Week in Review

March 4, 2019

Global Roundup

Trump, Kim summit collapses. The nuclear summit between President Donald J. Trump and North Korea’s Kim Jong Un collapsed on Feb. 28 after the two sides failed to reach a deal due to a standoff over U.S. sanctions on the reclusive nation, a stunning end to high-stakes meetings meant to disarm a global threat. (CBC)

Pakistan prepares to return Indian pilot as confrontation cools. Pakistan prepared to release a captured Indian pilot on Mar. 1 as the nuclear powers scaled back their confrontation, at least temporarily, while Indian opposition politicians raised doubts over whether an initial airstrike had destroyed a militant camp in Pakistan. (Reuters)

U.S. imposes more sanctions on Venezuela amid humanitarian aid fight. The United States imposed fresh sanctions on Venezuela on Mar. 1, targeting six Venezuelan government officials tied to President Nicolas Maduro, in its latest move to squeeze the embattled leader. (U.S. News & World Report)

Finance firms given 15-month regulatory grace period if no-deal Brexit. British regulators will give banks, asset managers, insurers and brokers until mid-2020 to fully comply with rules that replace European Union law in the event of a no-deal Brexit. (HSN)

China's domestic slowdown drives global trade slump. The recent pattern of trade flows in Asia suggests that the sharp decline in world trade growth in the second half of 2018 was primarily due to the slowdown in domestic demand in China rather than the direct impact of tariffs associated with increased U.S.-China trade tensions. (Fitch)

Northern Ireland: A cross-border economy at stake. As the U.K. prepares to leave the EU, Northern Ireland will be severely affected as its economy is highly interlinked with the Republic of Ireland. Disruptions to the supply chain and access to markets are the main concerns for businesses. (EurActiv)

Five takeaways from Uruguay's economic outlook. Over the last decade and a half, Uruguay’s economy has been resilient—helping to reduce poverty and raise incomes to one of the highest levels in the region. But recently growth has moderated, and the country faces the challenges of low investment, declining employment, and an uncertain external climate. (IMF)

How Turkey is turning to Russia amid row with U.S. over Syria. The timing of the Turkish foreign minister’s unexpected phone call today with his Russian counterpart in the middle of U.S.-Turkey talks on Syria is the latest sign that Washington and Ankara remain hopelessly at odds over how to move forward in the region. (Al-Monitor)

NATO steps up naval presence on the Black Sea. Experts say the move sends a signal that the West won't tolerate Russia's expanding military footprint in the region. However, an 80-year-old treaty could limit the alliance's scope for action. (DW)

There's been a mysterious surge in $100 bills in circulation, possibly linked to global corruption. The amount of $100 bills in circulation is surging. And it's leaving some economists scratching their heads. The number of outstanding U.S. $100 bills has doubled since the financial crisis, with more than 12 billion of them across the world, according to the latest data from the Federal Reserve. (CNBC)

India's growth may decelerate further despite election spending. Billions of dollars of pre-election spending by the Indian government and political parties in the next two months is unlikely to stop the nation’s economy from slowing further, economists said. (Reuters)

Instant payments finally gaining traction in Germany. Banks in Germany have finally gotten serious about enabling private account holders and businesses to transfer money in a lightning-fast way. Payment systems industry expert Leo Lipis tells DW about the benefits. (DW)

China must choose: Growth or lasting economic health. It can’t have both. It is an irony of the so-called free economies that their governments are more constrained than China’s when it comes to pursuing growth. China’s central bank can print as much money as the economy needs; its government can order state-owned banks to make available as much credit as it wants. (HSN)

Meanwhile in the World of Brexit

Chris Kuehl, Ph.D.

For the last few years, the expectation had been that the U.K. and European Union (EU) would finally find a way to bury the hatchet and come to an agreement that was not too onerous for either side. Surely, they would. What purpose would be served by demanding an abrupt exit from the EU?

However, the two sides in this debate have been locked in, and neither has shown any signs of budging. Never mind that this failure will likely stir increased ferment in Ireland, will shove the U.K. into recession and will rob hundreds of European companies of their markets in the U.K. It will negatively impact almost every aspect of the EU and will send the U.K. into economic reverse. Still there was no move to compromise—until just now.

Prime Minister Theresa May had been insisting that her deal with the EU be accepted by the U.K. She was not about to budge because she believed this was the best deal that could be struck between the Brits and the Europeans. Unfortunately, support from her own party evaporated, and she has been forced to back away from the March 29 date for the settlement of this issue. This decision has not yet been made formally, but it seems May realized she had lost support for the plan she worked out with the EU. There was now a choice between a very hard exit and some kind of extension.

The real issue is that nobody has a clue as to what happens once the extension is granted. There is no indication that anybody has altered their position on the issue, and it is hard to see where progress would be made.

Many in the U.K. have been calling for a new referendum. Polls suggest that Brexit would lose this time. Opponents of such a plan are mostly from the camp of those who do not want to see the U.K. stay in the EU, but there are others who are concerned about the precedent. It would be as if the voters had been ignored—that governments would just keep bringing an issue forward until the voters “got it right.” On the other hand, there are many who assert voters did not have the information they needed to make that decision in the first place.

The majority of those who voted in favor of Brexit were reacting to the immigration patterns that had been affecting the U.K. The flood of workers from Eastern Europe had threatened many who felt their jobs were in jeopardy. Others disliked the cultural changes that came with the arrival of new people. Some of the opposition to Europe was from the business community as it had been upset with the regulatory system imposed on the U.K., but this was not a major factor as far as how people voted. Now that people have seen what this withdrawal will mean to the British economy and to their jobs, the attitude has changed. Most surveys would have the population voting against a Brexit.

