Editor’s Letter: Two Baskets, One Currency

Our cover story this month focuses on a little-known fact: Global trade growth has slowed in recent years, and intraregional trade, especially in Asia, is becoming more prominent.

JANUARY 2016 | VOL. 30 NO. 1

GFMag January 2016 Cover

Saying this trend is a leading indicator of globalization’s end would be premature, and the rise of North-South trade flows is not new. Still, with trade so closely linked to world economic growth, the slowdown merits further analysis.

The new year opens after the Federal Reserve’s first interest-rate increase in nine years and amid signs that there will be more, in a gradual path toward normal monetary policy after years of quantitative easing. In coming months we will see if the hike has any effect on the emerging markets and economies. Although the Fed’s move was widely expected, it coincides with a continuation of QE by the European Central Bank and therefore opens the door for an unusual decoupling between US and European monetary policy.

Meanwhile, the International Monetary Fund recognized the increasing liberalization of renminbi trading by including China in its currency basket. As we explain in this issue, this will create demand for renminbi by the world’s major central banks, which will have to increase their reserve holdings of the currency. To complicate matters, the Chinese authorities seem about to move toward valuing the RMB not just against the US dollar but against a new trade-weighted currency index, or basket. It is easy to predict that this will be one of the key themes of 2016 in the financial markets.

Lastly, one of Italy’s leading daily newspapers, Corriere della Sera, recently called Global Finance’s annual report card on central bankers, published in our October issue, “the Oscars of monetary policy.” We are honored by the recognition.

Andrea Fiano | Editor