Indonesia’s economic reform deeper than recognized

The Covid-19 pandemic posed a tremendous economic challenge, especially for emerging economies such as Indonesia. But it also marked a watershed moment for the country’s economic reform efforts. The crisis enabled Indonesia to reduce its reliance on volatile foreign capital inflows and rethink its growth pathway.

During the pandemic, Indonesia was temporarily set free from its reliance on foreign capital as global investors fled emerging markets bonds and equity. At the same time, slumping domestic demand, which suppressed imports, and relatively large national savings ameliorated Indonesia’s current account deficit problem.

Russia’s war in Ukraine led to a commodity price boom that further boosted the domestic economy while it was still recovering from the pandemic.

Indonesia’s current account deficit problem stems from insufficient foreign direct investment (FDI). In 2021, Indonesia’s FDI inflow was only 1.8% of GDP, compared to Vietnam’s 4.3% and Malaysia’s 5%.

Instead, the economy has depended on volatile commodity-related exports and volatile foreign inflows in bonds and equity markets. The shallow and inadequate domestic financial market has not been able to sufficiently mobilize savings to finance the country’s investment needs.

In previous cycles of global volatility, subsequent outflows of foreign capital have significantly depreciated the Indonesian rupiah and caused liquidity crunches in the financial system.

This negatively impacted the domestic economy by increasing the government and corporate sector’s debt burden, creating inflationary pressure and raising funding costs and non-performing loans in the banking system.

Reform efforts to handle the problem by shrinking the account deficit have faced challenges. In previous years, reducing the current account deficit usually meant slowing down domestic consumption and imports, which inhibits economic growth. Efforts to boost manufacturing exports also have hit a brick wall.

The Indonesia rupiah is near a 20-year low. Photo: AFP / Bay Ismoyo
Stacks of Indonesian rupiah. Photo: AFP / Bay Ismoyo

As Indonesian wages are relatively higher, other Asian exporters — notably Vietnam and Bangladesh — have become more competitive.

Numerous financial scandals have undermined efforts to effectively mobilize savings and deepen financial markets. Despite these setbacks, institutional reforms are making some headway. The Ministry of Finance and Bank Indonesia are increasingly seen as credible institutions that adopt evidence-based policies, defend Western-style central bank independence and are led by respected figures.

Implementing measures to prevent excessive capital flows has proved complicated. Even a hint of capital controls or other regulations that would restrain the country’s relatively free and open capital markets have been met with resistance due to the experience of the Asian financial crisis. Relatively loose global monetary policy and prudent fiscal policies have also led to Indonesia’s rising popularity for foreign portfolio investment.

The government was quick to implement policy reforms that have partly borne fruit. The first of them is reform in the real economy. The government pushed through the Omnibus law in November 2020, which aims to improve Indonesia’s competitiveness and encourage labor-intensive industries’ growth. But its implementation is yet to be seen due to pushback by special interest groups.

The global energy crisis also inspired the government to enact a series of controversial policies, including “downstreaming” and the prohibition of raw material exports. These policies have partly contributed to increasing exports of nickel derivatives between 2011–2022 and stimulated economic growth in regional provinces.

The second policy group included financial sector reforms. The government passed a new financial omnibus bill to improve the credibility of the financial system, widen and deepen the domestic financial market, support new technologies growth and clarify crisis responses. Plans were also put in place to restructure the entire non-bank financial system after the collapse of a major state-owned insurance company in 2020.

The local bond market has grown substantially since the pandemic. Local banks are inclined to hold a large number of government bonds due to slumping credit demand, significantly boosting local ownership. The Ministry of Finance’s successful campaign to push savvy domestic investors to buy retail government bonds further mobilizes consumer savings and improves market discovery.

Indonesia’s central bank — Bank Indonesia — has also pulled its act in the domestic foreign exchange market. New derivative instruments have succeeded in driving market expectations of local currency movements and relieving pressure on the current exchange rate. The launch of a new time deposit facility for exporters also boosted foreign exchange supply.

A fishing boat is seen near a container terminal in Tanjung Priok , north Jakarta Indonesia November 16, 2016. Photo: Reuters/Darren Whiteside/File Photo
A fishing boat is seen near a container terminal in Tanjung Priok , north Jakarta Indonesia November 16, 2016. Photo: Agencies

In anticipating the sudden global dollar liquidity crunch, the central bank has intensified efforts to proliferate local currency settlements (LCS) — a program that encourages using local currencies to settle bilateral transactions — with Indonesia’s main trade partners.

Its efforts have significantly increased its monthly LCS usage. The central bank has also sought to reduce Indonesia’s reliance on foreign service providers by launching a new national credit card gateway.

Bank Indonesia has also embraced digitalization. The Indonesian QR standard has become widely available, logging over 24 million merchants and daily transactions of more than US$800 million.

It has enabled millions of informal sector vendors to interact with the mainstream financial system via Indonesia’s growing digital banking industry. This could be a potential goldmine for the government to increase fiscal policy effectiveness.

Indonesia has taken advantage of the Covid-19 pandemic and undergone fundamental reforms to address its previous flaws. Its job now is to finish implementing those “structural reforms” by enhancing the ease of doing business, reducing investment barriers and improving labor productivity and financial inclusion.

Suryaputra Wijaksana is an economist at Bank Rakyat Indonesia. The views expressed in this article are the author’s own.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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A primer on US debt default purgatory

Republicans and Democrats are again playing a game of chicken over the US debt ceiling – with the nation’s financial stability at stake.

Treasury Secretary Janet Yellen recently said that June 1, 2023, is a “hard deadline” for raising the debt limit, currently set at US$31.38 trillion, to avoid an unprecedented default. The government hit the ceiling back in January and has been using “extraordinary measures” since then to keep paying its bills.

Last-minute negotiations between the White House and Republicans have been mostly fruitless as conservatives in the House push for big spending cuts and policy changes, while President Joe Biden has insisted on lifting the ceiling with no strings attached. They are expected to continue to meet in the coming days.

Economist Steven Pressman explains what the debt ceiling is and why we have it – and why it may be time to abolish it.

1. What is the debt ceiling?

Like the rest of us, governments must borrow when they spend more money than they receive. They do so by issuing bonds, which are IOUs that promise to repay the money in the future and make regular interest payments. Government debt is the total sum of all this borrowed money.

