Libor to be phased out
In the wake of news that a US court has overturned two former Rabobank traders’ convictions over a conspiracy to fix yen and dollar Libor rates, comes an announcement from the head of the Financial Conduct Authority, Andrew Bailey, that it has become ‘not only unsustainable, but also undesirable’ for Libor to continue in its current form.
The decision was taken because banks no longer want to participate in setting the rate, which, at its peak, was used to price more than $350tn of financial products around the world. Plans are currently being made to move to alternative benchmarks by the end of 2021.
Small businesses are the lifeblood of any economy, creating wealth and employment opportunities – and supporting economic growth at grass-roots level. This type of entrepreneurship has always been valued in the United States, where the founders of startups can aspire to become leaders of Fortune 500 companies if they hit on a successful niche.
But are small business owners being unfairly hampered by the raft of regulations introduced following the financial crisis of 2008? It’s an issue that’s hitting the headlines at the moment as President Trump reaffirms his pre-election promises to de-regulate the financial services industry.
Rates on hold
The announcement by the Federal Open Market Committee (FOMC) to hold US interest rates steady in July came as no surprise to market analysts who had felt that the threat of economic uncertainty and the imminent presidential election would prevent the Federal Reserve from making any hasty decisions to hike the rate in the short term.
A fresh rate hike on the horizon?
It’s thought that the Federal Reserve will signpost more interest rate hikes this year, six months after it increased rates for the first time in almost ten years.
In their April meeting, Fed members voted overwhelmingly to keep interest rates unchanged amid concerns about the sluggish growth of US economy in the first quarter, Britain’s potential exit from the EU and uncertainty over China. After the Fed raised rates in December, it was expected to repeat the process four times this year, a forecast which has since been adjusted to two hikes.
That’ll do nicely
Could cash become obsolete? It seems unthinkable. Although advancements in technology mean we can now pay for even small purchases with a quick tap of the credit card, there’s nothing quite so reassuring as having a wallet filled with crisp $20 bills.
That said, banks and other financial institutions would prefer it if cash became a thing of the past. So far, central banks’ anti-crisis measures have included cutting interest rates to the bone and various quantitative easing (QE) programs. More recently, we’ve seen countries like Japan and Sweden imposing negative interest rates in order to further stimulate economic growth.
In the latest in a series of government initiatives to shake the economy out of its torpor, the Bank of Japan has announced the introduction of negative interest rates. The 0.1% rate is designed to encourage lending amid increasing uncertainly about the global economy and to try to free the country from two decades of deflation.
In theory, this means that rather than earning interest on money left with the Bank of Japan, banks will instead be charged to stash their cash, which creates a disincentive to hoard deposits and encourages banks to lend to businesses and consumers. If banks, in turn, cut deposit rates paid to customers, this may also promote spending and business investment.