Inps: è sempre più fuga dei pensionati (+65% nel 2014), stop pagamento pensioni all’estero, MALTA e UE esclusi
MALTA è dentro la Comunità Europea e non è quindi esposta a questo rischio essendo la trasferibilità delle pensione all’interno dell’Europa completa, a differenza di molte giurisdizioni extra UE considerate un (ora ex) paradiso dei pensionati…..i paesi IDEALI ove trasferire la residenza e la pensione si riducono radicalmente e MALTA emerge con forza per la qualità della vita, clima, sicurezza, sistema sanitario, costo della vita, vicinanza all’Italia…..oltre che per essere membro della comunità Europea e quindi per regolamento comunitario senza possibilità dell’Italia di stoppare il pagamento di una pensione a Malta
Boeri e l’INPS si pongono questa domanda: Perchè non investire in servizi per gli anziani al fine di ridurre la fuga dei pensionati ed attrarre pensionati dall’estero? ….vogliono copiare MALTA!!!
MALTA ha investito e continua ad investire in un sistema socio sanitario ideale per attrarre pensionati sia con un favoloso clima e un sistema fiscale a bassissima tassazione, sia con centri di cura e ospitalità moderni e all’avanguardia
Gli immigrati fanno “un regalo consistente” all’Italia poiché molti versano contributi previdenziali. E’ quanto emerge dal rapporto Worldwide sulle pensioni all’estero presentato dal presidente dell’Inps, Tito Boeri. Lo studio fotografa una realtà in cui le persone con cittadinanza non italiana nate prima del 1949, con contribuzione Inps, che non hanno sin qui ricevuto prestazioni previdenziali né rimborso della decontribuzione, sono 198.430 (su 927.448 pari al 21%).
I contributi versati valgono oggi oltre 3 miliardi di euro e si tratta di “un fenomeno in crescita”. A questi si potrebbero aggiungere altri probabili 12 miliardi, calcolando il 21% delle 4,2 milioni di posizioni contributive delle generazioni di immigrati non ancora arrivati a maturare i requisiti di vecchiaia, che hanno erogato contributi che capitalizzati valgono oltre 56 miliardi.
Negli ultimi anni gli stranieri versano mediamente contributi annui tra i 7 e gli 8 miliardi e danno risorse importanti. “Noi dreniamo risorse perché non eroghiamo prestazioni. E’ un drenaggio documentato e le risorse potrebbero essere utilizzate per investire su politiche dell’integrazione degli immigrati”, ha affermato Boeri.
Rilevante anche la fuga dei pensionati. Ogni anno aumenta il numero di anziani italiani che emigrano e si fanno pagare la pensione all’estero. Solo nel 2014 i pensionati espatriati sono stati 5.345, il 65% in più dell’anno precedente. Dal 2010 il numero è più che raddoppiato (+109%) arrivando a 16.420.
Secondo l’Inps, a incidere sulla scelta di trasferirsi all’estero è il costo della vita più basso rispetto all’Italia e il peso del fisco. Ma il fenomeno ha riflessi economici perché il pagamento di una pensione all’estero rappresenta una perdita per l’Italia, in quanto l’importo erogato non rientra sotto forma di consumi o di investimenti e genera un minor volume di imposte.
Il 71% dei pensionati emigrati negli ultimi 5 anni si è trasferito in altri Paesi europei (11.735), il 10% in America settentrionale e il 6% in America meridionale. In Oceania sono appena 434, ma l’incremento è stato del 257%. L’importo dei trattamenti pensionistici corrisposti ai pensionati emigrati dal 2010 ammonta a circa 300 milioni.
“Ogni anno”, ha sottolineato in merito Boeri, “aumenta il numero di pensionati italiani che emigrano e si fanno pagare la pensione all’estero. Dal 2003 al 2014 sono un totale di 36.578 persone. Questo fenomeno erode la base imponibile. Molti pensionati ottengono l’esenzione dalla tassazione diretta e non consumano in Italia con effetti quindi anche sulla tassazione indiretta. Il fenomeno non è compensato da flussi di ingresso di pensionati Inps che rientrano: 24.857 dal 2003 al 2014”.
Il fenomeno dell’emigrazione dei pensionati italiani è dunque in crescita, mentre l’immigrazione di pensionati stranieri “è ferma al palo”, eppure, secondo Boeri, l’Italia “ha moltissime località che hanno le carte in regola per attrarre pensionati, magari località abbandonate che potrebbero ripopolarsi; la condizione è però che vengano rese appetibili con strutture sanitarie adeguate”.
Il rapporto Inps mostra anche che i trattamenti pensionistici erogati all’estero sono quasi 400 mila (383.630) per un importo complessivo di oltre un miliardo di euro (1,067), in più di 150 Paesi. Il 61% delle pensioni sono di vecchiaia o anzianità, il 4% di invalidità e il 35% sono erogate ai superstiti. I pensionati sono in numero maggiore in Europa (180.250), in America del Nord (102.370) e in Oceania (50.260); ma mentre in Canada, Usa e Australia il numero è in diminuzione, in Europa c’è un’inversione di tendenza, con un incremento nel 2014 che ha riguardato in particolare la Germania (+2%).
Boeri ha quindi proposto di smettere di pagare le prestazioni non contributive all’estero. Dallo studio emerge che l’importo annuo delle integrazioni al minimo più le maggiorazioni sociali supera i 200 milioni (206,8) nei cinque Paesi extra Ue dove risiedono in maggioranza pensionati italiani (Argentina, Australia, Usa, Canada e Brasile).
L’Italia è uno dei pochi Paesi a riconoscere la portabilità extra Ue della parte non contributiva delle pensioni, mentre nell’ambito Ue quest’opzione non è più data in virtù dei regolamenti comunitari. “Paghiamo così integrazioni al minimo e maggiorazioni sociali a persone che vivono e pagano le tasse altrove, riducendo il costo dell’assistenza sociale in questi Paesi”, ha osservato Boeri, “mentre noi non abbiamo una rete di assistenza sociale di base per chi vive e paga le tasse in Italia”.
Si parla spesso di contrasto alla povertà e di reddito minimo e si dice che le risorse non ci sono, ha incalzato il presidente dell’Inps, secondo il quale vale la pena riflettere su questi dati. “E’ paradossale che non si abbiano in Italia strumenti di contrasto alla povertà e che poi si paghi l’assistenza sociale ad altri Paesi”, dove peraltro non è possibile esercitare controlli utilizzando strumenti quali l’Isee.
Smettere di pagare le prestazioni non contributive ai pensionati che risiedono all’estero, creare un fondo per investire su politiche di integrazione degli immigrati e cercare di mettere un freno alla fuga dei pensionati italiani verso Paesi nei quali la tassazione è più favorevole: sono le proposte lanciate dal presidente dell’Inps, Tito Boeri nel corso della presentazione del Rapporto dell’Istituto sulle pensioni all’estero.
Boeri ha sottolineato come ci sia un fenomeno significativo di ”free riding” sui contributi degli stranieri con una percentuale elevata di coloro che adesso avrebbero l’età per la pensione di vecchiaia e che hanno versato contributi che non hanno alcuna prestazione. In pratica circa 200.000 stranieri sui 927.448 che hanno superato i 66 anni e tre mesi (il 21%), non ha alcuna prestazione dall’Inps per un totale di contributi capitalizzati in base alle regole del contributivo di circa tre miliardi di euro.
”Perchè non fare – ha detto Boeri – un fondo per investire su politiche dell’integrazione degli immigrati?”. Boeri si è soffermato anche sulla necessità di riflettere sul sostanziale regalo che il nostro Paese fa pagando all’estero prestazioni non basate solo sul sistema contributivo.
”L’Italia – dice – è uno dei pochi paesi a riconoscere la portabilità extra Ue della parte non contributiva delle pensioni. Paghiamo – spiega – integrazioni al minimo e maggiorazioni sociali a persone che vivono e pagano le tasse altrove, riducendo il costo dell’assistenza sociale in questi paesi. Mentre in Italia non abbiamo una rete di assistenza sociale di base. Perchè non smettere di pagare prestazioni non contributive all’estero?”.
Infine Boeri segnala la crescita del fenomeno emigrazione per i pensionati italiani con il raddoppio tra il 2010 e il 2014 dei pensionati che decidono di vivere all’estero (da 2.553 a 5.345) e un +65% solo nell’ultimo anno, spesso anche a causa della tassazione più favorevole o delle migliori condizioni di vita.
”L’emigrazione dei pensionati è in crescita – dice – l’immigrazione di pensionati al palo. Perchè non investire in servizi per gli anziani al fine di ridurre la fuga dei pensionati ed attrarre pensionati dall’estero?”.
Inps: è sempre più fuga dei pensionati (+65% nel 2014)
L’Inps eroga all’estero circa 400mila trattamenti l’anno, per un importo complessivo di oltre 1 mld di euro, in più di centocinquanta Paesi – Boeri propone di creare un fondo per le politiche di integrazione degli immigrati alimentato dai 3 mld di euro dei contributi degli stranieri che sono andati via senza raggiungere i requisiti per la pensione.
Non solo i giovani cervelli: dall’Italia fuggono anche i pensionati. Negli ultimi anni un numero sempre più crescente di ex lavoratori ha deciso di trasferirsi in Paesi in cui il costo della vita è più basso e il peso del fisco incide in misura inferiore sulle pensioni. Secondo i dati Inps, i pensionati espatriati negli ultimi cinque anni sono 16.420, di cui 5.345 nel solo 2014. Il numero annuo di pensionati che lasciano l’Italia è più che raddoppiato dal 2010 al 2014, con una brusca accelerazione nell’ultimo anno (+65%).
L’Inps eroga all’estero circa 400mila trattamenti pensionistici l’anno, per un importo complessivo di oltre un miliardo di euro, in più di centocinquanta Paesi. Il fenomeno “ha dei riflessi economici e sociali: il pagamento di una pensione all’estero rappresenta una perdita economica per l`Italia in quanto l`importo erogato non rientra sotto forma di consumi o di investimenti e genera un minor volume di imposte”, ha spiegato l’Istituto di previdenza. Fra l’altro, nei Paesi che hanno stipulato una convenzione in materia fiscale con l`Italia le pensioni vengono erogate al lordo e, per evitare una “doppia tassazione”, le ritenute fiscali vengono applicate solo nei Paesi di residenza. Questo comporta, per il nostro Paese, un minore incasso in termini di imposte indirette.
Il fenomeno, comunque, non riguarda esclusivamente i pensionati di italiani, ma anche i lavoratori stranieri che, dopo avere conseguito in Italia il diritto alla pensione, decidono di rientrare nel Paese natio, o di trasferirsi altrove. In particolare, il 71% dei pensionati emigrati negli ultimi cinque anni si è trasferito in altri Paesi europei, il 10% in America settentrionale e il 6% in America meridionale. Raffrontando il 2014 al 2010, le percentuali di incremento maggiore si registrano in Oceania (+257%), Africa (+164%) ed America centrale (+114%). Considerando i pensionati delle gestioni private e pubbliche emigrati dall`Italia dal 2010 al 2014, l`importo dei trattamenti pensionistici loro corrisposti ammonta a 300.650.009 euro.
BOERI: IN CASSA 3 MLD DA CONTRIBUTI IMMIGRATI TORNATI ALL’ESTERO
Su queste basi il presidente dell’Inps, Tito Boeri, ha proposto di creare un fondo per le politiche di integrazione degli immigrati alimentato dai 3 miliardi di euro dei contributi Inps (capitalizzati con le regole del contributivo) degli stranieri nati prima del 1949 che non hanno ricevuto la pensione o il rimborso della decontribuzione perché rientrati nei loro Paesi d’origine senza aver raggiunto i requisiti minimi.
Si chiama ‘social free riding’ ed è il fenomeno degli immigrati che, dopo aver lavorato e versato i contributi in Italia, tornano nel Paese d’origine senza farsi (o senza poter farsi) liquidare le pensioni dall’Inps. Il ‘social free riding’ in Italia, per i nati prima del 1949, riguarda 198.430 stranieri su 927.448, con una percentuale quindi del 21%, ma il fenomeno è in crescita, anche se per i nuovi iscritti dal 1996 non è più richiesta anzianità contributiva minima per accedere alla pensione di vecchiaia a 66 anni (più i mesi di adeguamento alla speranza di vita).
Ma ai 3 miliardi già acquisiti potrebbero aggiungersi in futuro altri 12 miliardi, perché le generazioni di immigrati dal 1949 al 1981 (che non hanno ancora maturato requisiti di vecchiaia) hanno 4,2 milioni di posizioni contributive aperte prima del ’96 (quindi soggette ai requisiti contributivi minimi), che hanno erogato contributi per oltre 56 miliardi. Applicando una percentuale del 21% che non prenderà la pensione “abbiamo già oggi circa 12 miliardi di montante contributivo che non darà luogo a pensioni”.
Il rapporto evidenzia poi un altro fenomeno in continua crescita, quello della fuga dei pensionati italiani che emigrano e si fanno pagare le pensioni (lorde) all’estero. Dal 2013 al 2014 sono un totale di 36.578 persone e nel 2014 si è registrato un boom con una crescita del 65% dell’emigrante pensionato. “La fuga dei pensionati – ha sottolineato Boeri – è un fenomeno che ci preoccupa perché erode la base imponibile, perché molti pensionati ottengono l’esenzione dalla tassazione diretta e non consumano in Italia (con effetti anche sulla tassazione indiretta)”.
La fuga dei pensionati all’estero poi non è compensata da flussi in ingresso di pensionati Inps che rientrano (24.857 dal 2003 al 2014). Da qui la seconda proposta di Boeri: “Perché non investire in servizi per gli anziani, al fine di ridurre la fuga dei pensionati ed attrarre pensionati dall’estero?”.
Infine, il rapporto Inps fa notare che “l’Italia è uno dei pochi paesi a riconoscere la portabilità extra-Ue della parte non contributiva delle pensioni”. Paghiamo così integrazioni al minimo e maggiorazioni sociali a persone che vivono e pagano le tasse altrove, riducendo il costo dell’assistenza sociale in questi paesi, mentre in Italia non abbiamo una rete di assistenza sociale di base per chi vive e paga le tasse in Italia. La terza ed ultima proposta di Boeri è quindi di “smettere di pagare prestazioni non contributive all’estero”. Boeri, chiarendo di non averne ancora parlato con il Governo, sottolinea che si tratta di tre proposte che “meritano una riflessione”.
Profit Is Less About Good Management than You Think, non-human assets — i.e., their moats — were ultimately more important to firms than human assets
Benjamin Graham, the father of value investing, seldom met the managers of the companies he invested in because he felt they would tell him only what they wished him to hear and because he didn’t want to be influenced by impressions of personality. His talented student, the legendary Warren Buffet, thought the same: “when management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
Value investors like Graham and Buffett believe that the sources of sustainable returns on capital are not a company’s human assets but their so-called “economic moats,” structural, durable competitive advantages around revenues or costs. Revenue moats are usually linked to intangible assets (including brands and patents), high switching costs, and network economies. Cost moats are linked to the ownership of cheaper or faster processes, favorable locations, unique assets, or firm size. In some cases, companies’ moats have enabled them to survive multiple technology disruptions and industry shifts over time, making their founders some of richest people in the world: think Bill Gates, Carlos Slim, Amancio Ortega, and Larry Ellison.
There’s an interesting fact about companies with these kinds of moats or competitive advantages that often gets overlooked: the turnover rate of CEOs among the S&P as a whole is between ten and twenty times higher than in the big entrepreneurial successes of the past few decades. A case in point is Inditex, founded in 1963 and now the biggest fashion group in the world, which has only had two CEOs succeed founder Amancio Ortega. By contrast, Germany’s Deutsche Bank, which has suffered from years of poor performance, has had three CEOs in the last five years, none of whom has done much to improve performance despite their glittering CVs in the sector.
This raises a basic question: can a CEO with the best track record imaginable turn around a poorly performing company?According to MIT economist Antoinette Schoar the answer is yes roughly 60% of the time, which is not that much better than the odds of getting heads on a coin toss.
Chicago’s Steve Kaplan’s findings on the difference that managers can make are even more sobering. He studied the relative importance of management teams in 106 venture capital-financed firms from early business plan to IPO. He found that although 50% of venture capital investors described the management team as the most important factor at the business plan stage, this emphasis had dropped markedly by the IPO stage. He concluded that non-human assets — i.e., their moats — were ultimately more important to firms than human assets, with their relative importance increasing over time. The implications are clear: first choose the right industry and company, then pick the right management. If the managers don’t perform, they can be swapped out much more easily than the basic business idea or industry.
Of course, in a highly competitive world, even a slim advantage is better than a coin-toss. So is there something different about the managers who do succeed? Let’s go back to Steve Kaplan, who has also studied how and why CEOs matter, relating their features to hiring and firm performance. His detailed assessments of over 300 CEO candidates in private equity-funded companies suggest that CEOs with execution strengths (“efficiency”, organization and planning”, “attention to detail”, “persistence”, “proactive”, “sets high standards”, etc.) perform better than CEOs whose softer skills such as team building or listening dominate. This finding is a ringing modern confirmation ofwhat Peter Drucker was telling us in 1967about what makes executives effective. If all this is true, then the high CEO turnover you see at many public companies is not a symptom of poor management. It suggests a deeper problem, which is that the companies in question simply don’t have a competitive advantage and are simply engaged in a lottery, hoping to find a CEO who can find one. The odds aren’t favorable.
The smartest minds in fintech on how Wall Street is going to change
The advent of technological change is reshaping Wall Street at a rapid rate.
Business Insider surveyed a number of the brightest minds in financial technology, including chief information officers at industry giants, heads of innovation, startup founders and venture capitalists, and asked them one question.
What is the one thing that is going to change finance as we know it in the next decade?
Their answers varied widely, but there was a handful common theme that ran through all of their responses.
