May 25, 2024

Currency wars and the Moscow Financial Center



Increasing foreign trade imbalances with the increase of globalization started to endanger the sustainability of the macro balances of the countries.

Don’t think by the title I’m making a connection between currency wars and the Moscow Financial Center. The only common point between the two issues is that they will be on the agenda at the G20 meetings to be held in Moscow on February 14-15 this week.

Currency wars are a hot topic after Japan’s expansionary monetary policy increased. The Moscow International Financial Center project, on the other hand, is an old issue that has come to the fore again with the MICEX IPO.

We have to follow the subject of currency wars, even if it is boring sometimes.  Because if the conflict between the four elephants of the apocalypse – the USA, Europe, Japan and China – increases, it will happen to developing countries like us. Monetary policy in Turkey is determined based on global liquidity.

Moscow Financial Center is not an issue that concerns the markets in the short term. Russia and Turkey, as in many other areas, are also competing to become the financial center of the region.   The financial center issue, which is kept alive by politicians more than market forces for now, will affect especially those working in the financial sector in the long run.

We can see currency wars as protectionist measures applied by countries in the 21st century.  Increasing foreign trade imbalances with the increase of globalization started to endanger the sustainability of the macro balances of the countries.

Economic administrations, which can use customs duties and quotas in a limited way due to international agreements, while relieving the debt problem in their countries with their expansionary monetary policies, on the other hand, they support foreign trade balances by depreciating their currencies.

The yen’s value against the dollar reached around 75 percent in mid-2012, putting the competitiveness of Japanese companies on the brink of extinction. The increase in the exchange rate to 93 with the support of the expansionary monetary policy relieved the exporting Japanese companies.  The ones that suffered the most from this business were Eurozone companies, whose money has recently appreciated due to the increase in risk appetite. Continuing to loosen the monetary policy of Europe will cause the Central Bank of Turkey to further reduce the short-term interest rates.

The issue of Moscow International Financial Center stems from Russia’s desire to increase its competitiveness by focusing on the financial sector, which has begun to stumble due to its dependence on global growth, energy prices and state companies.

Russia has no chance to become an international financial center in the short and medium term due to the backwardness of its technological infrastructure, lack of trained manpower, and the lack of confidence in the legal system.

However, Moscow has a better chance of being a regional center than Istanbul. 18% of the market value of the London stock exchange consists of companies of Russian origin and state partnerships.   President Putin is determined to carry out the next privatizations on the Moscow stock exchange.

It is planned to encourage private sector companies to go public in Moscow with the necessary incentive mechanisms.  Similarly, countries that were former members of the Soviet Union and dependent on energy will be encouraged to privatize the Moscow stock market. The realization of these developments will hit the Istanbul International Financial Center project, which already has a limited chance.

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