The debt ceiling, which Congress established a century ago, is the maximum amount the government can borrow. It’s a limit on the national debt.

2. What’s the national debt?

The US government debt of $31.38 trillion is about 22% more than the value of all goods and services that will be produced in the US economy this year.

Around one-quarter of this money the government actually owes itself. The Social Security Administration has accumulated a surplus and invests the extra money, currently $2.8 trillion, in government bonds. And the Federal Reserve holds $5.5 trillion in US Treasurys.

The rest is public debt. As of October 2022, foreign countries, companies and individuals owned $7.2 trillion of US government debt. Japan and China are the largest holders, with around $1 trillion each. The rest is owed to US citizens and businesses, as well as state and local governments.

3. Why is there a borrowing limit?

Before 1917, Congress would authorize the government to borrow a fixed sum of money for a specified term. When loans were repaid, the government could not borrow again without asking Congress for approval.

The Second Liberty Bond Act of 1917, which created the debt ceiling, changed this. It allowed a continual rollover of debt without congressional approval.

Congress enacted this measure to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to $11.5 billion and required legislation for any increase.

The debt ceiling has been increased dozens of times since then and suspended on several occasions. The last change occurred in December 2021, when it was raised to $31.38 trillion.

4. What happens when the US hits the ceiling?

Whenever the US nears its debt limit, the Treasury secretary can use “extraordinary measures” to conserve cash, which she indicated began on January 19. One such measure is temporarily not funding retirement programs for government employees. The expectation will be that once the ceiling is raised, the government would make up the difference. But this will buy only a small amount of time.

If the debt ceiling isn’t raised before the Treasury Department exhausts its options, decisions will have to be made about who gets paid with daily tax revenues. Further borrowing will not be possible. Government employees or contractors may not be paid in full. Loans to small businesses or college students may stop.

When the government can’t pay all its bills, it is technically in default. Policymakers, economists and Wall Street are concerned about a calamitous financial and economic crisis. Many fear that a government default would have dire economic consequences – soaring interest rates, financial markets in panic and maybe an economic depression.

Under normal circumstances, once markets start panicking, Congress and the president usually act. This is what happened in 2013 when Republicans sought to use the debt ceiling to defund the Affordable Care Act.

But we no longer live in normal political times. The major political parties are more polarized than ever, and the concessions McCarthy gave right-wing Republicans may make it impossible to get a deal on the debt ceiling.

5. Is there a better way?

One possible solution is a legal loophole allowing the US Treasury to mint platinum coins of any denomination. If the US Treasury were to mint a $1 trillion coin and deposit it into its bank account at the Federal Reserve, the money could be used to pay for government programs or repay government bondholders.

This could even be justified by appealing to Section 4 of the 14th Amendment to the US Constitution: “The validity of the public debt of the United States … shall not be questioned.”

Few countries even have a debt ceiling. Other governments operate effectively without it. America could too. A debt ceiling is dysfunctional and periodically puts the US economy in jeopardy because of political grandstanding.

The best solution would be to scrap the debt ceiling altogether. Congress already approved the spending and the tax laws that require more debt. Why should it also have to approve the additional borrowing?

It should be remembered that the original debt ceiling was put in place because Congress couldn’t meet quickly and approve needed spending to fight a war. In 1917 cross-country travel was by rail, requiring days to get to Washington. This made some sense then. Today, when Congress can vote online from home, this is no longer the case.

Steven Pressman is Part-Time Professor of Economics, The New School

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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No clarity yet on China’s confused tech crackdown

As China lifts Covid-19 restrictions and returns to normalcy, prospects for private business in the post-Covid economic recovery remain uncertain.

Despite former Vice Premier Liu He’s reiteration of the central government’s adherence to market principles at the World Economic Forum in January 2023, there are mixed messages about the Party’s stance towards the private tech sector.

The detention of Bao Fan, chairman and CEO of investment bank China Renaissance Holdings, in February sent shockwaves through international markets and among Chinese tech entrepreneurs. Bao was widely regarded as the country’s top dealmaker, whose company presided over several high-profile domestic tech deals.

On the other hand, Alibaba’s Jack Ma made a surprise reappearance in China in March, after traveling abroad for over a year. In a seemingly friendly gesture to the private sector, the Cyberspace Administration of China announced a campaign to crack down on false publicly circulated information which damages the reputation of private enterprises and entrepreneurs. But all of this does not suffice in restoring confidence in investors and businesses about a rollback of regulatory scrutiny of private tech companies.

To some, Bao’s detention indicates a continuation of Beijing’s heavy-handed approach to the country’s rising entrepreneurs that began with scuttling an initial public offering (IPO) for Ant Group, the e-payments platform founded by Jack Ma, in late 2020. This continued with tightened regulation over data security and anti-monopoly practices involving tech companies.

The Party’s stance and policy towards the tech sector — or more precisely, technology platforms and their partners — should be read in light of the multiple, often competing, challenges that the Party faces in governing modern China.

Chinese big tech and innovative entrepreneurs have contributed significantly to China’s transformation into a digital economy. At the same time, their rapid growth in size and wealth, as well as their evolving business models, have generated new challenges and instabilities.

Fintech regulation is one of these contradictions. Despite the merits of financial technology, excessive microlending without adequate security could create a financial bubble, posing systemic risk to the national financial system. Fintech companies like Ant have been forced to restructure and made subject to similar regulatory rules that govern other lending institutions.

The logo of Ant Group in Hangzhou Photo: AFP

Another area of contest is in the competition for talent across various fields related to technology development. The 14th Five-year Plan (2021–2025) spelled out ambitious objectives to turn China into a manufacturing powerhouse and a leader in emerging industries.

Competitive remuneration packages and unparalleled career prospects offered by leading platform companies, as well as the perceived invulnerability of the industry, had drawn many bright, young minds into technology-related business fields. This has changed since the government’s policy shift in 2020.

China now needs people to contribute to scientific and technological self-sufficiency in areas such as semiconductor development, robotics and climate change. The state’s clampdown on the business tech sector is thought to have had the effect of pushing people and resources into other areas — such as materials science, industrial machinery and biotechnology — deemed important to China’s overall technological capacity.

The Party’s tough treatment of some tech entrepreneurs could also have been connected to power struggles within the Party itself. Some key investors behind Ant Group’s IPO were known to be linked to top officials and elites with strong ties to former leader Jiang Zemin.