Even if the second referendum was called and the population changed their mind, it is not certain how the Europeans would react. They have been chafing at the British anti-European attitude for years. Many in Europe have little desire to accommodate the U.K. should a request be made. It is assumed that cooler heads will prevail, but this issue has turned very emotional and has become a litmus test for one’s nationalistic credentials

Marsh’s Political Risk Map 2019: Unprecedented Uncertainty Ahead

Rising geopolitical tensions and protectionist sentiments, coupled with ongoing trade disputes, are leading to increased uncertainty and risk for multinationals with direct foreign investments, according to a new report from insurance broker Marsh.

Key findings of the Political Risk Map 2019 include:

• A transition to a more multi-polar world order of protectionism is likely to continue in 2019, with isolationist and protectionist sentiments and practices rising in some counties, halting, at least momentarily, the process of globalization.

• Trade tariffs and geopolitical disputes between the U.S. and China could escalate in 2019, bringing the risk of further Chinese retaliation and U.S. counter-retaliation. Export-heavy economies, like Germany, are likely to be impacted.

• Russia’s relations with the West will remain tense in 2019 and could result in further sanctions on Russia.

• The U.K.’s negotiations to exit the European Union continue to loom over the political risk landscape, while continued political instability in Spain led to a sharp decline in the country’s short-term political risk index (STPRI).

• Positive results from 2018 presidential and legislative elections in Guatemala, Chile and Paraguay led to improved STPRI in those countries, while continued political unrest in Nicaragua significantly reduced the country’s STPRI.

• The African region once again saw some of the biggest improvements in political risk and also some of the most notable deteriorations. STPRI scores in South Africa, Mozambique and South Sudan all improved, while uncertainty around elections and deteriorating economic and humanitarian conditions have led to sharp increases in political risk in Zambia, Mali, Algeria, Tunisia, Cameroon and the Central African Republic.

Findings from Marsh’s Political Risk Map 2019 are similar to the World Economic Forum’s Global Risks Report 2019, which ranked rising geopolitical and geo-economic tensions as the most urgent risk in 2019.

Marsh’s Political Risk Map 2019 is based on data from Fitch Solutions, a source of independent political, macroeconomic, financial and industry risk analysis. The interactive map rates more than 200 countries and territories on the basis of short- and long-term political, economic and operational stability and gives insight into where risks are most likely to emerge.

Cross-Border Payments’ Pre-Validation Push

PYMNTS.com

Global trade, commerce and the interconnected economy depend on reliable cross-border transactions, and issues with these payments affect everyone from consumers to large corporations. Such delays in business-to-business (B2B) cash flows can cause dramatic concerns for suppliers.

Even simple banking data errors can result in holdups. Providing incorrect recipient account numbers, routing funds to closed beneficiary accounts or mismatching numbers and names are just a few potential pitfalls. Payments that don’t go through are then sent back to payees, who could face fees from banks along the payment chain as well as serious settlement delays.

These kinds of industry problems don’t occur often, but they can be extremely inconvenient when they do, according to Manish Kohli, global head of payments and receivables with Citi’s Treasury and Trade Solutions.

“It isn’t an experience we feel is fit for the 21st century,” Kohli said.

Banking error-related pains are more likely to affect complicated cross-border payments across jurisdictions, time zones and languages, he explained, and all consumers and corporations could benefit from fixes to help prevent them.

There might be an end in sight, however. Citi is among 17 banks piloting an API-based solution to alleviate banking error-related delays. The SWIFT offering is designed to pre-validate SWIFT Global Payment Initiative (gpi) payments, allowing participating senders to confirm beneficiaries’ account information with receivers via API calls and letting them correct any errors before initiating transactions.

PYMNTS recently caught up with Kohli to discuss SWIFT’s pilot solution and how it could remove friction from the banking industry. He also explained how it can lower customers’ payment costs and spare banks the expense of investigating error-related failed payment issues.

Prepping for the pilot

Most of the financial institutions (FIs) participating in the pilot are large banks with either global or regional focuses. Kohli said the solution will roll out to smaller banks at a later date.

The program’s first phase would test use cases such as confirming whether beneficiaries’ accounts are open and validating them, thus creating a smoother payments experience and providing certainty that disbursements will be credited as intended. It is slated to launch during the first half of 2019, although the exact date depends upon banks’ preparedness to integrate.

“We expect this will eliminate a large percentage of the current rejects and fails and, as a result, will also reduce the associated interbank investigations and manual processes, taking much of the friction out of the process,” Kohli said.

Citi expects integration with the pre-validation service to be straightforward for the banks already live on SWIFT gpi. These FIs can choose how the service is presented to their clients, and Citi intends to provide the solution within its own Citi Payment Insights real-time platform.

Reaching ubiquity

The pre-validation solution must be ubiquitous as well as robust if banks are going to get the most out of it, Kohli said. As such, banks of all sizes would need to adjust their technologies to access it.

While he did not expect the technological preparations to be very onerous for banks, Kohli noted that the challenge lies in encouraging already-busy FIs to prioritize adopting the solution.

As pre-validation solutions emerge and spread, they are expected to help alleviate friction and enable FIs to offer more convenient cross-border payments. These goals are critical in today’s hyper-connected digital world.

Reprinted with permission from PYMNTS.com.

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations