RMF Discussion Papers publish high quality research on a wide range of topics principally around money and finance that adopt a political economy, heterodox economics, economic sociology or similar approach. Our aim is to accumulate a body of work that provides insight into the development of contemporary capitalism.

47. The LIBOR Eclipse: political economy of a benchmark

Up until around 2008 and the subsequent revelation of systematic manipulation, the integrity and ‘facticity’ of the London Interbank Offered Rate (LIBOR) were rarely questioned. Academics treated the LIBOR and the Eurodollar market as if they were synonyms. Central bankers conducted monetary policy as if the LIBOR was an objective reflection of the money market rate. Corporates and households entered into LIBOR-indexed financial contacts as if a money market was the underlying benchmark. This paper investigates how and why the LIBOR managed to maintain its status as a term for the competitive money market colloquially, professionally and in the economic literature for so long. By adopting a theoretical framework drawn from both Political Economy and Sociology, and applying it to the LIBOR-indexed derivatives market, it is shown how the benchmark’s appearance betrays its fundamental nature. This process benefits certain actors within the market: the banks. Importantly, however, it also reveals how the LIBOR became, and remained, such an important benchmark and how it came to be perceived as an ‘objective fact’.

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46. International reserves in the era of quasi world money

The purpose of this paper is to contribute to the discussion on the modern monetary arrangements from a Marxist perspectives, following the recent developments of the Marxist theory of world money. The paper treats the US Dollar as a primus inter pares quasi-world money and challenges the argument of the US hegemony by exploring the behavior of major capitalist states and selected developing countries as far as their official international reserves are concerned. The findings reveal a clear pattern in the behavior of major capitalist states in terms of size and forms, although the degree varies implying a hierarchical structure of the corresponding quasi-world moneys. Although part of a vast literature on international reserves, the analysis focuses on developed countries and treats them individually. The merit of this approach is that it reveals the above mentioned pattern which is blurred when Japan is included. The results imply that current international monetary arrangements promote multipolarity and competition in the geopolitical scene, the evolution of which is historical.

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45. The Forms of World Money

Distinguishing between the money that functions in the world market and the money that functions internally in an economy has troubled many theorists. This paper is informed by the Marxist approach to money in general and world money in particular and argues that the theoretical difficulty derives from a fundamental misconception with regard to the forms of money. Consequently, the paper offers an analysis of the forms of money and shows that a new form emerged as early as 1914 associated with the world market, which might be called quasi-world-money, such as the US dollar. The analysis provides a framework within which to comprehend the residual but essential role of gold in parallel to quasi-world-money. The framework also allows for money convertibility to be redefined appropriately.

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44. Capital Fixity and Mobility in Response to the 2008-09 Crisis: Variegated Neoliberalism in Mexico and Turkey

The article examines the 2008-9 crisis responses in Mexico and Turkey as examples of variegated neoliberalism. The simultaneous interests of corporations and banks relative to the national fixing of capital and their mobility in the form of global investment heavily influenced each state authority’s policy responses to the crisis at the expense of the interests of the poor, workers, and peasantry. Rather than pitching this as either evidence of persistent national differentiation or some Keynesian state resurgence, we argue from a historical materialist geographical framework that the responses of capital and state authorities in Mexico and Turkey actively constitute and reconstitute the global parameters of market regulatory design and neoliberal class rule through each state’s distinct domestic policy formation and crisis management processes. While differing in specific content the form of Mexico and Turkey’s state responses to the crisis ensured continuity in their foregoing neoliberal strategies of development and capital accumulation, most notably in the continued oppression of workers. That is, the prevailing strategy of accumulation continues to be variegated neoliberalism.

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43. BNDES’ Contribution to Brazilian Industrialization, from 1952 to present-day

This article aims to show that development banks make a positive effect to economic growth and to generate employment, mostly. It is specifically shown the Brazilian case, with its development bank BNDES founded in 1952. In doing this, we use statistical as well as historical tools. Our findings indicate that: 1) BNDES’ disbursements had an important contribution to industrialization from 1952 until 1970s, and 3) statistical evidence showed that BNDES’ disbursements are related to investment in machinery and equipment.