The tech sector may have become the site of a contest for political power. It is unclear with whom Bao is associated inside political circles, but he may have been caught up in a broader political struggle.

Party leaders will certainly continue to rely on China’s tech giants and their innovation to drive the economy. But ensuring that data is managed and used to the benefit of the Party as well as the public, not just private actors, remains a key logic in the Chinese Communist Party’s governance.

The announcement at the “Two Sessions” of the establishment of a National Data Bureau is Beijing’s latest step to exploit the country’s massive data trove. This will allow institutionalization of the management and control of data, while also facilitating circulation of both public and private data resources to promote economic and social development.

Setting up the new National Data Bureau under the National Development and Reform Commission will give focus to implementing policies that help drive digital and cutting-edge industries. The bureau could potentially become a driver of “Digital China“, after years of slow development because of the pandemic and regulatory scrutiny.

Given the Party’s overriding priorities of rebuilding a strong domestic economy and maintaining robust supply chains against external threats, it is unlikely to embark on an extensive campaign like it did in 2020 and 2021 to rein in technology platforms. That would undermine an important engine of growth and investor confidence, adding pressures to government finances.

One can still expect uncertainties over how the Party treats individual private businesses. This is especially so when China’s political leaders deem it necessary to prioritize certain objectives, such as political control and maintaining social stability over other priorities including economic recovery and growth.

Yvette To is a Postdoctoral Fellow in the Department of Public and International Affairs at the City University of Hong Kong.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Taiwan pushes FTA after closing US trade deal

Taiwan is seeking to reach a free trade agreement (FTA) with the United States after both sides concluded a trade initiative to boost their economic ties.

The United States Trade Representative announced on Thursday that the American Institute in Taiwan (AIT) and the Taipei Economic and Cultural Representative Office in the United States (TECRO) have concluded negotiations on the US-Taiwan Initiative on 21st Century Trade.

The agreement came just before the three-day G7 Summit started in Hiroshima in Japan on Friday.

Taiwanese media said Hsiao Bi-khim, representative of the Republic of China to the US, will visit Washington and sign the first phase of the trade initiative with her US counterpart within the coming weeks.

The first phase of this agreement covers five areas, including customs administration and trade facilitation, good regulatory practices, domestic services regulation, anticorruption and small-and-medium-sized-enterprises (SMEs).

“This agreement is not only the most comprehensive trade agreement signed between Taiwan and the US since 1979, but also represents an important milestone for Taiwan’s economic and trade system to meet high international standards,” the Office of Trade Negotiations, Taiwan’s Executive Yuan says in a statement. “This is also an important step in completing the Taiwan-US FTA by means of building blocks.”

In January 1979, the US established diplomatic relations with the People’s Republic of China as the Chinese Communist Party claimed to be a united front with the West against the Soviet Union. It also ended its diplomatic relations with Taiwan but has maintained trade and cultural exchanges with the island under the Taiwan Relations Act
 
On Friday, Beijing said it resolutely opposes the US-Taiwan Trade Initiative.

“China firmly opposes all forms of official interaction with the Taiwan region by countries having diplomatic ties with China, including negotiating or concluding agreements with implications of sovereignty and of official nature,” Wang Wenbin, a spokesperson of the Chinese Foreign Ministry, said Friday. 

Wang said the US must stop sending wrong signals to Taiwan separatists in the name of forming trade and economic ties with the island. He said the US should strictly abide by the one-China principle and the three Joint Communiqués with real actions.

Meanwhile, the State Council’s Taiwan Affairs Office (TAO) announced on Friday that China had reopened its doors to Taiwanese tour groups with immediate effect.

“We warmly welcome Taiwan compatriots to see the beautiful scenery and recent developments in the mainland,” said TAO spokesperson Ma Xiaoguang.
 
The symbolic move is seen as Beijing’s effort to increase exchanges with the island ahead of its presidential election in early 2024.

The central committee of Kuomintang (KMT), favored by the Chinese Communist Party (CCP), on Wednesday nominated New Taipei mayor Hou Yu-ih as KMT’s presidential candidate without having a primary election within the party.

Hou Yu-ih, Photo: Wikimedia Commons

Regional trade deals

In September 2021, Taiwan formally applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) but progress has been slow so far.
 
In May last year, the Biden administration launched the Indo-Pacific Economic Framework for Prosperity (IPEF) but did not include Taiwan as a founding member. Founding nations include Australia, Brunei, Fiji India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam. 

Last June, the US and Taiwan said they would begin bilateral trade talks. Both sides met initially last November and held a four-day negotiation in January this year with fruitful results.
 
“It’s usually easier to reach a bilateral trade deal than a multilateral one that involves more parties,” Darson Chiu, a research fellow of the Department of International Affairs and Macroeconomic Forecasting Center, Taiwan Institute of Economic Research, said in January. “The US-Taiwan Trade Initiative will help Taiwan enter the IPEF.” 

On Friday, the US and Taiwan finalized the first phase of the trade initiative. Taiwan’s Minister Without Portfolio and Trade Representative John Deng said earlier this month that the second phase of the agreement, which covers seven areas such as agriculture and labor, should be reached by the end of this year.
 
“This accomplishment represents an important step forward in strengthening the US-Taiwan economic relationship,” US Trade Representative Katherine Tai said Thursday. “We look forward to continuing these negotiations and finalizing a robust and high-standard trade agreement that tackles pressing 21st century economic challenges.”

Tai said US businesses will be able to bring more products to Taiwan and Taiwanese customers, while creating more transparent and streamlined regulatory procedures that can facilitate investment and economic opportunities in both markets, particularly for SMEs.

Chinese pundits’ criticism

While Taiwanese President Tsai Ing-wen said Taiwan will be able to sign a FTA with the US, Chinese commentators poured cold water on the idea.

“The biggest intention of the Democratic Progressive Party (DPP) to sign the so-called US-Taiwan Trade Initiative is to sell Taiwan to the US and maximize the US’s benefits on the island,” Kong Fan, a Sichuan-based reporter for Nouvelles d’Europe, a pro-Beijing newspaper, writes in an article on Friday. 

Kong says the DPP wants to use this deal to form stronger political and military ties with the US in order to promote Taiwan independence.

He says the US avoided discussing tariff exemptions and market access but highlighted its benefits. He says before this, the US has been pressuring TSMC to build foundries in Arizona and the Taiwanese government to buy US weapons.

On June 2 last year, Tseng Ming-chung, convener of the KMT legislative caucus, criticized the DPP for exaggerating the benefits of the US-Taiwan Trade Initiative, which does not mention FTA or CPTPP membership. 

But after seeing the actual trade initiative on Friday, Tseng said the Tsai administration should “sign it as soon as possible” and make good use of the close bilateral relations to resolve tariff and double taxation issues with the US.

Read: Beijing cools Taiwan issues ahead of G7 Summit

Read: US-Taiwan trade deal talks defy China’s warning

Follow Jeff Pao on Twitter at @jeffpao3

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Speeding toward a ChatGPT-powered Wall Street

Artificial Intelligence-powered tools, such as ChatGPT, have the potential to revolutionize the efficiency, effectiveness and speed of the work humans do.

And this is true in financial markets as much as in sectors like health care, manufacturing and pretty much every other aspect of our lives.

I’ve been researching financial markets and algorithmic trading for 14 years. While AI offers lots of benefits, the growing use of these technologies in financial markets also points to potential perils. A look at Wall Street’s past efforts to speed up trading by embracing computers and AI offers important lessons on the implications of using them for decision-making.

Program trading fuelled Black Monday

In the early 1980s, fueled by advancements in technology and financial innovations such as derivatives, institutional investors began using computer programs to execute trades based on predefined rules and algorithms. This helped them complete large trades quickly and efficiently.

Back then, these algorithms were relatively simple and were primarily used for so-called index arbitrage, which involves trying to profit from discrepancies between the price of a stock index – like the S&P 500 – and that of the stocks it’s composed of.

As technology advanced and more data became available, this kind of program trading became increasingly sophisticated, with algorithms able to analyze complex market data and execute trades based on a wide range of factors. These program traders continued to grow in number on the largey unregulated trading freeways – on which over a trillion dollars worth of assets change hands every day – causing market volatility to increase dramatically.

Eventually this resulted in the massive stock market crash in 1987 known as Black Monday. The Dow Jones Industrial Average suffered what was at the time the biggest percentage drop in its history, and the pain spread throughout the globe.

In response, regulatory authorities implemented a number of measures to restrict the use of program trading, including circuit breakers that halt trading when there are significant market swings and other limits. But despite these measures, program trading continued to grow in popularity in the years following the crash.

HFT: Program trading on steroids

Fast forward 15 years, to 2002, when the New York Stock Exchange introduced a fully automated trading system. As a result, program traders gave way to more sophisticated automations with much more advanced technology: High-frequency trading.

HFT uses computer programs to analyze market data and execute trades at extremely high speeds. Unlike program traders that bought and sold baskets of securities over time to take advantage of an arbitrage opportunity – a difference in price of similar securities that can be exploited for profit – high-frequency traders use powerful computers and high-speed networks to analyze market data and execute trades at lightning-fast speeds.

High-frequency traders can conduct trades in approximately one 64-millionth of a second, compared with the several seconds it took traders in the 1980s.

These trades are typically very short term in nature and may involve buying and selling the same security multiple times in a matter of nanoseconds. AI algorithms analyze large amounts of data in real time and identify patterns and trends that are not immediately apparent to human traders. This helps traders make better decisions and execute trades at a faster pace than would be possible manually.

Another important application of AI in HFT is natural language processing, which involves analyzing and interpreting human language data such as news articles and social media posts. By analyzing this data, traders can gain valuable insights into market sentiment and adjust their trading strategies accordingly.

Benefits of AI trading

These AI-based, high-frequency traders operate very differently than people do.

The human brain is slow, inaccurate and forgetful. It is incapable of quick, high-precision, floating-point arithmetic needed for analyzing huge volumes of data for identifying trade signals. Computers are millions of times faster, with essentially infallible memory, perfect attention and limitless capability for analyzing large volumes of data in split milliseconds.

And, so, just like most technologies, HFT provides several benefits to stock markets.

These traders typically buy and sell assets at prices very close to the market price, which means they don’t charge investors high fees. This helps ensure that there are always buyers and sellers in the market, which in turn helps to stabilize prices and reduce the potential for sudden price swings.

High-frequency trading can also help to reduce the impact of market inefficiencies by quickly identifying and exploiting mispricing in the market. For example, HFT algorithms can detect when a particular stock is undervalued or overvalued and execute trades to take advantage of these discrepancies. By doing so, this kind of trading can help to correct market inefficiencies and ensure that assets are priced more accurately.

a crowd of people move around a large room with big screens all over the place
Stock exchanges used to be packed with traders buying and selling securities, as in this scene from 1983. Today’s trading floors are increasingly empty as AI-powered computers handle more and more of the work. Photo: AP / Richard Drew

The downsides

But speed and efficiency can also cause harm.

HFT algorithms can react so quickly to news events and other market signals that they can cause sudden spikes or drops in asset prices.

Additionally, HFT financial firms are able to use their speed and technology to gain an unfair advantage over other traders, further distorting market signals. The volatility created by these extremely sophisticated AI-powered trading beasts led to the so-called flash crash in May 2010, when stocks plunged and then recovered in a matter of minutes – erasing and then restoring about $1 trillion in market value.

Since then, volatile markets have become the new normal. In 2016 research, two co-authors and I found that volatility – a measure of how rapidly and unpredictably prices move up and down – increased significantly after the introduction of HFT.

The speed and efficiency with which high-frequency traders analyze the data mean that even a small change in market conditions can trigger a large number of trades, leading to sudden price swings and increased volatility.

In addition, research I published with several other colleagues in 2021 shows that most high-frequency traders use similar algorithms, which increases the risk of market failure. That’s because as the number of these traders increases in the marketplace, the similarity in these algorithms can lead to similar trading decisions.

This means that all of the high-frequency traders might trade on the same side of the market if their algorithms release similar trading signals. That is, they all might try to sell in case of negative news or buy in case of positive news. If there is no one to take the other side of the trade, markets can fail.

Enter ChatGPT

That brings us to a new world of ChatGPT-powered trading algorithms and similar programs. They could take the problem of too many traders on the same side of a deal and make it even worse.

In general, humans, left to their own devices, will tend to make a diverse range of decisions. But if everyone’s deriving their decisions from a similar artificial intelligence, this can limit the diversity of opinion.

Consider an extreme, nonfinancial situation in which everyone depends on ChatGPT to decide on the best computer to buy. Consumers are already very prone to herding behavior, in which they tend to buy the same products and models. For example, reviews on Yelp, Amazon and so on motivate consumers to pick among a few top choices.

Since decisions made by the generative AI-powered chatbot are based on past training data, there would be a similarity in the decisions suggested by the chatbot. It is highly likely that ChatGPT would suggest the same brand and model to everyone. This might take herding to a whole new level and could lead to shortages in certain products and service as well as severe price spikes.

This becomes more problematic when the AI making the decisions is informed by biased and incorrect information. AI algorithms can reinforce existing biases when systems are trained on biased, old or limited data sets. And ChatGPT and similar tools have been criticized for making factual errors.

AI is making strides in learning the English language. Image: Facebook

In addition, since market crashes are relatively rare, there isn’t much data on them. Since generative AIs depend on data training to learn, their lack of knowledge about them could make them more likely to happen.

For now, at least, it seems most banks won’t be allowing their employees to take advantage of ChatGPT and similar tools. Citigroup, Bank of America, Goldman Sachs and several other lenders have already banned their use on trading-room floors, citing privacy concerns.

But I strongly believe banks will eventually embrace generative AI, once they resolve concerns they have with it. The potential gains are too significant to pass up – and there’s a risk of being left behind by rivals.

But the risks to financial markets, the global economy and everyone are also great, so I hope they tread carefully.

Pawan Jain, Assistant Professor of Finance, West Virginia University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Vietnam land ‘reforms’ won’t cede communist control

Vietnam is undergoing a consultation process to amend its Land Law and the related Housing Law, amid declining consumer and investor confidence in Vietnam’s real estate market following rising interest rates and the arrests of two well-known property tycoons.

Vietnam’s land, housing and real estate laws are publicly perceived as confusing and complex. A resolution of the Communist Party’s Central Committee issued on June 16, 2022, raised public hopes when it stated that the new laws should harmonize the interests of the people, investors and the state.

Yet the government’s draft land and housing laws have been criticized by local actors and business associations for failing to address systemic land and housing issues.

Since land is exclusively controlled by the state, a perennial cause of concern is the state’s power to compulsorily acquire land without paying fair compensation. In Vietnam, the state can acquire land for an array of vaguely defined reasons, including for “national economic development”, for the benefit of community or national interests, and for security purposes.

State officials, particularly at local levels, make all the key decisions relating to land acquisition and allocation. The compensation paid for compulsorily acquired land is based on price frames fixed by the state, not the land’s market value. The discrepancy between land valuation and low compensation prices leaves land evictees and investors unhappy.

The draft land law stipulates specific cases where the state can acquire land to develop for the national and public interest, potentially making the law clearer. It also removed state price frames, which fixed land prices for five years, in favor of a more flexible yearly price guide developed by the People’s Committee at provincial levels, which promises to be based on the market.

Although this has been welcomed, many commentators are skeptical about whether the amendment can be implemented as there is little guidance on how the market land price is to be established. Because the People’s Committee remains in control of determining land prices, the state is both a player and an umpire in the land acquisition and development process.

Another issue that highlights Vietnam’s statist approach to land is the inability of investors to use land rights as collateral to borrow money from foreign lenders. Under the 2013 Land Law, no foreign lender is permitted to mortgage the land use rights of a Vietnamese borrower.

Some groups are lobbying for an amendment to the law which would enable businesses to mortgage their land use rights in exchange for international funds for large economic projects. The government’s response has been cautious, despite proposals from experts to ensure “no foreign organization can have legal authority over Vietnamese land.”

Vietnam is home to hot land disputes pitting the people against the communist government. Photo: AFP / Nhac Nguyen

Proposed changes to the Housing Law have also caused controversy. Vietnam’s tenure laws traditionally distinguish between land and houses. While the socialist manifesto calls for the abolition of private property, including land, socialist governments allow for house ownership as the asset is not regarded as a factor of production.

The right to house ownership is indefinitely protected by the Vietnamese constitution. But a proposal in the draft Housing Law has caused concern because it could limit the rights of apartment owners to 50-70 years.

Given Vietnam’s large population and its sizable rich-poor gap, apartments are popular and often the only way for young families and youth to enter the property market.

In 2022, the Ministry of Construction stated it was considering putting a 50–70 year cap on apartment ownership, citing the United States’ 99-year leasehold period as precedent. But the proposed amendment created public angst as it provided an administrative process to strip apartment owners of their ownership rights.

As private land ownership predominates in the United States and state ownership of land predominates in Vietnam, Hanoi’s policymakers have not fully considered the policy implications of the proposed changes.

Though the new draft has removed the reference to an apartment ownership cap, the amendment remains controversial as people could lose their ownership rights if their apartments are deemed unsuitable for habitation. There is also uncertainty about how residential relocation will occur and whether fair compensation will be provided.

Commentators are now calling for policymakers to embrace new modes of thinking. For example, lawyer Nguyen Tien Lap has urged for land to be viewed as a “living space”, not merely as a commodity, and for the community to be given a genuine voice in land governance.

He has also called for the removal of some grounds for compulsory state land acquisition, arguing that the current overlap of many existing grounds increases the likelihood of legal misinterpretation and abuse.

If history is a guide, the new laws will build on older principles. But a problem lies in Vietnamese policymakers’ attempt to import the idea of an apartment ownership cap without transferring its meaning. Such legal transplantation rarely succeeds.

Foreign land investments are under fire in Vietnam. Photo: Huu Khoa / AFP

Statist land regulation will not make way for market-led regulation. Senior Vietnamese political leaders have made it clear in 2022 that state land ownership is an enduring principle. Similar debates arose in 2013 and resulted in little fundamental change to the laws.

While senior leaders cite social stability as an important consideration in assessing any amendment, they overlook the reality that the status quo is already contributing to angst and instability in Vietnamese society.

It will be difficult for government narratives to continue to placate public concerns amid rising living costs and fears of land and housing deprivation.

