The Long-Term Effects of Inflation Include Rising Inequality

Economic

Summary:

Inflation shifts investment from growth to speculation, slowing development and feeding social strife, but governments remain addicted to inflationary spending.

We are living in the age of inflation. Although inflation has existed in one form or another since the beginning of the monetary economy, no economic system has ever institutionalized and perpetuated the devaluation of money to the same extent as the system we live in today.

According to the official inflation figures from the United States Bureau of Labor Statistics, one U.S. dollar in August 1971 had the same purchasing power as $7.66 in March 2024. Conversely, the purchasing power of one U.S. dollar today is equivalent to that of just 13 cents in 1971, when President Richard Nixon abolished the last remnants of a gold backing of the U.S. dollar within the Bretton Woods system.

What do these figures mean? For more than half a century, the U.S. dollar has depreciated by an average of almost 4 percent per year relative to the usual consumer goods an American household buys. These are the official inflation figures, which do not look beyond private consumption. However, since at least the 1980s, there has also been disproportionately high asset price inflation in real estate, stocks and many other long-term assets, such as precious metals. The U.S. dollar price for gold, for example, has increased by an average annual rate of 6.3 percent over the past 30 years.

The situation is similar in Europe. Since the introduction of the euro in 1999, average consumer price inflation in the eurozone has hovered around 2 percent per year. That means that the European Central Bank has hit its stated monetary policy target, if only on average. At the same time, real estate and stock markets have been heavily inflated over the entire period, a fact that is not taken into account in the official inflation statistics. Real estate prices have almost tripled in France and more than doubled in Germany over the last 25 years. Share prices are constantly spiking to new record highs and appear to be decoupled from the real economy. All these signs tell us that we are indeed living in the age of inflation. The Long-Term Effects of Inflation Include Rising Inequality_1

The Long-Term Effects of Inflation Include Rising Inequality_1

Listing the long-term consequences of persistent inflation could fill entire volumes. But among these consequences, three seem particularly relevant.

Inflation undermines real economic growth

Economists agree that we can stimulate the economy through inflation in the short term. However, what seems reasonable from a near-term perspective can sometimes cause considerable damage in the long term. We all know examples of this truism, but not everyone realizes that it also applies to inflation. Within the specifics of a given economy, a rise in inflation can almost always stimulate additional economic activity.

Lowering interest rates and expanding the money supply increase the volumes of credit, investment and consumption. All of this accelerates the economic process. However, persistent inflation over the long term prompts changes in the underlying economic structure. Investors who create the basis for economic growth will adapt their behavior to the new circumstances. In an inflationary economy, chaotic conditions often prevail.

Productive investments in building up the real capital stock are therefore associated with increased risks. However, one can be confident that prices will rise on average, and the prices of existing assets, such as real estate, will rise more than proportionately. This means that from an investor's perspective, it is becoming much more sensible to purchase existing assets instead of investing in the production of new ones.

Productive investments are increasingly being crowded out by speculative investments aimed at reaping profit from increasing prices. If productive investments fail to materialize, an economy can no longer grow in real terms. It then lives off its existing substance, consuming capital instead of building it.

Inflation increases inequality

The growing demand for long-term assets that protect against inflation can be seen as a sort of self-defense mechanism. When inflation persists over the long term, a cultural and social learning process sets in.

The simplest form of saving is to put some money aside. It has also been, for a long time, a common form of saving in low-income households. The more people understand that this strategy no longer works, the more society will be caught up in a maelstrom of asset price inflation. More and more people are buying property, for example, not to live in or rent out, but to park their savings and protect them from erosion. That explains the high vacancy rates in cities such as London, Paris and New York City.

The ever-increasing demand for long-term assets means that asset prices tend to rise faster and faster, and people's incomes are lagging behind. The wealthy classes are moving further away from the less affluent classes. Steady inflation, even if it is moderate on average, is driving a wedge between rich and poor.