The old models are changing, technology is making some systems antiquated, and new players are going to emerge.
Here is what they had to say:
David Gurle, CEO of financial messaging and data platform Symphony
“It’s going to change in a number of ways. I’m not a specialist in finance, I’m a specialist in technology, but what I can tell you is this: there is today an operating system that makes the financial system work, the system that ties things together. That is a vertically integrated system, in the same way Windows is.
“Over the course of the next 10 years, with cloud computing, with open source, we’re going to see a model where the transformation of this system is the same as from Windows to Linux. You’re going to see organizations being more technologically driven, like Goldman Sachs and others, and giving components of their assets as applications. That is going to make the life of people who interact with financial services way easier and more cost effective.
“There’s a huge infrastructure and technology cost today. Institutions spend billions of dollars on technology. Why? Because of this vertical model. As this transforms itself into unbundling and a horizontal integration like Linux provides, the cost is going to go down. Eventually, that’s going to benefit all of us because the cost of transactions will go down and we’ll find better deals. I’m pretty optimistic about that.”
Blythe Masters, CEO of Digital Asset Holdings
“By and large you’re going to see people moving into more value-added roles thanks to the advent of blockchain technology which will result in middle and back office operational burdens being dramatically reduced.”
Suresh Kumar, chief information officer, BNY Mellon
“Silicon Valley firms are willing to share technology and knowledge when it doesn’t jeopardize their competitive advantage. They’re focused on talent. Empowering their people to try new things, fail fast and pivot is key to their innovation. The future for Wall Street, and finance more broadly, could also be more collaborative.
“Rather than each firm investing time and money to build its own nearly identical processes, we could work together to create start-ups to improve those functions.”
Mike Cagney, chief executive of SoFi
“We’ll see the emergence of the non-bank bank — because banks won’t fix banking. Companies will finally be able to secure a national lending license without FDIC-insured deposits insured deposits, giving consumers better technology (mobile) and lower loan rates (less regulatory burden, branch overhead). These pioneers will aggregate deposits using private insurance, paying slightly more than FDIC costs but avoiding the regulatory burdens that come with that protection. The massive misallocation of human capital – such as physicists working on Wall Street pricing options – will reverse out, and the influx of human capital into areas like battery technology will benefit everyone. The then-rare Wall Street bulge bracket analyst – whose compensation has fallen by 80% – will even be able to buy an electric car.”
Rob Frohwein, CEO & Co-founder of Kabbage
“The line between banks and non-banks will become completely blurred as more and more companies seek to integrate banking like services into the experiences they provide to their customers – both SMBs and consumers – and banks realize that technology and user experience build trust. Look for the day that Google, Apple & Facebook acquire, and extinguish the brands of, Bank of America, Wells Fargo and Chase and branches, to the extent they even exist any longer, start mimicking an Apple store like experience.”
Renaud Laplanche, CEO & founder of Lending Club
“Online marketplaces will take over financial services the same way they have transformed retail, entertainment, transportation and hospitality. All of US banking activity will be faciliated through a massive online marketplace.”
Wells Fargo’s executive vice president and Head of Innovation, Steve Ellis
“Financial services are essentially digital in nature. The proliferation of mobile devices coupled with the Internet of Things and the emergence of new technologies provides a platform to deliver payments and other finance products in new ways. Traditional financial players are being joined by fintech companies and businesses in virtually every industry in delivering existing and new services to customers.
“One primary key is delivering financial services where and when customers want them, whether that’s at an ATM, through a mobile application, at the point of sale, or at a bank branch. A second primary key is that financial services are delivered by and consumed by people – even with all the technological marvels, bells and whistles, the best run businesses have that human touch. Business is personal.”
Morgan Downey of Money.net
“If you’ve ever watched the original Wall Street movie with Charlie Sheen and Michael Douglas from 1987 you will notice that almost every trader is sitting behind a screen with a black background and green text. Every trader on Wall Street had one. It was called ‘The Quotron’. The Quotron was a dedicated machine connected over dedicated cables to dedicated servers. This was just before the internet boomed. Within a few short years in the early 1990s Quotron went from total domination to bust and ceded trading floors to Bloomberg and what is now Thomson Reuters.
“Since then, for the past 25 years, there has been little innovation on market information platforms. There have only been price increases to a now ridiculous $25,000 per user per year. This is now changing.
“Just like the demise of Quotron, change on trading floors can happen surprisingly quickly. Global Wall Street is voting with its wallet. Growth has stagnated at legacy terminal systems.”
Sam Hodges, co-founder of Funding Circle
“We’re on the brink of the largest financial services revolution the world has ever seen. Small businesses are underserved in almost every market by traditional financial institutions, and so we’re building a better solution.
“The marketplace model will eventually become the institutional framework of the global financial system – and this will happen within 20 years. Banks and other traditional financial institutions who embrace this sea-change will have a distinct advantage in delivering a superior experience for their customers, as well as better returns over time.”
Adam Nash, President and CEO of Wealthfront
“For the first time in decades, there are now two huge generations moving through the American economy. In ten years, 90 million millennials will be between the ages of 25 and 45, and will control more than $7 trillion in assets. The biggest changes over the next decade in finance and Wall Street will be based on the increasing demands of this generation that is destined to be the largest one economically this country has ever seen. Demands for transparency, simplicity and automation will dramatically improve the options available for retail investors. In ten years, everyone will be using some form of automated investment service.”
Ethan Senturia, CEO of online lender Dealstruck
“Suits and ties will be replaced by hoodies and blue jeans as new technologies with a user-first focus on transparency and efficiency become the new norm for how the most common financial transactions are done. And with the use of technology, big data algorithms and new data sources will make it much faster and easier to secure financing than ever before.”
Ryan Bailey, CEO of analytics startup Contix
“As greater quantities of high quality data become widely and efficiently dispersed via social media, the finance realm will be far more democratized. The new generation of great traders may not work in Manhattan’s towers.”
Alex Rampell, general partner at Andreessen Horowitz and ex-CEO of TrialPay, a startup recently sold to Visa
“My general sense is that, today, you would build a bank with no branches, no ATMs, fewer employees. It’s a real disadvantage for any bank that was formed more than five years ago.”
Will Rhode, global head of capital markets research at Boston Consulting Group
“We will see new types of intermediaries with access to unique data sets start to emerge and act like banks. We will also see the buy side leveraging their own data to do more business independently of banks. This will force banks to look more like technology companies especially in areas where efficiency is sought or where the value add is lower, such as in the most liquid, simple securities.”
Office cubicles could be killing your organization’s productivity. Beanbags could predominate in the free-form office of the future.
The travails of the stock market and China’s recent “Black Monday” are mostly background noise for senior executives planning long-term strategy in Asia. But there is no doubt corporations face a new set of challenges in the region thanks in part to China’s slowing economic growth.
While reining in costs has been on the agenda since the aftermath of the 2008 financial crisis, many are looking beyond balance sheet re-build towards cautious expansion. In light of this “new normal”, multinationals have a renewed focus on expanding productivity and real estate has a major role to play in this.
As a result we are seeing a transformation in the physical workspace. Asian companies used to insist on traditional office setups, with cubicles for rank-and-file workers and corner offices for the most senior executives.
But they are now taking a leaf from the playbook of companies such as Google and Facebook – both expanding rapidly in Asia – in setting up their workplace for maximum interaction and efficiency.
Big changes due to big data
Data analytics are at the heart of these changes. The amount of data sitting in the systems of organizations is vast, and in many cases untapped. The issue is, “If only we knew what we know.” How you handle that information makes the difference between an efficient company and one that is flailing.
In the next few years, the application of Big Data generated by corporate real-estate teams will allow for highly tailored examinations of space. To track office usage, there are simple tools such as swipe cards that inform a company of when staff come and go.
But the world of Big Data is moving far beyond that. For instance, sensing technology can tell us whether existing desk space is being used or not. Many companies are discovering that, at any one time, at least 25% of their workspace is not being used.
That will no longer be acceptable at a time when, according to research from IMA Asia, 98% of companies are bidding to enhance productivity. They are experiencing a classic profit squeeze, with flattening revenues and costs increasing at double digits in percentage terms.
A series of CEO forums that IMA Asia and JLL conducted across Asia Pacific this year studied the issue of productivity as a solution to that profit squeeze. One of the key findings is that Asian corporates now want to create the “workplace of the future” to deliver that coveted productivity boost.
An open-plan setup breaks down barriers, literally, between colleagues. “Set the tone that collaborative, non-hierarchical and results-oriented work is the norm, so innovation can flourish,” was one conclusion from the forums.
True open-plan offices require the top-level management to give up their private offices, leading by example. Employees come together on projects, anchored to a laptop, not a set desk.
These freeform workplaces serve as statements of a company’s identity. They are a way to engage employees, addressing a crucial challenge for large corporations – retaining talented employees, particularly Millennials, who grew up learning on beanbags and in coffee houses as much as a desk in the library.
This is happening even in the most-traditional of companies. One bank reports that it ditched cubicles for a free-form office, using data from their computer systems to figure out how product-management staff extracted information from the rest of the bank.