Toan Le is a Senior Lecturer in the School of Law at Swinburne University of Technology.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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War rooms and bailouts: How US is preparing for a default

Convening war rooms, planning speedy bailouts and raising house-on-fire alarm bells: Those are a few of the ways the biggest banks and financial regulators are preparing for a potential default on US debt.

“You hope it doesn’t happen, but hope is not a strategy – so you prepare for it,” Brian Moynihan, CEO of Bank of America, the nation’s second-biggest lender, said in a television interview.

The doomsday planning is a reaction to a lack of progress in talks between President Joe Biden and House Republicans over raising the US$31.4 trillion debt ceiling – another round of negotiations took place on May 16, 2023.

Without an increase in the debt limit, the US can’t borrow more money to cover its bills – all of which have already been agreed to by Congress – and in practical terms that means a default.

What happens if a default occurs is an open question, but economists – including me – generally expect financial chaos as access to credit dries up and borrowing costs rise quickly for companies and consumers.

A severe and prolonged global economic recession would be all but guaranteed, and the reputation of the US and the dollar as beacons of stability and safety would be further tarnished.

But how do you prepare for an event that many expect would trigger the worst global recession since the 1930s?

‘Default doomscrolling’ again, Mr. Powell? Photo: Kimimasa Mayama / Pool Photo via AP / The Conversation

Preparing for panic

Jamie Dimon, who runs JPMorgan Chase, the biggest US bank, told Bloomberg he’s been convening a weekly war room to discuss a potential default and how the bank should respond. The meetings are likely to become more frequent as June 1 – the date on which the US might run out of cash – nears.

Dimon described the wide range of economic and financial effects that the group must consider such as the impact on “contracts, collateral, clearing houses, clients” – basically every corner of the financial system – at home and abroad.

“I don’t think it’s going to happen — because it gets catastrophic, and the closer you get to it, you will have panic,” he said.

That’s when rational decision-making gives way to fear and irrationality. Markets overtaken by these emotions are chaotic and leave lasting economic scars.

Banks haven’t revealed many of the details of how they are responding, but we can glean some clues from how they’ve reacted to past crises, such as the financial crisis in 2008 or the debt ceiling showdowns of 2011 and 2013.

One important way banks can prepare is by reducing exposure to Treasury securities – some or all of which could be considered to be in default once the U.S. exhausts its ability to pay all of its bill. All US debts are referred to as Treasury bills or bonds.

The value of Treasurys is likely to plunge in the case of a default, which could weaken bank balance sheets even more. The recent bank crisis, in fact, was prompted primarily by a drop in the market value of Treasurys due to the sharp rise in interest rates over the past year. And a default would only make that problem worse, with close to 190 banks at risk of failure as of March 2023.

Another strategy banks can use to hedge their exposure to a sell-off in Treasurys is to buy credit default swaps, financial instruments that allow an investor to offset credit risk. Data suggests this is already happening, as the cost to protect US government debt from default is higher than that of Brazil, Greece and Mexico, all of which have defaulted multiple times and have much lower credit ratings.

But buying credit default swaps at ever-higher prices limits a third key preventive measure for banks: keeping their cash balances as high as possible so they’re able and ready to deal with whatever happens in a default.

Four white men sit on white couches in a large office filled with presidential portraits.
Little has come out of fiscal negotiations between Mitch McConnell, left, Kevin McCarthy, second from left, President Joe Biden, second from right, and Chuck Schumer. Photo: AP via The Conversation / Evan Vucci

Keeping the financial plumbing working

Financial industry groups and financial regulators have also gamed out a potential default with an eye toward keeping the financial system running as best they can.

The Securities Industry and Financial Markets Association, for example, has been updating its playbook to dictate how players in the Treasurys market will communicate in case of a default.

And the Federal Reserve, which is broadly responsible for ensuring financial stability, has been pondering a US default for over a decade. One such instance came in 2013, when Republicans demanded the elimination of the Affordable Care Act in exchange for raising the debt ceiling. Ultimately, Republicans capitulated and raised the limit one day before the U.S. was expected to run out of cash.

One of the biggest concerns Fed officials had at the time, according to a meeting transcript recently made public, is that the US Treasury would no longer be able to access financial markets to “roll over” maturing debt.

While hitting the current ceiling prevents the US from issuing new debt that exceeds $31.4 trillion, the government still has to roll existing debt into new debt as it comes due. On May 15, 2023, for example, the government issued just under $100 billion in notes and bonds to replace maturing debt and raise cash.

The risk is that there would be too few buyers at one of the government’s daily debt auctions – at which investors from around the world bid to buy Treasury bills and bonds. If that happens, the government would have to use its cash on hand to pay back investors who hold maturing debt.

That would further reduce the amount of cash available for Social Security payments, federal employees wages and countless other items the government spent over $6 trillion on in 2022. This would be nothing short of apocalyptic if the Fed could not save the day.

To mitigate that risk, the Fed said it could could immediately step in as a buyer of last resort for Treasurys, quickly lower its lending rates and provide whatever funding is needed in an attempt to prevent financial contagion and collapse. The Fed is likely having the same conversations and preparing similar actions today.

A self-imposed catastrophe

Ultimately, I hope that Congress does what it has done in every previous debt ceiling scare: raise the limit.

These contentious debates over lifting it have become too commonplace, even as lawmakers on both sides of the aisle express concerns about the growing federal debt and the need to rein in government spending.

Even when these debates result in some bipartisan effort to rein in spending, as they did in 2011, history shows they fail, as energy analyst Autumn Engebretson and I recently explained in a review of that episode.

That’s why one of the most important ways banks are preparing for such an outcome is by speaking out about the serious damage not raising the ceiling is likely to inflict on not only their companies but everyone else, too. This increases the pressure on political leaders to reach a deal.

Going back to my original question, how do you prepare for such a self-imposed catastrophe? The answer is, no one should have to.

John W Diamond is Director of the Center for Public Finance at the Baker Institute, Rice University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Covid-19 will cost the US economy  trillion

The economic toll of the Covid-19 pandemic in the US will reach US$14 trillion by the end of 2023, our team of economists, public policy researchers and other experts have estimated.

Putting a price tag on all the pain, suffering and upheaval Americans and people around the world have experienced because of Covid-19 is, of course, hard to do.

More than 1.1 million people have died as a result of Covid-19 in the US, and many more have been hospitalized or lost loved ones. Based on data from the first 30 months of the pandemic, we forecast the scale of total economic losses over a four-year period, from January 2020 to December 2023.