Inflation promotes frustration and resentment

For average-income earners without existing assets, social advancement is becoming increasingly difficult in the face of disproportionately high asset price inflation. It is true that an inflationary economy also offers many opportunities to some individuals. A have-not can quickly achieve great wealth if he or she only bets on the right horse. But this is the exception, not the rule. Inflation does not benefit the majority. On the contrary, those lucky individuals achieve great wealth precisely because the masses lose out in the process of inflation.

This tendency has serious consequences for a society's cohesion. In an inflationary economy, individuals can become rich at the expense of others without producing anything of value to others. It is often impossible to tell how much of a given fortune is the result of productive activity and how much is the result of inflationary redistribution.

Many people intuitively sense the unfairness of this situation, which fuels envy, resentment and annoyance. Over time, these feelings tend to be directed against all the haves, including those who gain most of their wealth through productive activity. In this way, self-destructive emotions are generated and accumulated in society and manifest themselves through politics. If sufficiently many people lose trust in the economic system they live in, the democratic process will sooner or later dismantle that system.

Source: GIS

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Add to Favorites

Cohen

Economic

Long-touted changes to China's tax system will focus on allowing local governments to retain more fiscal revenues, say policy advisers, widely seen by markets as an important step towards removing an immediate threat to financial stability.

Measures that redistribute income from central authorities to municipalities, curbing an addiction to land sales laid bare by China's property crisis, will top the agenda of a leadership gathering in July, known as the third plenum, they said.

"Pressure is high to push reforms to bolster local government revenue after the end of the land finance phase," said one of four policy advisers who spoke to Reuters. Three of them requested anonymity due to the sensitivity of the matter.

The plenum is set to discuss the biggest changes to China's fiscal system in three decades, with policymakers hoping to ease concerns over a $13 trillion-and-growing local government debt pile that poses risks to financial institutions and economic growth.

Details of the plans have been reported by Chinese media.

In 2023, local governments' own fiscal revenues accounted for 54% of the nation's total, but their expenditures accounted for 86%, data from the finance ministry showed.

This imbalance stems from the fiscal reforms of 1994, when China aimed to limit localities' capacity to independently raise money, following a surge in local spending and inflation in the late 1980s.

But local governments got around those limitations by creating off-budget financing vehicles - which Beijing is cracking down on - and by auctioning land for residential development, fuelling a giant housing bubble.

Land sales' contribution to local budgets rose from a fifth to almost a third in the decade leading up to 2021, when China entered a severe property market downturn. It is no longer a reliable cash cow: such incomes shrank to 5.8 trillion yuan ($780 billion) in 2023 from a 2021 peak of 8.7 trillion.

'Mature society'

Chinese leaders flagged plans for fiscal reforms at an annual meeting in December, without offering details.

Policy advisers said the main changes are likely to revolve around how much revenue local governments retain, rather than adding or hiking taxes.

Municipalities currently get half of value-added tax revenue and 40% of personal income tax, while the central government gets most corporate income tax and all of what China calls a consumption tax, currently levied on producers and importers.

The advisers did not give figures on the future division of tax income between central and local governments.

But they said local governments may be allowed to keep most of the consumption tax - which accounts for almost a tenth of China's total tax revenues - and more of the value-added tax - which accounts for more than a third.

Proposals also include Beijing taking over growing commitments on pensions and healthcare as the population ages.

The aim is to stop municipal debt accumulation by balancing revenues with expenditure, the advisers said.

"Local governments' spending should be based on their fiscal capacity," said a second adviser. "A mature society no longer needs to find special ways to build more infrastructure."

Still Imbalanced

The fiscal overhaul will likely stop short of addressing other structural imbalances, such as an over-reliance on investment and exports and weak household consumption, analysts say.

China taxes capital gains at 20%. While subject to many exemptions, it is also lower than the 30% in India and 37% in the United States.

But investment yields dwindling returns, as evidenced by debt significantly outgrowing China's gross domestic product (GDP) for the past 15 years.

Therefore, tax revenue is also low. The International Monetary Fund calculates China's tax-to-GDP ratio at 14%, versus a 23% average for the Group of Seven developed economies.

This makes social spending difficult to fund without raising taxes on capital or businesses. Taxing households more is a difficult proposition as China's upper personal income tax band is among the world's steepest, at 45%.

