Updated: The Japanese stimulus package
The US Federal Reserve has added 70 billion dollars to the financial markets on Wednesday, the Wall Street Journal writes. According to the news, the central bank made the intervention using overnight repurchase agreements, repos. The aim is to ensure that the financial system has enough liquidity.
The financial and banking markets have been in turmoil due to the negative rates, global growth concerns and new technology. And during this week, the European Central Bank, said it is now considering to launch its own digital currency if the private sector cannot make cross-border payments faster. According to Bloomberg, the central bank wants the transactions also more cheaper.
This would be somewhat similar what the US Federal Reserve Bank said four months ago. According to Fed, the central bank is developing a new service called FedNov that would allow all banks in the US to offer real-time payment services every day of the week. FedNow was estimated to be available by 2023 or 2024 and it is expected to help the small & midsize companies and households to better balance their transactions.
The digital currency on the other hand would then be rival for example to Facebook´s Libra project which has caused several privacy and legacy issues by authorities globally and the tech giant has said it is postponing the digital currency project in order to meet the regulatory requirements. But there are also other digital bitcoin currencies as well and China has expressed their interest to evaluate the new money in its own financial markets systems for example in the stock markets.
The banking industry play field has also changed in Europe due to the UK departure of the Union. The Brexit has caused some international banks to relocate their services also in the EU area in order to continue to service as full potential.
This in turn has caused that the big US securities companies like Goldman Sachs, JP Morgan and Morgan Stanley are now under the European Central Bank´s supervision of their European operations.
This larger regulation scope will increase also the impact of the ECB and its decisions from now on. ECB is then becoming a new power house in the financial industry. This is also good to remember when the EU-countries are calling ECB to stop the asset purchase programme or the stimulus packages.
What is the role of the ECB in the future, will be in the hands of the new Central Bank President Christine Lagarde. Will ECB defend its independence to ask governments to increase their fiscal spending and thus increase the needed economic stimulus in the Brexit and trade talks aftermath? And how the ECB is balancing the different economic outlooks in the euroarea for unite monetary policy? And what is the euro-strategy after Brexit?
The global trade tensions and trade concerns have caused for example Japan to make a new spending package. On Thursday the PM Shinzo Abe launched the country’s first stimulus package since 2016 and the total amount of the package was about 121 billion dollars. The aim is to repair typhoon damage, invest in infrastructure and new technologies.
So, the central banks are watching. Will the economies survive?