To come up with our estimates, our team used economic modeling to approximate the revenue lost due to mandatory business closures at the beginning of the pandemic.

We also used modeling to assess the economic blows from the many changes in personal behavior that continued long after the lockdown orders were lifted – such as avoiding restaurants, theaters and other crowded places.

Workplace absences, and sales lost due to the cessation of brick-and-mortar retail shopping, air travel and public gatherings, contributed the most. At the height of the pandemic, in the second quarter of 2020, our survey indicates that international and domestic airline travel fell by nearly 60%, indoor dining by 65% and in-store shopping by 43%.

We found that the three sectors that lost the most ground during the first 30 months of the pandemic were air travel, dining, and health and social services, which contracted by 57.5%, 26.5% and 29.16%, respectively.

These losses were offset to a degree by surges in online purchases, a series of large fiscal stimulus and economic relief packages and an unprecedented expansion of the number of Americans working from home – and thus were able to keep doing jobs that might otherwise have been cut.

From 2020 to 2023, the cumulative net economic output of the United States will amount to about $103 trillion. Without the pandemic, the total of GDP over those four years would have been $117 trillion – nearly 14% higher in inflation-adjusted 2020 dollars, according to our analysis.

We also simulated four different possible economic outcomes had the number of Covid-19 deaths been different because of either more or less successful public health strategies in the first 30 months of the pandemic.

The direct health expenses, driven mostly by hospitalization costs in these scenarios, would have totaled $20 billion in a best-case scenario in which 65,000 Americans would have died from January 2020 to June 2022. In the worst-case scenario, about 2 million would have died during that period, with $365 billion in direct health-related expenses.

Based on our findings, most economic losses were not due to these health care expenditures.

Why it matters

The Covid-19 pandemic’s economic consequences are unprecedented for the US by any measure. The toll we estimate that it took on the nation’s GDP is twice the size of that of the Great Recession of 2007-2009.

It’s 20 times greater than the economic costs of the 9/11 terrorist attacks and 40 times greater than the toll of any other disaster to befall the US in the 21st century to date.

Although the federal government has now lifted its Covid-19 Public Health Emergency declaration, the pandemic is still influencing the US economy. The labor force participation rate, which stood at 62.6% in April 2023, has only recently neared the February 2020 level of 63.3%.

What is not known

We modeled only the pandemic’s standard economic effects. We didn’t estimate the vast array of economic costs tied to Covid-19, such as lost years of work after an early death or a severe case of long-Covid-19.

We also didn’t assess the costs due to the many ways that the disease has affected the physical and mental health of the US population or the learning loss experienced by students.

Jakub Hlávka is Research Assistant Professor of Health Policy and Management; Schaeffer Center Fellow, University of Southern California and Adam Rose is Professor of Public Policy, University of Southern California

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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China expands economic reach in US’ backyard

In early March 2023, General Laura Richardson, head of the United States Southern Command, told a US congressional hearing that Chinese actions in South America posed a threat to US safety. According to General Richardson, China is on a relentless march to replace the United States as the leader in the region.

While China’s presence in the region has grown substantially in the past decade, it is unlikely that China will replace the United States as the dominant political, economic and military power in Latin America for the foreseeable future.

On the economic front, China has made inroads into South America and the Caribbean, a region where US power once went unchallenged. Starting in the late 1990s, Chinese interest in South America and the Caribbean began to grow.

In order to sustain its unprecedented economic growth China began to search the globe for oil and other raw materials. In 2000, Chinese trade with the region totalled US$12 billion, reaching $314.8 billion in 2021. In 2023, China is the largest trading partner of nine countries in the region: Argentina, Brazil, Bolivia, Cuba, Chile, Peru, Paraguay, Uruguay and Venezuela.

While the growth in trade between China and the region is impressive, the United States remains Latin America and the Caribbean’s largest trading partner. In 2020, US trade with the region was $758.2 billion. But 71 per cent of this trade was with Mexico. In 2021, Chinese foreign direct investment in the region totalled $130 billion.

Before the Covid-19 pandemic, China was the biggest lender to the region, with Chinese development banks having issued $66.5 billion in loans — mostly for infrastructure projects that offer Chinese companies better access to the region’s rich natural resources. A small portion of these loans were provided under China’s Belt and Road Initiative (BRI).

While China’s economic footprint in the region has increased significantly, the United States and the European Union remain the largest foreign investors, accounting for 36 per cent and 34% of total investment respectively.

As China faces an economic slowdown due to the Covid-19 pandemic, Chinese loans have dried up. When countries in the region fall into financial crisis, Western institutions such as the International Monetary Fund have provided the lion’s share of structural adjustment loans, not China.

The extent to which China’s economic gains in the region have resulted in political and diplomatic influence is unclear. While China has been Brazil’s largest trading partner for over a decade, tensions have arisen under both left- and right-wing Brazilian governments.

Chinese President Xi Jinping and Brazilian leader Luiz Inácio Lula da Silva in a state of embrace. Image: Twitter

In Panama, after relentless US pressure, several multibillion dollar infrastructure contracts initially awarded to Chinese companies were cancelled and given to South Korean and Japanese companies.

During her testimony to Congress, General Richardson also warned that China has increased its support for anti-US regimes in the region including Venezuela, Cuba and Nicaragua.

But with the exception of Venezuela, Chinese investment and trade with these countries is minimal compared with its presence in most other countries in the region. In the cases of Cuba and Nicaragua, their desperate economic situations and US sanctions render them less attractive to China.

In the defence and security sector, China has made modest inroads into the region. While the number of South American and Caribbean military and security officers going to China for training has increased, the United States remains the primary destination for training thousands of officers from the region. The United States has dozens of bases and other installations throughout the region and is the region’s ultimate guarantor of security.

While the power of the United States in the region remains solid, challenges on the economic front are increasing. No other power — not even the Soviet Union — has been able to challenge US economic dominance of the region.

Apart from in Cuba, Soviet trade and aid to the region was negligible and its diplomatic influence limited. While most countries in the region want to maintain close ties with the United States, they also want the benefits of China’s massive trade and investment flows.