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42. The Political Economy of Public Investment and Public Finance: Challenges for Social Democratic Policies

The “comprehensive socialisation of investment” was a key policy goal of The General Theory. And yet, empirically, we see a decline in the public investment share in most OECD countries since the economic crisis of the 1970s. In this paper we study several issues concerning this decline. First, we draw on a number of different theoretical perspectives, including those of Smith, Marx, and Keynes, to explain the importance of public investment. Second we show, using an error correction framework, that the levels of the net government saving and gross government investment shares are co-integrated. Third, we discuss the various theoretical reasons underpinning this result. Following Kalecki (1943) and Alexander (1948), we argue that the crisis of the 1970s and growing international competition enabled powerful business groups to successfully push for fiscal austerity to increase “labor market flexibility”, a policy framework that has become the conventional wisdom since then. Fourth, building on the view that the state is relatively autonomous; Keynes’s cautionary observation that the political context shapes business confidence; and Polanyi’s argument that social democratic policies always run the risk of appearing to be a threat to private investment, we discuss the challenges to such policies in the current crisis.

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41. Doesthe LIBOR Misdirect Monetary Policy? A Case Study on the NIBOR and Norges Bank 2007-11

This paper is an empirical investigation into the Norwegian Interbank Offered Rate (NIBOR) during 2007-2011. It is demonstrated that an informal rule change to the benchmark fixing mechanism, instigated by the NIBOR panel in September 2008, not only increased the susceptibility of the benchmark to deception, but fundamentally changed the decomposition of the Norwegian money market risk premium. The new NIBOR resulted in a greater dependency on the Eurozone money markets, and also came to include an additional risk premium variable: the ability of Eurozone banks to raise U.S. dollar funding. In sum, it is shown that Norway has faced both higher, and more volatile, money market risk premia since Q4 2008 – having considerable policy implications.

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40. LIBOR as a Keynesian Beauty Contest: A Process of Endogenous Deception

This paper uses the Keynesian Beauty Contest as a theoretical framework to analyse the LIBOR fixing mechanism. The ‘true’ money market rate can be seen as a fundamental value, or focal point, towards which the LIBOR should aim. By treating the LIBOR as the outcome of a particular and unusual kind of p-beauty contest game, where the behaviour of the players (LIBOR banks) are guided by higher order beliefs, a process is created whereby they are not solely dependent on their own incentives and constraints. Instead, potential deception can be seen as being generated endogenously though the fixing process itself. Simply the anticipation of possible attempts by others to submit deceptive LIBOR quotes will prompt neutral players to play ‘dishonestly’. As a result, it is demonstrated that deviations of the LIBOR from what could be regarded as its ‘fundamental value’ (the underlying money market), are not temporary, but long-lasting and systematic.

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39. LIBOR Games: Means, Opportunities and Incentives to Deceive

This paper adopts a game-theoretical approach to analyse the LIBOR fixing mechanism. Several non-zero-sum LIBOR Games are modelled and then solved using a standard Bayes Nash solution. It is shown that collusive behaviour between LIBOR panel banks, or between banks and money market brokers, can lead to LIBOR fixings that deviate from what could be regarded as the true funding costs of the banks. However, collusive behaviour is not a prerequisite for such outcomes. Assuming players (banks) are rational and act out of self-interest, their endowments (such as LIBOR-indexed derivatives portfolios), or the stigma attached by signalling a relatively high funding cost, can provide LIBOR panel banks with sufficient incentives to submit quotes deviating from their actual funding cost. The trimming process, widely regarded as a hurdle for outright and single-handed manipulation, is shown to be overwhelmingly ineffective. Moreover, binding rules or constraints introduced in order to enhance transparency provide disappointing results. In sum, it is argued that the LIBOR games are characterized by an inherent structure whereby banks have the means, opportunity and incentive to submit deceptive quotes, leading to outcomes (LIBOR fixings) that deviate from the true average of the banks funding cost. Banks are given the chance to influence the LIBOR in a direction that is beneficial to them - stemming from the exclusive privilege to be able to play this game, in other words to participate in the LIBOR fixing process.

