what does balance sheet of central bank w deeply unconventional approach to financial globalisation look like?

@CentralBank_TR Turkey: no capital controls/interest rates to contain non/resident outflows, instead burn fx reserves and failing to contain TRY depreciation 1/n ImageImage
asset side looks familiar to students of EM:

the action in foreign assets, while traditional business of central banks - issuing reserves to banking system - around 15% of assets, and outright ownership of TRY sovvies negligible Image
the 'Foreign Assets' rubric is a big black box:

other EM cbs typically report Net Foreign Assets so things like cb fx swaps are accounted but clearly not here

any EM central bank w large fx reserves would accumulate them by purchasing USD/EUR from local exporters/banks (large capital inflows) & pay in local cb reserves or base money

so it's liabilities side would have either bank reserves or sterilization instruments

not Turkey cb Image
Turkey's cb borrows USD/EUR from banks, state and non-residents (unclear if official like Emirates or private).

quite remarkable how much of TRY defence effort is conducted with local banks' fx reserves (and how vulnerable to residents withdrawing deposits CBRT is)
if @Brad_Setser were active here he'd clarify mystery of negative open market operations (OMOs) position

really struggling to get my head around negative central bank liability - is it accounting for CBRT's fx swaps?

but why negative if on asset side it increases fx reserves? Image
OMOs typically conducted to adjust supply of bank reserve:

- repo loan increases reserves
- sterilizations of fx interventions trigger adjustments on liabilities side: lower reserves account, increase reverse repo/cb debt, certificate of deposits etc

but negative OMOs???
you'll say accounting tricks, but every accounting trick needs some conceptual reasoning behind, and I cannot imagine how I'd explain negative liabilities to my students

a promise to pay that is actually promise to receive but not an asset? one for @i_aldasoro & BIS colleagues
also, how do counterparties to those negative OMOs record them on their balance balance sheet?
a negative asset?
of course, balance sheets alone wont tell you much about daily fx management strategy - but it does tell us something about structural vulnerabilities (and crazy accounting)

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More from @DanielaGabor

Apr 14
how to bury the lede in 'hard landing' inflation debates
fascinating that this is a 'debate' when inflation targeting models are clear that interest rate responses to cost/supply shocks require the central bank to inflict a hard landing
the hawks are not wrong - if you want blunt tool to work, it needs to do damage.
two worries:
1. Damage is not just to US economy, but w global dollar financial cycle, everyone suffers (reminder that financial globalisation is alive and well, despite epitaphs for the dollar)
Read 12 tweets
Apr 4
I've read both Pozsar's latest note and @adam_tooze take on it, and I cannot see the analytical purchase of his framework, nor do I find the Bretton Woods III story plausible.
Bretton Woods III seems to be of a higher order than BWII, with China a contender to US by virtue of its commodity reserves (???)
first, here in Europe, big news is we're swapping Russia for US.

Read 10 tweets
Apr 4
your daily reminder that Europe doesnt have the right macrofinancial regime for the green transition
remarkable how the Wall Street Consensus is gaining ground in Europe since the Russian invasion.

here the European derisking state, in all its ordoliberal splendour, promising to derisk US LNG gas asset classes.
to understand the rise of the Derisking macrofinancial paradigm, read this

Read 4 tweets
Mar 16
there are many facets to Westplaining, the least appreciated is where Westerners start with the 'local political chaos' to explain the failure of neoliberal shock therapy after 1990, when the causality runs the other way around.
and by 'failure', I mean failure to live up to the promises of a market paradise.

through political economy lens, shock therapy was remarkably successful at transforming Eastern European countries from competitors to markets and lands of cheap labour for Western capital.
the Westplainer typically points to the chaos of privatisation/liberalisation as marker of local political chaos, and dismisses the brutal regime of monetary and fiscal austerity imposed by shock therapy.
Read 17 tweets
Mar 16
you might think this is just Boris Johnson's predilection for authoritarian regimes

but it's macrofinancial ideology that is pushing the British government to go fishing for investments in renewable energies in Saudi Arabia
this is the logic of the Small Green State (aka green ordoliberalism on the continent, aka as Derisking State)

1. Organise the push for renewables via Carbon Contracts for Difference (derisk private investment in renewables). UK is at round 4, with GBP 200 million a year.
UK's first round of CCdFs was in 2014: this is the scale of derisking spending
Read 5 tweets
Mar 11
if Russia has given us the first ‘net zero price crisis’, bad news from central banks
@ecb just showed us even those nominally committed to green transition will prioritise fighting the nebulous expectations fairies

one possibility is that we were wrong to applaud 'within mandate' greening arguments from ECB and others.

it entrenches a macrofinancial status-quo where the hawks in the room always win.
Read 5 tweets

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