Changing the environment worked wonders for productivity. Over a three-month project, the fluid work environment cut wasted time by 85%. Since management was more directly involved in the project, there was very little time spent waiting for decisions or for clarification of details.
Despite this, many companies have overlooked property as a source of productivity. Even for C-suite executives in Asia, 80% said they have little involvement in property decisions, leaving them to headquarters or the chief financial officer.
For real estate, establishing measures such as relative cost per person and profit per professional are smart ways forward that Big Data now enables. Using sensing technology, they can map which departments need to interact, and which can be shifted to lower-cost suburban sites or even moved overseas.
The smart use of data also allows companies to create operational efficiencies. Developers and building managers in Asia are already working with consultants to track energy use and curb it, for instance, through sensor-based lighting, heating and cooling technology.
That has enabled Asian real-estate developers and fund managers to reduce greenhouse-gas emissions by 68 metric kilotons between 2013 and 2014. That’s the equivalent of taking 14,316 cars off the road. In terms of energy reduction, Asia-based property companies have reduced energy consumption by 143 gigawatt hours, or the equivalent of 229 thousand barrels of oil.
Efficiency and productivity can take many forms. But they undoubtedly require a long-term view to achieve and, as with any corporate overhaul, can incur costs at the onset. Increasingly, we now have the data to crunch that show it’s worth it.
Probably due to current subpar economic conditions in their home country, Italian expats’ main motivation for relocation is often the improved working opportunities other countries can offer. Over half (53%) mention the economy and/or labor market as an important factor for their decision to live in another country and the overall single most important reason for leaving Italy is finding a new job abroad, as listed by 19% of Italian respondents. As such, typical expat types among Italians are the Foreign Assignee (21%) and Career Expat (16%).
Germany (hosting 17%) and Switzerland (10%) are the most favored countries of the Italian expats, likely because of the proximity to the motherland. The short distance to home is indeed an attribute Italians appreciate, with 28% mentioning it as an issue that was on their mind when considering moving abroad.
Expat Statistics 2015
Regardless of where expat life takes them, Italians seem to be fairly talented when it comes to languages. Close to half (46%) state they speak four or more languages including their mother tongue(s). Globally only 30% of the expats are so accomplished. Italians also seem to have a good command of the local language in their respective host country: 58% boast being able to speak their host country’s language fairly or even very well, while only 48% of all survey participants say the same. Improving language skills also serves as a motivation to move abroad: 13% of Italian expats mention it as one reason for their relocation.
As mentioned, Italians often travel abroad driven by better working opportunities. Highly educated – two-thirds have a post-graduate degree such as a Master’s degree or PhD – Italian expats nevertheless tend to be conventional employees and managers (63% vs. the global 47%) rather than, for example, researchers (6%), freelancers (5%), or entrepreneurs (6%).
Overall, the effort of moving abroad is rewarded in the form of higher incomes: 73% say they currently earn more than they would back home and 35% even go so far as to say their income is now a lot higher. In general, Italian expats also have slightly higher incomes than the worldwide average: 59% of the Italians say their annual household income is higher than 50,000 USD, compared to 51% among the entire survey population.
Love across Borders
Italian expats happen to be single more often than the global average would suggest (46% vs. a worldwide 38%). Of those who do have a partner, 16% are in a long-distance relationship with their better half residing in another country.
On the other hand, only two in five Italians in a relationship have a partner who is also Italian. In 28% of the cases the partner is neither from the home country nor the current country of residence.
Attending Expat Activities
Expats from Italy have a tendency to keep company mostly with other expats. Almost half (48%) say their acquaintances consist mainly of fellow internationals; around the globe only 34% say the same. When asked about the origin of their expat friends, 21% say they are mostly from Italy, too. On the other hand, close to one-third (32%) has expat friends from a third country with a different culture and no shared language.
Being work-oriented, Italian expats most commonly meet new people through their jobs: two-thirds of them mention work as a place to socialize, followed by those who find friends through other friends (55%). Italians also frequently attend expat events, with 45% saying these are a good place to make new friends.
In a business’s early day, it’s often up to the founders to do everything – from accounts to HR, sales and marketing. Roles become more specialised as the company grows and eventually there comes a point when you need to beef up the board as well.
WHY TO HIRE A NED
Entrepreneurs know their business, and their market, inside out; there’s often nobody better equipped to handle the day-to-day management. But it can be difficult to step back and look at the bigger picture. A non-executive director (NED) can bring a fresh perspective and a less emotionally involved standpoint to the business, helping its leaders identify long-term threats and opportunities.
‘The check and balance a non-exec can bring to a business is hugely valuable, and can help prevent some of the mistakes that a lot of business leaders will undoubtedly make during their journey,’ says George Heppenstall, a director at the executive search firm Directorbank. ‘It’s not a case of bringing in somebody to tell [entrepreneurs] how to run the business, because invariably they have done a very successful job of that already. But there are those out there who can spot the fine margins that can make an impact.’
‘When I join a business it can change the whole dynamic,’ adds Jo Haigh, an experienced non-exec and author of The Keys to the Boardroom: How to Get There and How to Stay There. ‘It can professionalise the board, because if you’ve got a lot of execs who are running the business on a day-to-day then they can be very introspective. It can also bring good practice, because governance practice is something that very often execs don’t have a lot of experience of.’
WHEN TO HIRE A NED
There’s no absolute answer to this question. While having a professional board structure is a requirement for listed companies, there’s theoretically no requirement for even very large private businesses to have any NEDs.
‘It’s not really the size of the company, it’s when they feel they need something that they can’t find within themselves,’ says Haigh. ‘That could be contacts, or it could be somebody that’s going to challenge them, or it could be someone that they need to confide in or to be a mentor.’
‘It depends on the stage and development of the business,’ say Heppenstall. ‘If it’s out of the blocks and revenue-generating and profitable then obviously that’s a good foundation and a good point at which to look at this. Any earlier and you might be struggling to get someone’s engagement.’
A NED can also be a big asset if you’re keen to get venture capital firms to open their wallets. ‘If a business is looking for external investment, having somebody around the board table who has an appreciation for the business sector in which they are operating can be quite useful,’ Heppenstall adds.
HOW TO HIRE A NED
‘There’s lots and lots of ways,’ to find the right person for your board, says Haigh – including headhunters, websites and the Institute of Directors, which can search its directory and provide you with a shortlist of candidates for £100 + VAT (and Maltaway for Malta as well). ‘I think the important thing is to spread the net as far as possible,’ she adds. ‘There’s always a danger that you choose a non-exec because you’ve met them or they’ve been recommended, but you haven’t looked far enough.’
Being a NED isn’t a full-time position – you can normally expect them to commit to a couple of days per month. ‘That, broadly speaking, gets you a monthly board meeting, plus another day for prep and other such commitments,‘ says Heppenstall. Haigh says she includes unlimited phonecalls and emails (within reason).
NEDs don’t come cheap though. Heppenstall says a salaried non-exec can typically be on £20,000-£30,000 and Haigh says day rates can vary from £1,000-£3,000, sometimes higher. That being said, if they can help take your business to where you want it to be then it can be a price worth paying.
Central Banker Sees the Future of Money in Bitcoin
Some of the cleverest people in finance are warning about another recession. Pumping $5 trillion of easy money into the world still hasn’t averted the threat of deflation as the global economy fails to respond to stimulus in the way that the textbooks say it should. And Andy Haldane at the Bank of England has written a speech that may turn out to be a roadmap to the next adventures in monetary policy
Want to know what central bankers will do in the next few years? There’s a Bank of England website page you need to read. But you might need a suspension of disbelief to absorb its conclusions.
In 2008, as the financial crisis really began to bite and the U.S. started its slide into recession, the Federal Reserve provided a handy playbook on the maneuvers it would use to try and rescue the economy. Ben Bernanke’s 2002 speech “Deflation: Making Sure `It’ Doesn’t Happen Here,” told you everything you needed to know about zero interest rates and quantitative easing, and how they would save the world.
Fast forward to today. Some of the cleverest people in finance are warning about another recession. Pumping $5 trillion of easy money into the world still hasn’t averted the threat of deflation as the global economy fails to respond to stimulus in the way that the textbooks say it should. And Andy Haldane at the Bank of England has written a speech that may turn out to be a roadmap to the next adventures in monetary policy.
“How Low Can You Go?” was the question Haldane, the U.K. central bank’s chief economist, posed last week to a chamber of commerce meeting in Northern Ireland. He then took almost 7,000 words to explore the current puzzle facing policymakers (zero interest rates cause more problems than the literature expected), examine what’s special about the current situation (emerging markets have become way more important), dismiss a couple of proposed solutions (more quantitative easing becomes a fiscal issue, while changing inflation objectives destroys confidence in the targets), and suggest some radical proposals of his own (abolish paper currency and adopt some form of Bitcoin).