The difference between how capital and labour are taxed encourages low wages and high investment.

But reversing that runs counter to Beijing's strategic goals of global industrial and technological leadership, which channel resources to factories and science laboratories, rather than consumers.

"Tax reforms should support industrial development," said policy adviser Jia Kang, founding president of the China Academy of New Supply-Side Economics.

China still needed to "grow the pie," he added.

Planting Seeds

Still, one seed for a longer-term tilt towards consumption may yet be planted at the plenum.

Chinese media said policymakers may shift the point of charging the consumption tax to wholesalers and retailers.

This tax currently only applies to 15 types of goods, from alcohol and tobacco, to luxury cars, jewellery and yachts. Domestic demand for these items has limited impact on China's productivity.

Goldman Sachs analysts say charging consumers shifts incentives for local officials from growing their manufacturing base to growing their consumer base.

But that would require a broader application of the tax at a time when consumption remains weak and the economy is fragile.

"Although there are compelling reasons for increasing the role of consumption tax," the analysts wrote, "implementation is likely to be incremental."

Similar constraints apply to adding a property tax.

China had long intended to introduce the levy to reduce the regressiveness of its tax regime, but the property crisis derailed those plans.

Jia said Beijing won't kick the sector while it's down: "We can move only at an appropriate opportunity."

($1 = 7.2564 Chinese yuan renminbi)

Source: Yahoo

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Central Bank

Economic

Will PCE data confirm Fed rate cut bets?

Although the Fed’s updated dot plot pointed to only one quarter-point reduction by the end of the year, the softer-than-expected CPI numbers a few hours ahead of last week’s decision did not convince market participants about officials’ intentions. The weaker-than-expected retail sales numbers this week corroborated that view.

Indeed, according to Fed funds futures, investors are penciling in around 50bps worth of reductions by the end of the year, assigning around a 70% probability for the first cut to be delivered in September.

Week Ahead – US PCE Inflation the Highlight of a Relatively Light Agenda_1

With all that in mind, the main item on dollar traders’ agenda next week may be the core PCE price index for May due out on Friday, which is accompanied by the personal income and spending data for the same month. The final GDP print for Q1 is also set to be released the day before, but given that Q2 is almost over, any minor deviations from the 2nd estimate are likely to pass unnoticed.

As for the core PCE index, the slide in the core CPI for the month poses some downside risks. There may be downside risks to spending as well, derived by the weakness in retail sales, although income may be poised to improve, something suggested by the better-than-expected average hourly earnings.

Week Ahead – US PCE Inflation the Highlight of a Relatively Light Agenda_2

Overall, another set of economic data pointing to cooling consumer demand may further solidify expectations of two quarter-point cuts by the Fed, and perhaps increase the probability for initiating the process in September. This could prove negative for the US dollar, especially against its Australian counterpart. Remember that this week, the RBA maintained its neutral stance, while Governor Bullock revealed that they discussed the option of raising rates.

How likely is a July hike by the BoJ?

In Japan, the Summary of Opinions from last week’s BoJ decision will be released on Monday during the Asian session, while on Friday, the Tokyo CPIs for June are coming out.

At last week’s meeting, BoJ officials decided to keep interest rates unchanged and said that they would start trimming their bond purchases, but that they will announce a detailed plan next month. What’s more, Governor Ueda said that he is not ruling out interest rates rising in July.

Still, the yen fell, perhaps as some market participants were expecting more concrete signals about a July hike and a potential slowdown in bond purchases. This is also evident by market pricing, where the probability of a 10bps hike in July has dropped significantly, to around 27%. Ahead of the decision that chance was more than 65%.

All this suggests that yen traders will dig into the summary for clearer hints on how likely a July hike is. If they are left once again disappointed, the yen is likely to extend its slide and perhaps take another hit if the Tokyo CPIs pull back below the Bank’s 2% objective again. Having said all that though, with dollar/yen already trading near the 159.00 zone, further advances, closer to the round number of 160.00, may significantly increase the risk for another intervention episode by Japanese authorities, although officials have been silent until now.