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38. Financialisation, Reserve Accumulation and Central Bank in Emerging Economies: Banks in Brazil and Korea

This paper based on the financialisation literature discusses how central banks in key middle income countries (Brazil and Korea) through their liquidity and public debt management have spread the process of financialisation in both countries in the last decade. Financialisation can be understood as the rising influence of financial sphere on the path of capital accumulation. It is argued that central bank management of the process of reserve accumulation is the catalyst of financialisation in these countries. Moreover, this process has conditioned and shaped banks’ portfolio decisions during the 2000s in the Brazilian and Korean financial systems. It is shown that the central bank actions have fuelled domestic financialisation by facilitating the expansion of banks balance sheet through the issuance of their own liabilities. The main point put forward by this paper is how the development and deepening of government bonds markets, focusing on central bank interventions, has supported banks in stretching their balance sheets and further affecting the credit supply. This has mainly happened through monetary sterilisation operations which are carried out with public debt securities.

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37. State, Class and the “Fixing” of Capitalism in Mexico

In 2007, the American economy experienced a severe crisis which spread across the whole spectrum of credit and financial markets. This also led to declining rates of investment, lower consumption and growing unemployment in that country. At the end of 2008, Agustin Carstens, the former Minister of Finance (2006-2009) and head of the Mexican central bank (2010-2016), expressed in an interview that economic stagnation in the US would have a limited effect on the Mexican economy. When the interviewer noted that Mexico usually catches “pneumonia” when the US has an economic “cold,” the Minister responded that this time the Mexican economy would only “catch the sniffles.” The argument was that Mexico‟s sound policies protected the economy from external shocks. This however did not materialize in Mexico.

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36. Credit, Profitability and Instability: A Strictly Structural Approach

This paper offers a purely structural characterisation of the content, limits and contradictions of credit relations in capitalist accumulation. Considering steady-state evolutions and step-change perturbations in a dynamic model of the Marxian circuit of capital, it establishes that sustained paces of net credit extension may boost aggregate profitability, the rate of accumulation, and the aggregate financial robustness of capitalist enterprises. These gains are limited by the economy’s dynamic productive capacities, and tempered by the risks of credit and monetary disruptions created payment obligations established by credit. Economies with higher paces of net credit extension are shown to be more vulnerable to the disruptions to accumulation variously emphasised by Marxian, Keynesian and Post-Keynesian contributions.

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35. Notes Towards a New Political-Economy Approach to Contemporary Credit Relations

The purpose of this paper is to contribute to the development of a systematic, Marxian approach to the content and contradictions of contemporary credit relations. It does this by abandoning traditional Marxian analyses of credit based on “monied capitalists” as well as the traditional understanding of credit as “the great regulator” of the velocity of money. Instead it considers the ex nihilo issuance of bank liabilities as the characteristic form taken by advanced credit relations. The paper approaches this form of credit on the basis of three Marxian analytical elements: the circuit of capital conceptualisation of accumulation, the understanding of money as the most general embodiment of value and foremost store of wealth, and characterisations of the market and institutional foundations for the circulation of different forms of credit money. On these bases it
offers distinctive insights into the content, limits and inherent contradictions posed by credit relations that are unavailable to existing deliberate analyses of credit money in capitalist accumulation.

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34. European Periphery Crises, International Financial Markets, and Democracy: Moving Towards a Globalized Neofeudalism?

This paper analyzes the origin and causes of the recent economic and financial crises, mainly for the countries located in the periphery of the European Union (EU), as well as their evolution and transformation into social, political, and institutional crises. After explaining the differential impact of the crises on EU member economies and critically analysing the unsuccessful orthodox neoclassical policies implemented by governments and international institutions to try to manage and resolve them, we propose some alternative economic policy measures for the EU. Furthermore, we analyze how the economic policies developed thus far not only are unable to resolve the current crisis pattern but also actually entail a risk to the present democratic models by transferring the legitimate control over governments from citizens and democratic parliaments to unelected, non-representative international financial markets.

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33. Neoclassical Inflation: No theory there

The theoretical generalization that the price level is determined by the quantity of money is commonly employed as a teaching device, in abstract modeling, and as a guide to policy. It represents a profound misunderstanding of inflation. In specific, the famous parable, more money then more inflation, is logically wrong. Far from the strength of neoclassical economics, its theory of inflation encapsulates and epitomizes its most fatal analytical errors and contradictions. Prominent among these errors and contradictions are the failure to provide a convincing explanation for the existence of money, and the closely related inability to provide a definition of money that makes its supply analytically determinate. These basic problems require the creation of an imaginary economy, the analysis of which results in arbitrary conclusions that cannot be generalized beyond neoclassical Cloud-Cuckoo Land.

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