On the eve of the pandemic, total trade between China and Latin America had hit $314.8 billion. Chinese foreign direct investment in Latin America was about $130 billion and net development lending by the China Development Bank and Export–Import Bank of China was about $66.5 billion. Taking 2000 as the baseline, the figures in all three categories have grown exponentially.

China is taking many steps to improve its economy and its currency. Photo: Facebook

While trade and FDI inflows dipped slightly during the pandemic, Chinese development lending to the region dropped to zero in 2020. With just two years of operation in Latin America and the Caribbean, the BRI accounts for only a few million of the $43.5 billion disbursed to the region by Chinese policy banks between 2015 and 2019.

China’s growing presence and rising economic importance to the Global South should be expected. But China was able to build such a strong presence in Latin America and the Caribbean in large part due to US neglect of the region.

The United States can no longer take the region for granted. Perhaps Washington should start treating Latin America as its front yard rather than its backyard.

Loro Horta is a diplomat and scholar from Timor-Leste. He has served as Timor-Leste’s ambassador to Cuba and counselor at the Timor-Leste embassy in Beijing.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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Singapore digital banks behind the regulatory times

The digital banking ecosystem among Southeast Asia’s approximately 687 million inhabitants is diverse.

Some ASEAN members, including the more developed ASEAN-5 economies and Brunei, have well-consolidated financial services sectors, while others — especially in their rural areas — have large unbanked populations. Traditional banks and fintech start-ups have increasingly turned to digital banking to solve this problem but various issues demand greater regulatory oversight.

Digital banks have proliferated across Southeast Asia and financial authorities in Singapore, Malaysia and the Philippines are seeking to incentivize financial innovation by supporting fintech growth without compromising financial stability. Some of these initiatives include rules for digital wallets, peer-to-peer lending, application programming interfaces, licensing frameworks for digital banks and regulatory sandboxes.

Digital banking adoption is influenced by numerous factors including unmet customer needs, technology adoption, talent and national identification tech systems. The World Bank estimated that the region’s connectivity rate of 133% contrasts with only 27% of the population having a bank account. It is estimated that 80% of Indonesia, the Philippines and Vietnam, and 30% of Malaysia and Thailand are unbanked.

Traditional banks such as the United Overseas Bank and Commerce International Merchant Banks have increasingly leveraged technology to compete with online-only banks and fintech start–ups. But with increasing mobile connectivity, monetary authorities — including the Monetary Authority in Singapore — have leaned towards licensing digital-only banks and nurturing fintech start-ups to compete with traditional banks.

The number of fintechs in Southeast Asia increased from 34 to 1,254 between 2000-2022. Southeast Asian fintechs have a cumulative total of US$4.8 billion of equity funding — the largest share of these start-ups located in Singapore.

Singapore’s position as a financial hub and the region’s leading digital economy for tech-driven innovation makes it an ideal choice to observe the motivations and challenges for technological transformation in financial services.

In December 2020, the Singaporean Monetary Authority awarded digital full bank licenses to GXS Bank and Sea Limited’s Mari Bank and gave significantly rooted foreign bank privileges to Trust Bank to create competition for traditional incumbents and encourage financial innovation and digital banking.

These initiatives prompted the three biggest traditional banks in Singapore — namely the Development Bank of Singapore (DBS), Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) — to accelerate their transformation processes. With high overheads, traditional banks must transform to compete with fintechs in terms of costs, products and services.

DBS approached this challenge in its journey toward being a tech-minded company by collaborating with cloud computing provider Amazon Web Services to retrain its staff in digital tools, artificial intelligence (AI), and machine learning. Over 3,000 DBS employees — including senior executives — were trained in innovative technologies.

DBS differentiated itself by developing 85% of its technology in-house — rather than outsourcing — during its cloud-based tech infrastructure transition. Data is used for personalized intelligence and analytics to enable a greater understanding of customers’ desires and expectations. DBS is industrializing the use of AI and machine learning to power differentiated customer experiences.

Fundamentally, DBS had to operate as a start-up and embed an appropriate organizational start-up culture — a particular challenge for incumbent banks transitioning into the tech space. Adopting a hybrid multi-cloud infrastructure, DBS aims to reduce infrastructure costs by adapting its architecture to the cloud and reimagining its processes to be customer-centric.

In this context, Singapore’s Smart Nation Initiative “Singpass”, a digital identification framework, could play a key role in enrolment and verification. DBS has become a technology company, enabling flexibility to experiment and implement changes faster, and integrate with customer systems.

For example, DBS and GovTech are teaming up to pilot Singpass face verification technology for faster digital banking sign-ups among seniors aged 62 and above.

During Singapore’s economic post-Covid-19 transition, DBS created the DBS Digital Exchange to manage its integrated digital ecosystem. Self-directed trading is possible via its digibank app. DBS and JPMorgan also co-created “Partior” as a blockchain-based cross-border clearing and settlement provider that harnesses smart contracts to transform the future of payments.

Before experimenting with intelligent banking, DBS built its proprietary AI machinery using an integrated approach. This combines predictive analytics, AI and machine learning, and customer-centric design to convert data into hyper-personalized nudges to help customers make informed decisions.

Because DBS provides “insights” and “nudges” for customers on its digibank app, the technology must be consistent and dependable. Yet despite spending billions on tech, training, contracting reputable vendors and using proven technology, DBS still encountered technical problems in its digitalization journey.

On May 5, 2023, DBS’ online banking and payment services were disrupted for the second time in two months. Previously, on March 29, 2023, DBS lost electrical power, disrupting its digital services for 10 hours. These two disruptions come 16 months after an outage in November 2021 which lasted for two days, causing access problems to the bank’s control servers.

The DBS Digital Exchange is 10% owned by Singapore’s SGX stock exchange. Image: Twitter

For the 2021 outage, the Monetary Authority required DBS to apply a multiplier of 1.5 times to its risk-weighted assets for operational risk, amounting to US$700 million of regulatory capital to ensure sufficient liquidity.

As traditional banks like DBS digitalize and embrace technology, they must have robust business recovery and continuity capacity built into their digital frameworks. Regulatory authorities like the Monetary Authority have driven digital transformation and highlighted the need for banks to continually review their digital banking infrastructure.

But regulators also need to increase monitoring and supervision of banks’ digital processes and transformation models.

Dr Faizal Bin Yahya is Senior Research Fellow in the Governance and Economy Department of the Institute of Policy Studies, National University of Singapore.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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