Week Ahead – US PCE Inflation the Highlight of a Relatively Light Agenda_3

Back-to-back rate cuts for the BoC?

Canada’s CPI numbers are also on next week’s agenda. They are due out on Tuesday. Earlier this month, the BoC became the second central bank in the G10 group to cut interest rates by 25bps, with Governor Macklem signaling that it would be “reasonable to expect further cuts” if inflation continues to cool.

Since then, the only data set worth mentioning was the employment report for May, which came in slightly better than expected. And that was not enough to deter investors from expecting another rate reduction in July. The probability of such a move currently rests at around 62% and should next week’s data reveal that inflation continued its downward trajectory, it could go higher. This could weigh on the Canadian dollar.

Week Ahead – US PCE Inflation the Highlight of a Relatively Light Agenda_4

Australia releases its monthly CPI prints for May. Inflation in Australia has been proving stickier than other major economies, with RBA policymakers discussing the possibility of hiking rates at Tuesday’s gathering. Ergo, if the CPI confirms the stickiness in price pressures, traders will continue seeing the RBA as more hawkish than other major central banks, something that may keep the aussie supported.

Source:XM

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Thomas

Energy

Global energy demand grew by 2 per cent last year, marked by a record expansion in renewable energy and a probable peak in fossil fuel consumption in advanced economies, an industry report said.

Fossil fuel consumption increased by 1.5 per cent, with China and India driving most of the growth, and emissions related to energy exceeded 40 gigatonnes for the first time, the Statistical Review of World Energy report said on Thursday.

The report comes after the world experienced its hottest May on record, with the US, Europe, and swathes of Asia facing imminent or continuing heatwaves.

"With global temperature increases averaging close to 1.5°C, 2023 was the warmest year since records began, and the increasingly severe impacts of climate change were felt across all continents," said Juliet Davenport, president of the UK-based global industry body Energy Institute.

"2023 saw record consumption of fossil fuels and record emissions from energy, but also record generation of renewables, driven by increasingly competitive wind and solar energy."

Fossil Fuel Demand Probably Peaked in Developed Economies Last Year_1

Renewable generation, excluding hydroelectric power, grew 12 per cent to an all-time high of 4,748 terawatt-hours, with wind and solar accounting for three-fourths of the additions, the report said.

China, the world's second-largest economy, accounted for 55 per cent of all new renewable energy generation last year, surpassing the rest of the world combined.

This occurred even as the country's fossil fuel use rose by 6 per cent, driven by a post-pandemic economic surge.

Meanwhile, India's fossil fuel consumption was up 8 per cent, with the South Asian country using more coal than Europe and North America combined, the report said.

"The progress of the transition is slow, but the big picture masks diverse energy stories playing out across different geographies," said Nick Wayth, chief executive of Energy Institute.

In advanced economies, fossil fuel demand seems to be peaking, while in the Global South, economic development, and improvements in quality of life are continuing to drive fossil fuel growth, he added.

Fossil Fuel Demand Probably Peaked in Developed Economies Last Year_2

In Europe, demand for fossil fuels dropped below 70 per cent of primary energy for the first time since the Industrial Revolution, due to reduced demand and increased renewable energy use, the report said.

In the US, the world's biggest oil and gas-producing country, consumption of fossil fuels fell to 80 per cent of total primary energy consumed.

Methane emissions

Methane emissions from the production, transportation and distribution of fossil fuels, as well as from industrial activities, increased in almost all regions except the Middle East.

The region's methane emissions dropped by 7.9 per cent last year, compared with a 5.5 per cent increase in global emissions of the greenhouse gas.

Within the region, Iraq saw a 40 per cent reduction in emissions, while Saudi Arabia and the UAE also experienced decreases.

After carbon dioxide emissions, methane is the second-largest contributor to climate change caused by humans. It is a greenhouse gas that warms up quickly, more than 80 times faster than carbon dioxide.

At the Cop28 climate conference in the UAE last year, 50 oil and gas companies, representing more than 40 per cent of global oil production, signed the Oil and Gas Decarbonisation Charter, which calls for net zero emissions by 2050, or earlier.