The current state of global monetary policy is truly extraordinary. Haldane reckons 40 percent of the world has interest rates of less than 1 percent, two-thirds are below 3 percent, leaving 80 percent at below 5 percent — not to mention the nations that have introduced negative rates:
That’s a problem, Haldane argues. The closer borrowing costs are to zero, the less space there is to cut them when the economy needs a boost. Trying to move below what’s called the Zero Level Bound, meantime, hits the obstacle that you can’t charge people for owning paper currency. And because recessions come along every three to 10 years, central banks need ammunition to counter those slumps.
“Consciously de-anchoring the boat, with a promise to re-anchor some distance north, runs the risk of a voyage into the monetary unknown. Once un-moored and de-anchored, the course of inflation expectations is much harder to fathom.”
If a higher inflation target isn’t the answer, maybe making quantitative easing an everyday policy tool rather than an emergency measure might help. Haldane said that economic models suggest QE worth 1 percent of gross domestic product will likely boost GDP by 0.3 percent on a 12-month horizon, although the state of the economic environment makes those predictions less than reliable.
Permanent QE, though, turns bond-buying into an instrument of fiscal policy, Haldane said, which in turn means “monetary policy credibility heads down the most slippery of slopes.” So while QE is a feature of the current landscape, it can’t last forever (or beyond the next economic upturn even).
Haldane has a compelling explanation for why the Fed, which investors previously assumed set policy almost exclusively for its domestic economy rather than the rest of the world, kept rates unchanged last week in what seemed like an acknowledgment that its policy borders extend beyond its geographical borders.
Emerging market economies contribute about 60 percent of world economic output on a purchasing power parity basis, up from 40 percent in the late 1990s; they’re responsible for about 40 percent of world trade, up from 25 percent; and they issue 13 percent of the world’s bonds, up from 7 percent, and 14 percent of all equities, up from 8 percent. With those increasingly important economies faltering, it’s harder for the Fed to escape the liquidity trap of zero rates and start heading back to more normal borrowing costs. So unless they recover, don’t expect the Fed to move. (He also suggested that the next move in U.K. rates might need to be down, not up, which won’t have won him any credit with his boss, Mark Carney.)
With higher inflation targets, perpetual QE and a Fed rate increase out of the way, it’s Haldane’s proposed solution to the Zero Lower Bound that’s the most intriguing part of his speech:
“What I think is now reasonably clear is that the distributed payment technology embodied in Bitcoin has real potential. On the face of it, it solves a deep problem in monetary economics: how to establish trust – the essence of money – in a distributed network. One interesting solution, then, would be to maintain the principle of a government-backed currency, but have it issued in an electronic rather than paper form. Although the hurdles to implementation are high, so too is the potential prize if the ZLB constraint could be slackened.”
Haldane isn’t the first senior person to propose abolishing paper currencies, or to embrace the blockchain technology underlying Bitcoin. But his enthusiasm for the prospect of what he calls central banking’s “own great technological leap forward” is infectious. And his status as a potential future Bank of England governor means investors, traders and economists should all pay attention to his vision of what the future of central banking might and might not include.
Given at the Portadown Chamber of Commerce, Northern Ireland
The global financial crisis has thrown up a raft of issues about the future of central banks. These are the most fundamental challenges to face central banking in a generation, perhaps longer (Haldane (2014)). They include the role of monetary, macro-prudential and micro-prudential policies and optimal degrees of transparency and accountability. I will discuss two of these issues: the future of money and the future of monetary policy.
Both go to the very heart of what makes a central bank special – its balance sheet. A central bank’s balance sheet is the foundation on which both money and monetary policy are built. A central bank’s liabilities define the quantity of so-called base money in circulation. And the interest rate on central bank money defines monetary policy. In that sense, central bank money and monetary policy are two sides of the same coin.
Yet, in practice, money and monetary policy issues have tended to be detached. A central bank’s liabilities comprise two elements – currency with the public and deposits from banks. Under operating procedures in most central banks, non-interest bearing currency is supplied perfectly elastically to the public on demand, while the monetary policy stance involves fixing the interest rate on bank reserves (McLeay et al (2014)). In this way, the cord connecting currency and monetary policy has been all but cut.
Events since the financial crisis have gone some way towards reconnecting that cord. As interest rates were lowered to their effective floor in a number of advanced countries, central banks engaged in so-called Quantitative Easing (QE) – buying assets and crediting banks’ accounts at the central bank. So far, these asset purchases have totalled $5 trillion, with more planned. They have augmented central banks’ monetary policy armoury.
These “unconventional” monetary policy actions have re-established some link between central bank money and monetary policy. But these unconventional policies are intended to be temporary, crisis-related measures. As QE rolls off over time, the cord connecting central bank money and monetary policies would be expected to wither gradually. The two sides of the monetary coin would again be separated, the status quo ante restored.
Yet it is possible that the monetary status quo ante may not be fully restored. If global real interest rates are persistently lower, central banks may then need to think imaginatively about how to deal on a more durable basis with the technological constraint imposed by the zero lower bound on interest rates. That may require a rethink, a fairly fundamental one, of a number of current central bank practices.
I will discuss some of the medium-term options for dealing with this technological constraint. Because all of these options would represent significant shifts from the past, they would benefit from further research. And as these are options for the future, there is time to carry out this research. But these issues are also relevant to monetary policy today, on which I will end with some reflections.
The Zero Lower Bound
Following the global financial crisis, short-term interest rates fell sharply in a great many countries internationally. They have remained at low levels in the period since. In a sample of countries globally, 40% have short-term interest rates below 1%, nearly two thirds have interest rates below 3% and 80% have interest rates below 5% (Chart 1). In some countries in Europe, short-term interest rates have entered negative territory.
Among the large advanced economies, official interest rates are effectively at zero. Japanese official interest rates have been there for over 20 years. In the US, Euro Area and the UK, official interest rates have been at zero for six years and counting. Each of these countries has augmented monetary policy with large-scale QE programmes, liquidity injections into the banking system and forward guidance on monetary policy (IMF (2013)).
The need for unconventional measures arose from a technological constraint – the inability to set negative interest rates on currency. It is possible to set negative rates on bank reserves – indeed, a number of countries recently have done so. But without the ability to do so on currency, there is an incentive to switch to currency whenever interest rates on reserves turn negative.1 That hinders the effectiveness of monetary policy and is known as the Zero Lower Bound – or ZLB – problem (Ball (2014)).
The ZLB problem is, in one sense, not new. It was discussed at the time of the previous largest and most damaging financial crisis, the Great Depression. Keynes warned of the ineffectiveness of low interest rates in his General Theory (Keynes (1936)). It gave rise to his notion of the “liquidity trap”. Keynes also had a number of imaginative solutions, both monetary and fiscal, for dealing with this problem to which I will return.
Yet for much of the period after the Great Depression, the ZLB problem disappeared from policy view. It became a topic largely confined to academic rather than policy circles (Blanchard, Dell’Ariccia and Mauro (2010)). Based on simulations conducted before the crisis, that neglect looked benign. For example, Reifschneider and Williams (2000) find that, with a 2% inflation target, monetary policy would be constrained by the ZLB only around 5% of the time.
More recent experience has been salutary. The ZLB has emerged as a real and persisting constraint for some central banks and a prospective constraint for many more. Pre-crisis simulations of the likelihood of the ZLB binding were flattered by the low levels of macro-economic risk which characterised theGreat Moderation. Re-calibrating macro-economic risk for experience during the Great Recession, the ZLB becomes a clear and present danger (for example, Chung, Laforte, Reifschneider and Williams (2012)).
Nonetheless, the prevailing orthodoxy among academics and policymakers is that the ZLB problem, while more persistent than expected, will still be a passing one. As countries recover from the Great Recession, the ZLB constraint would be expected to slacken, its policy relevance to weaken and the ZLB debate to return to an academic stage. That, after all, was the lesson from the Great Depression.
Yet that may be the wrong lesson. It was not the crisis alone that caused the ZLB constraint to bind: its deep roots in fact appear to predate the crisis. And it is questionable whether this constraint will disappear once the global recovery is complete: the deep roots of the ZLB constraint may be structural and long-lasting (Buiter and Rahbari (2015)). The Great Recession is, in that sense, different than the Great Depression. To see that, consider the recent behaviour of global long-term real interest rates.
Chart 2 plots global long-term real interest rates over the past 35 years. Back in the 1990s, world real interest rates averaged around 4%. With an inflation target of 2%, that meant nominal interest rates averaging around 6% over the course of a typical cycle. At those levels, monetary policy would have plenty of room for manoeuvre above the ZLB – 6 percentage points – to cushion the effects of troughs in the business cycle.
Over the past 30 years, however, world real interest rates have been in secular decline (Broadbent (2014)). At the dawn of the crisis, they had halved to around 2%. Since then they have fallen further to around zero, perhaps even into negative territory. With a 2% inflation target, that would now put nominal interest rates, on average over the cycle, at 2%. And that would mean there is materially less monetary policy room for manoeuvre than was the case a generation ago.
