation. What determines which, and can we affect the outcome?

Yes, says the ECB, in a new structural issues report, entitled Energy Markets and the Euro Area Economy. And to save you 131 pages, the short answer is that:

Ultimately, wage and price-setting behaviour and a credible monetary policy are the key determinants of whether inflationary pressures from energy prices translate into inflation over a medium-term horizon. Whilst there is little monetary policy can do about the first-round effects of energy price shocks, it can shape second-round effects.

 Read more

Ralph Atkins

The brilliant summer weather has arrived, the football World Cup is about to start, German industrial orders are soaring.

Life in Germany is beginning to feel like it did in 2006, when the country surprised the rest of the world with its flawless and warm-spirited hosting of the last football World Cup, the weather was perfect and the country’s economy was growing strongly. The mood then was summed up in the feature length documentary “Deutschland. Ein Sommermärchen” (Germany: a summer’s tale), which became a cinema hit.

Data on German factory orders – watched here almost as closely as the football scores – showed a 2.8 per cent rise in April, extending the already-exceptional 5.1 per cent increases seen in March. Read more

How many ratings issuers should we have before some independent benchmark—i.e. a rating—would be needed to discriminate between them?

PwC has announced it is considering a move into the ratings arena, hitherto monopolised—or at least oligopolised—by three major ratings agencies. Perhaps they could start by backtesting the debt ratings issued by these three major players, and comparing them to real events.

Which reserve currencies are left for central bankers, concerned first about the dollar, and now the euro?

Peter Garnham, the FT’s currency correspondent, points out that the likely beneficiary of the more recent euro crisis has been the dollar, “simply because other destinations – Canada and Australia for example – are simply not large enough for them to use as significant diversification destinations.”

Will this dollar-euro ping-pong continue, and, even if it does, are the combined euro-dollar fortunes of the past two years meriting ever smaller reserve allocations? Read more