Too little room? One way to gauge that is to look at “typical” monetary policy loosening cycles in the past. Chart 3 plots interest rates in the UK, US, Japan and Germany since 1970, while Table 1 looks at loosening cycles in these countries since 1970 and 1994 (Haldane (2015)). The “typical” loosening cycle is between 3 and 5 percentage points. Either way, interest rate headroom of 2 percentage points would potentially be insufficient.
An alternative metric on the probability of the ZLB binding is to look at the likelihood of recession. Table 2 looks at cumulative recession probabilities over three time horizons (1, 5 and 10 years ahead) measured over three historical samples (the UK since 1700 and 1945 and a cross-country panel since 1870). Recessions occur roughly every 3 to 10 years. Over the course of a decade, they are overwhelmingly more likely than not.
So given these recession probabilities, how likely is it that interest rates will be at levels that would allow them to be cut sufficiently to cushion the effects of a typical recession? We can calculate the probability of interest rates having reached, say, 3% by using the market yield curve. These market-based probabilities are shown in the final column of Table 2, at different horizons.
This suggests that the probability of policymakers needing 3 percentage points of interest rate headroom comfortably exceeds the likelihood of this headroom being available. Put differently, it is much more likely than not interest rates may need to return to ground zero at some point in the future. Although no more than illustrative, these estimates suggest the ZLB could exert a strong gravitational pull on interest rates for some time to come.
This calculus would overstate that gravitational pull if the yield curve proves to be a poor guide to the future path of global rate interest rates. For example, if global real rates quickly mean-reverted to their historical levels of 2-3%, monetary policy headroom would re-open (Chart 4). While the Great Recession and Great Depression look different today, at least in terms of long-term real interest rates, tomorrow may be different.
To assess the likelihood of real rates mean-reverting, we need to understand why it is they fell in the first place. Bank colleagues have recently tried to pinpoint the drivers of global real rates (Rachel and Smith (forthcoming)). The factors they identify can account for the majority of the 450 basis point fall since the 1980s. They include lower trend growth (100 basis points); worsening demographic trends (90 basis points); low investment rates due to the falling price of capital goods (50 basis points); rising inequality (45 basis points); and savings gluts in emerging markets (25 basis points).
These factors are not will-of-the-wisp. None is likely to reverse quickly. That being so, lower levels of global real rates may persist at levels well below their long-term average. This time may indeed be different, not just from the recent past (the 1980s and 1990s), but from the distant past (the 1930s). And if so, central banks may find themselves bumping up against the ZLB constraint on a recurrent basis.
Neglect of the ZLB problem would then no longer be benign. So even if policymakers cannot know with certainly how often it will bind, there are benefits on risk management grounds from considering policy options which would slacken the ZLB constraint on a durable basis (see Buiter and Panigirtzoglou (2003), Buiter (2004), Buiter (2009), Kimball (2015)). From a non-exhaustive list, let me discuss three such options. Each would mark a significant departure from current central bank practices and, as such, would benefit from further research and reflection.
Revising monetary policy mandates
Over the past few decades, inflation targets in advanced economies have steadily fallen and typically converged around 2% (Chart 5). In emerging economies, they have fallen faster still and are currently around 4%. This fall in average inflation targets has mirrored the fall in inflation itself (Chart 6). Indeed, at present inflation is undershooting those targets, on average by around 1.5 percentage points.
After the inflation scare of the 1970s and early 1980s, that disinflationary trajectory has been hugely beneficial. Nonetheless, the ratchet down in inflation, alongside falls in global real interest rates, has not been costless. Taming inflation through tight monetary policies came at an output cost, albeit probably a temporary one. More fundamentally, by lowering steady-state levels of nominal interest rates, lower inflation targets will have increased the probability of the ZLB constraint binding.
That being so, one option for loosening this constraint would simply be to revise upwards inflation targets. For example, raising inflation targets to 4% from 2% would provide 2 extra percentage points of interest rate wiggle room. That is roughly the order of magnitude researchers have suggested might be desirable (Ball (2014) and Blanchard et al (2010)). Simulations suggest a 4% inflation target gives sufficient monetary policy space to cushion all but the largest recessions historically (Leigh (2009)).
Put another way, the optimal inflation target is likely to be state-dependent depending, among other things, on the likelihood of the ZLB constraint binding. That likelihood depends, in turn, on the level of equilibrium real interest rates. If equilibrium real rates shift, so too should the optimal inflation target (Reifschneider and Williams (2000)). In other words, theory also would support a revision of monetary mandates.
What of the costs? The welfare costs of inflation arise through various channels (Camba-Mendez and Rodriguez-Palenzuela (2003), Schmitt-Grohe and Uribe (2010)) and have been catalogued in a rich literature (Briault (1995)). But there is little evidence to suggest these costs would be large when moving from steady-state inflation rates of 2% to 4%. Cross-country studies have found evidence for a negative relationship between inflation and growth, but the negative effect is typically only observed at rates of inflation above current targets.2
Let me now add some important notes of caution. This evidence is drawn almost exclusively from periods when inflation was high and falling. There could be a fundamental difference between the dynamics of inflation expectations during periods when inflation is high and steadily falling on the one hand, and low and suddenly rising on the other. At a turning point, there is a risk of excess and asymmetric responses in inflation expectations (Kobayashi (2013), Kurozumi (2014) and Ascari et al (2014)).
The pattern of UK inflation expectations over time suggests a steady sequence of disinflationary ratchets, associated with shifts in monetary policy regime and a gradual accretion of credibility (Chart 7). Inflation expectations have become moored, and increasingly tightly anchored, around the inflation target. And once moored and anchored, they have been resilient to sea-swells. Even during the Great Recessionary storms, longer-term measures of UK inflation expectations were remarkably stable.
Reputation, in all walks of life, is hard-earned and easily lost. Inflationary reputation is unlikely to be any different. So consciously de-anchoring the boat, with a promise to re-anchor some distance north, runs the risk of a voyage into the monetary unknown. Once un-moored and de-anchored, the course of inflation expectations is much harder to fathom. That navigational uncertainty is likely to be damaging to macro-economic stability.
Moreover, there is a deeper point to bear in mind here about society’s preferences, as distinct from economists’ utterances. The costs of inflation as calculated by economists may not be the same as the costs of inflation as perceived by normal people. International survey evidence suggests stronger concerns among the general public about inflation than the academic literature would imply (Shiller (1997)).
In the UK, the Bank conducts regular surveys of public attitudes towards the inflation and the inflation target. This is revealing about societal inflation preferences. Public attitudes towards the Bank have a strikingly high correlation with inflation perceptions (Chart 8). This underscores the importance of low inflation for central bank reputation. It also suggests the public’s preferences appear, if anything, to be for inflation below rather than above current targets.
Consistent with that, when the public are asked directly about the inflation target they suggest, on average, that it may if anything be a little too high (Chart 9). Taken together, this evidence suggests that an inflation target above current levels would not only risk putting central banks’ reputations on the line. More fundamentally, it could also jar with the general public’s preferences.
The choice of inflation target in the UK is ultimately, and rightly, a choice for the government rather than the Bank of England. But Friedrich Hayek once likened controlling inflation to holding a tiger by the tail (Hayek (1979)). In my view, it would be a brave step to tweak this tiger’s tail at the very point we appear to have it tamed.
QE for all seasons
A second policy option would simply be to accept the ZLB constraint and allow currently “unconventional” monetary measures to become “conventional”. That might mean accommodating QE as part of the monetary policy armoury during normal as well as crisis times – a monetary instrument for all seasons.
This approach has some attractions. Unlike increases in inflation targets, it would not be a voyage into the monetary unknown. QE has been carried out by a number of advanced economy central banks over recent years. That has provided a fairly rich evidence base on which to assess its efficacy. Moreover, this evidence base suggests that the QE undertaken so far has, more or less, had its desired impact.
One approach to gauging QE’s impact is to assess the response of asset prices following announced interventions. Event studies have found that most QE interventions had a statistically significant impact on asset prices, such as short and longer-term interest rates, corporate bond yields, the exchange rate and financial market uncertainty (for example, Gagnon, Raskin, Remache and Sack (2011), Breedon, Chadha and Waters (2012)).
As a simple eyeball-metric, Chart 10 looks at responses of financial market variables across a range of QE interventions by the Bank of England, US Federal Reserve, the European Central Bank and the Bank of Japan over the past few years. Each intervention is scaled by national GDP. These charts do not control for how much QE was expected in advance, but typically, though not always, these responses are correctly-signed. In a number of these cases, they are also statistically significant.
A second strand of the literature has looked not at the immediate effects of QE on asset markets, but instead on demand and inflation over medium-term horizons. Often, these studies have used identified VAR time-series techniques (for example, Baumeister and Benati (2012)). One example is work by my Bank colleagues, Martin Weale and Tomasz Wieladek (Weale and Wieladek (2015)).
Chart 11, taken from Weale and Wieladek (2015), looks at the impact on real GDP and inflation of doing QE equivalent to 1% of annual GDP in the US and UK using one of the four identification schemes proposed in their paper. The impact is correctly-signed and statistically significant. It is also quantitatively significant and persistent, with an average peak impact on GDP of around 0.3% after around 12 months.3
Taking these ready-reckoners at face value, QE appears to have had a reasonably powerful and timely impact in stimulating demand and inflation, with impact multipliers not dissimilar to conventional interest rate policy. Taken at face value, this suggests QE could be a practical and proven means of keeping the monetary policy engine running and the economy ticking over, should interest rates in future find themselves parked on the ZLB.
The case against QE becoming a permanent monetary policy fixture hinges, in my view, on three concerns. First, QE’s effectiveness as a monetary instrument seems likely to be highly state-contingent, and hence uncertain, at least relative to interest rates. This uncertainty is not just the result of the more limited evidence base on QE than on interest rates. Rather, it is an intrinsic feature of the transmission mechanism of QE.
All monetary interventions rely for their efficacy on market imperfections. The non-neutrality of interest rates relies on imperfections in goods and labour markets. Stickiness in goods prices and wages – for example, as a result of overlapping wage and price contracts (Taylor (1979), Fischer (1977), Calvo (1983), Yun (1996), Mankiw and Reis (2002)) –allow shifts in nominal interest rates to influence real activity. The effectiveness of QE relies on these goods and labour market frictions too. But it relies, in addition, on imperfections in asset markets. These are necessary for a QE-induced rebalancing of portfolios to generate an impact on risk premia and asset prices (Joyce et al (2014)).
Market frictions are not all created equally. Frictions in goods and labour markets arise from contractual arrangements, or rules of thumb, between employers and employees of labour or buyers and sellers of goods (Blanchard and Fisher (1989)). Because there are costs – menu and behavioural – from changing these arrangements, they tend to be fairly static. Goods and labour market frictions are thus relatively fixed, or at least state-invariant, over time.
The same is not true of frictions in asset markets. These are shaped, for example, by constraints on investors’ portfolios and by their risk preferences (Vayanos and Vila (2009)). Both are likely to be time-varying and highly state contingent (Baker and Wurgler (2007) and Guiso, Sapienza and Zingales (2013)). Portfolios themselves are altered at high speed and frequency. So too are risk appetites. So shifts in asset risk premia are sharp and unpredictable (Bollerslev and Todorov (2011)). And assets prices tend to exhibit excess-sensitivity. Asset market returns are thus likely to be volatile, fat-tailed and highly state-contingent (Haldane and Nelson (2012)).
All of which has direct implications for the transmission mechanism for QE. If asset frictions are highly state-dependent and volatile, so too will be the efficacy of QE. Estimates of the impact of QE during periods of high risk premia and disturbed financial conditions may be very different than when asset markets are tranquil and risk premia low.
Consistent with that, existing empirical studies point to wide margins of error around QE ready-reckoners (Table 3). Different episodes of QE have generated quite different impacts. Chart 12 compares the impact of QE1 (2003-08) and QE2 (2008-15) in Japan. The ready-reckoners differ not just in scale, but also sign. The key micro-economic point is that these uncertainties are inherently greater for QE than interest rates. This poses a significant challenge to regularising its use.
Second, executing QE on a larger-scale or putting it on a more permanent footing would risk blurring the boundary, however subtly, between monetary and fiscal policy. To see why, consider the mechanics of QE. This typically involves a central bank purchasing either a government or private sector asset. If done so permanently and on a large enough scale, both are quasi-fiscal acts.
If a central bank executes QE by buying government debt, this is likely to have an impact on the cost of servicing that debt – indeed, that is one of the channels through which QE is supposed to work. If that purchase is permanent, it also has implications for the quantity of debt the government needs to issue, for a given fiscal stance. Either way, there are direct consequences for the government’s budget constraint (Kirby and Meaning (2015)).
If QE is instead executed by purchases of private assets, although this may have no immediate fiscal implications, it does have indirect implications for the government’s inter-temporal budget constraint. For example, if risk on these private asset purchases then crystallises, the liability ultimately falls on the government’s finances. Whether through public or private purchases, QE has potentially important fiscal consequences.
This blurring of the fiscal/monetary boundary is likely to be limited if asset purchases are modest in scale and temporary in nature. Those conditions are likely to be satisfied for the QE executed so far in advanced economies. The fiscal/monetary boundary can also be demarcated in ways which lessen the risk of blurring. For example, in the UK there is an explicit agreement to indemnify the Bank against financial losses arising from QE.
Nonetheless, were QE to grow in scale and permanence, that boundary would become fuzzier. QE then morphs into fiscal policy and monetary policy risks falling victim to so-called “fiscal dominance” (Woodford (2001), Cochrane (2011), BIS (2012), Roubini (2014)). That would corrode another hard-won monetary prize over recent decades – namely, central bank independence. In short, as QE becomes permanent, monetary policy credibility heads down the most slippery of slopes.
Third, one of the channels through which QE operates is the exchange rate. Conventional interest rate policy works through the exchange rate channel too. But because QE acts directly on stocks of assets held by the private sector, the potential for asset market – including foreign exchange market – spillovers is prospectively greater.
Evidence from QE interventions is consistent with significant exchange rate responses in many cases (Chart 13). Domestic currencies have tended to depreciate in response to domestic QE policy announcements. But, particularly for small open economies, there are also spillovers from international QE that might be as important. Chart 14 plots the impact on UK output and inflation of both UK and US QE, scaled as a percentage of national GDP. US QE appears to have had, if anything, a larger impact on the UK economy than UK QE.
Given the close alignment of UK and US business cycles, this cross-border spillover is potentially positive for both countries. But that may not be the case if business cycles are misaligned. International spillovers from QE could then complicate the setting of national monetary policies. Indeed, the cross-border impact of QE could then be seen as imposing a potential externality on the international monetary system.
That systemic externality is likely to be small if QE is modest in scale and temporary in nature, as over recent years. But placing QE on a permanent footing, or operating it on an industrial scale, would amplify that systemic externality. In my view, that would risk having adverse implications for the longer-term stability of the global financial system.
For these three reasons, I am doubtful QE for all seasons would be a desirable steady-state monetary solution for the ZLB problem. And I say that without prejudice to whether QE may have some further temporary role to play in stimulating aggregate demand, were that required in the near future.
Negative interest rates on currency
That brings me to the third, and perhaps most radical and durable, option. It is one which brings together issues of currency and monetary policy. It involves finding a technological means either of levying a negative interest rate on currency, or of breaking the constraint physical currency imposes on setting such a rate (Buiter (2009)).
These options are not new. Over a century ago, Silvio Gesell proposed levying a stamp tax on currency to generate a negative interest rate (Gesell (1916)). Keynes discussed this scheme, approvingly, in the General Theory. More recently, a number of modern-day variants of the stamp tax on currency have been proposed – for example, by randomly invalidating banknotes by serial number (Mankiw (2009), Goodfriend (2000)).
A more radical proposal still would be to remove the ZLB constraint entirely by abolishing paper currency. This, too, has recently had its supporters (for example, Rogoff (2014)). As well as solving the ZLB problem, it has the added advantage of taxing illicit activities undertaken using paper currency, such as drug-dealing, at source.
A third option is to set an explicit exchange rate between paper currency and electronic (or bank) money. Having paper currency steadily depreciate relative to digital money effectively generates a negative interest rate on currency, provided electronic money is accepted by the public as the unit of account rather than currency. This again is an old idea (Eisler (1932)), recently revitalised and updated (for example, Kimball (2015)).
All of these options could, in principle, solve the ZLB problem. In practice, each of them faces a significant behavioural constraint. Government-backed currency is a social convention, certainly as the unit of account and to lesser extent as a medium of exchange. These social conventions are not easily shifted, whether by taxing, switching or abolishing them. That is why, despite its seeming unattractiveness, currency demand has continued to rise faster than money GDP in a number of countries (Fish and Whymark (2015)).
One interesting solution, then, would be to maintain the principle of a government-backed currency, but have it issued in an electronic rather than paper form. This would preserve the social convention of a state-issued unit of account and medium of exchange, albeit with currency now held in digital rather than physical wallets. But it would allow negative interest rates to be levied on currency easily and speedily, so relaxing the ZLB constraint.
Would such a monetary technology be feasible? In one sense, there is nothing new about digital, state-issued money. Bank deposits at the central bank are precisely that. The technology underpinning digital or crypto-currencies has, however, changed rapidly over the past few years. And it has done so for one very simple reason: Bitcoin.
In its short life, Bitcoin has emerged as a monetary enigma. It divides opinion like nothing else (for example, Yermack (2013), Shin (2015)). Some countries have banned its use. Others have encouraged it. Some economists have denounced it as monetary snake oil. Others have proclaimed it a monetary cure-all for the sins of the state.
What I think is now reasonably clear is that the distributed payment technology embodied in Bitcoin has real potential. On the face of it, it solves a deep problem in monetary economics: how to establish trust – the essence of money – in a distributed network. Bitcoin’s “blockchain” technology appears to offer an imaginative solution to that distributed trust problem (Ali, Barrdear, Clews and Southgate (2014)).
Whether a variant of this technology could support central bank-issued digital currency is very much an open question. So too is whether the public would accept it as a substitute for paper currency. Central bank-issued digital currency raises big logistical and behavioural questions too. How practically would it work? What security and privacy risks would it raise? And how would public and privately-issued monies interact?
These questions do not have easy answers. That is why work on central bank–issued digital currencies forms a core part of the Bank’s current research agenda (Bank of England (2015)). Although the hurdles to implementation are high, so too is the potential prize if the ZLB constraint could be slackened. Perhaps central bank money is ripe for its own great technological leap forward, prompted by the pressing demands of the ZLB.
Monetary policy today
Crypto-currencies may, or may not, shape monetary policy in the future. Let me conclude with some thoughts on the factors shaping monetary policy in the present.
Over the past few months, debate on the global economy has been dominated by news from Greece and China. In my view, these should not been seen as independent events, as lightning bolts from the blue. Rather, they are part of a connected sequence of financial disturbances that have hit the global economic and financial system over the past decade.
Recent events form the latest leg of what might be called a three-part crisis trilogy. Part One of that trilogy was the “Anglo-Saxon” crisis of 2008/09. Part Two was the “Euro-Area” crisis of 2011/12. And we may now be entering the early stages of Part Three of the trilogy, the “Emerging Market” crisis of 2015 onwards.
This trilogy has a common storyline. The three crisis legs have common cause in a large slug of global liquidity. As this has rotated around the international financial system, it has by turns inflated then deflated capital flows, credit, asset prices and growth in different markets and regions. That pattern characterised the first and second legs of the crisis (Wolf (2014)). And the embryonic third leg has many of the same ingredients.
Immediately after the crisis, $600 billion of capital rotated out of crisis-afflicted advanced and into emerging market economies (EMEs). Peak to trough, this lowered EME bond spreads by around 200-300bp. And as capital rotated into EMEs from advanced economies, so too did growth. Since 2010, annual growth in EMEs has averaged 6%, three times that in advanced economies. EMEs have accounted for 80% of global growth, with China alone contributing around half.
Over the past 18 months, that cycle has turned decisively. In the past year, $300 billion of capital has flowed out of EMEs on official estimates. Unofficial estimates put that number much higher, not least given recent capital flight from China. EME bond yields have risen by over 100bps. And, as on the way up, where money has lead growth is now following. The IMF forecast EME growth will slow to below 4% this year.
It is not difficult to identify the headwinds to EME growth, few of which seem likely to abate quickly. They include a debt overhang from the credit and capital flow boom; a significant downturn in the commodity price cycle, which has intensified and generalised recently; political instabilities; and the prospect of an imminent tightening of dollar interest rates, in which much of EMEs’ overseas borrowing has been conducted.
In the past, this conflation of factors has often presaged a perfect EME storm (Corsetti et al (1999), Krugman (2009)). Its epicentre recently has been China. But these headwinds are shared by a significant number of other EMEs. It is unclear whether these forces will result in a fully-fledged financial crisis, as some EMEs have significant stock-piles of foreign currency reserves. But these headwinds do seem likely to sap future EME growth.
From a UK and global perspective, the question then becomes how much of a disinflationary influence, if any, this EME growth headwind will provide? Experience during the Asian and Latin American crises of the late 1990s and early 2000s offers some reassurance. Then, advanced economy growth remained robust, at an average of almost 3%, despite financial convulsions in a sequence of EMEs.
Nonetheless, the world today is rather different. At that time, EMEs accounted for just over 40% of world output on a PPP-weighted basis. Today, they account for nearer 60%. The global growth implications of an EME slowdown are that much greater now than then. So too is the likely impact on world trade, where EMEs’ importance has risen from around 25% to around 40% over the same period. Notably, world trade volumes have contracted during the first part of this year, for the first time since the crisis.
Taking various channels together, the Bank’s non-structural models suggest a 1% fall in EME growth could slow global and UK growth by around 0.5% over a two year period. It would slow the ship, but not sink it. Moreover, an important mitigating factor is the significant improvement in the terms of trade for commodity-importing countries, with oil prices having fallen by 50% and metals prices by 20% over the past year. Provided the marginal propensity to consume of commodity-importers exceeds that of exporters, this would be expected to provide a fillip to world growth.
Against that, two important features of the recent fall in commodity prices need to be weighed. First, recent moves appear largely to have reflected a slowdown in global demand rather than an increase in supply. A decomposition of oil price moves using asset prices suggests nearly three-quarters of the fall since early May has been demand-induced (Chart 15). The terms of trade improvement has not been heaven-sent.
Second, for this fall in commodity prices to generate a boost to global growth, any terms of trade windfall needs to be spent by commodity-importers. The evidence on that having happened over the past 12 months is mixed. In an environment of post-crisis traumatic stress, it could be that consumers and companies are playing it safe, using their windfall to save or pay down debt, rather than spend (Haldane (2015)).
It is simply too soon to tell how potent contagion from EMEs to the world economy will be. As events following the first two legs of the trilogy made clear, however, traditional trade channels are likely to be only part of the contagion story. In an integrated world, financially and informationally, banking and uncertainty channels may be every bit as important. Indeed, during the first two legs of the trilogy, they were often the most potent channels.
It may be third time lucky. Even today, EMEs remain somewhat less integrated into global capital markets than advanced economies. Nonetheless, degrees of EME financial integration are significant and have grown rapidly. The share of bond issuance by EMEs as a proportion of total issuance has roughly doubled since 2006, from around 7% to 13%. As a proportion of global stock market capitalisation, EMEs have risen from 8% to 14%.
Banking channels are also potentially potent. UK-owned banks’ exposures to Greater China total $540 billion or 100% of core capital. Their exposures to EMEs total $820 billion or 150% of core capital. By comparison, exposures to the United States – the epicentre of Part One of the trilogy – are $655 billion. Exposures to the euro-area – epicentre of Part Two – are $960 billion. On these metrics, Part Three is not so different.
Against these negative external forces are weighing solid UK domestic demand forces. Spending by UK consumers and companies continues around trend growth rates, supported by high levels of confidence, easy credit conditions and rising real incomes. The UK unemployment rate has fallen sharply, from over 8% to 5.5%. Estimates of slack in the economy have fallen sharply too. And with surveys suggesting skill shortages, there is now some evidence of a long-awaited pick-up in wage growth.
While the UK’s recovery remains on track, there are straws in the wind to suggest slowing growth into the second half of the year. Employment is softening, with a fall in employment in the second quarter and surveys suggesting slowing growth rates. Surveys of output growth, in manufacturing, construction and possibly services, have also recently weakened. All of these data were taken prior to recent EME wobbles.
Standing back a little, output surveys suggest UK growth has been on the gentlest of downward glidepaths since early 2014. The descent appears to be continuing into the second half of the year. This demand pattern does not suggest UK monetary conditions have been over-accommodative. That would have generated a pattern of above-trend and rising growth rates. Instead, we have had a pattern of at-trend and falling growth rates.
Part of the reason may be the 20% appreciation of sterling in effective terms since mid-2013. Although it is difficult to pinpoint its precise causes, this appreciation is at least in part a monetary phenomenon. The lion’s share of sterling’s rise probably reflects the tightening of UK monetary conditions relative to other countries, the US excepted. During the course of this year alone, at least 35 countries have loosened monetary conditions.
That is relevant when turning from the real to the nominal side of the UK economy. The picture here is a weak one. Headline UK consumer price inflation is close to zero, having been significantly but temporarily depressed by lower energy prices. Even after stripping out food and energy prices, however, the Bank’s range of core inflation measures average around 1% – in other words, one percentage point shy of the Bank’s inflation target.
Much the same could be said of labour costs. Stripping out volatile bonuses, whole economy wage inflation lies in the 2-3% zone. And while underlying wage growth has nudged-up this year, this rise has been at least matched by higher productivity growth. That leaves unit wage growth at probably no more than 1% and possibly less – again, about a percentage point shy of the levels necessary to hit the inflation target.
With subdued world growth and prices, and a sharp appreciation of sterling whose effects in lowering imported prices have yet fully to pass-through, I am not as confident as I would like that one percentage point of additional nominal pick-up will be forthcoming over the next two years. In my view, the balance of risks to UK growth, and to UK inflation at the two-year horizon, is skewed squarely and significantly to the downside.
Against that backdrop, the case for raising UK interest rates in the current environment is, for me, some way from being made. One reason not to do so is that, were the downside risks I have discussed to materialise, there could be a need to loosen rather than tighten the monetary reins as a next step to support UK growth and return inflation to target.
1 Beyond a small wedge, reflecting the opportunity cost of currency storage.
2 Estimates of the level of this threshold in advanced economies range widely, from around 3% (Khan and Senhadji (2001) and Kremer, Bick and Nautz (2013)) to 8% (Burdekin, Denzau, Keil, Sitthiyot and Willett (2004)).
3 Weale and Wieladek (2015) argue there is currently no consensus identification scheme to identify QE shocks. It is for this reason that they examine four different identification schemes. The 0.3% impact is an average across these four different identification schemes.