The producers are also aiming for "near-zero" upstream methane emissions and zero routine flaring by 2030.

The Cop28 deal was formally referred to as the Global Stocktake, under which countries were urged to "transition away" from fossil fuels in what was arguably the most significant step forward for global climate action since the 2015 Paris Agreement.

It seeks to keep the global temperature limit of 1.5°C above pre-industrial levels, which was agreed on in Paris, within reach and avoid the worst effects of climate change.

If global temperatures rise by more than that, the lives and health of billions of people could be endangered, scientists believe.

Source: The National News

Risk Warnings and Disclaimers

Add to Favorites

Justin

Economic

Over the past few years, the climate policy paradigm has moved from a view where the economy must be constrained to mitigate climate change to one where growth and a sustainable environment can coexist. This change in perspective is adding momentum to the energy transition. But ramping up investments quickly to limit the impact of climate change and drive growth is challenging in a more fragmented world.

New theories have broadened our understanding of the green transition

Green growth theories recognise that technology is not static and is key to achieving simultaneous economic and environmental efficiency. Improvements in energy efficiency are one example where mitigating climate change enhances growth. Another is radical innovation, such as renewable electricity generation, which is now cheaper than fossil fuels.

However, green technologies are costly and not competitive at first, mainly because of nascent research and development and a lack of scale. Technological change is driven by past investments and existing capital. Consequently, the market tends to cling onto existing technologies.

Policy can help accelerate the transition. There are two market failures to address: the negative externality of carbon emissions and underinvestment in green technology. Carbon pricing can correct the first of these, but it cannot address the legacy innovation bias towards fossil fuel investments. Subsidies are needed to redirect resources towards emerging green technologies and crowd in private investment in a greener economy. The fiscal multiplier for renewable investments is estimated to be double that of fossil fuel investments.

Green growth policies have already had success

Decoupling economic growth from emissions has already happened in developed economies (Figure 1). With evidence that climate mitigation can be associated with growth, the policy focus has moved from a purely costs-based view of transition to include opportunities for innovation and growth.

Public spending on ‘greening’ infrastructure and technology has surged (Figure 2). In Europe, one-third of the Next Generation EU Fund has been allocated to green spending, and the Inflation Reduction Act in the US has $369bn of subsidies earmarked for climate mitigation and adaptation. Following energy market disruptions after Russia’s invasion of Ukraine and a renewed focus on energy security, large energy importers like the European Union and China have also accelerated their transitions. Global renewable capacity additions in 2023 have once again led the International Energy Agency to revise its renewable energy growth forecast upward by 33%.

Figure 1. US carbon dioxide emissions per capita decoupled from GDP 20 years ago

Climate Mitigation Doesn’t Have to Come at the Expense of Growth_1

Source: BP, World Bank, Global Carbon Budget, S&P Global Ratings

Figure 2. Public climate financing is attracting private investors

Climate Mitigation Doesn’t Have to Come at the Expense of Growth_2

Source: Climate Policy Initiative, S&P Global Ratings

Building competitiveness in green product markets is also emerging as a way to grow international market shares. China has spent more on climate change mitigation than other countries, and Chinese firms are dominating solar panel manufacturing. China is now also disrupting more traditional markets, like auto manufacturing, overtaking Germany as the world’s second largest car exporter thanks to significant progress in producing electric vehicles. Although enacted only in 2022, the IRA could help American companies catch up quickly in green technologies.

The relative attractiveness of carbon taxes is moderating as green growth models emphasise the ‘carrot’ rather than the ‘stick’. In almost every economy, carbon taxes are less popular than subsidies. Countries with a focus on carbon taxing but fewer green subsidies (such as the EU), are adjusting policies to prevent capital flight, with companies taking advantage of green subsidies elsewhere.

Time and money are not the only impediments

Expanding the renewables sector is a challenge and will take time. There’s no doubt that more investments are needed to green the economy. Carbon dioxide emissions per unit of output have plateaued since 2010, but have not yet declined.

Financing sufficient green subsidies to speed up the transition may not be feasible for governments faced with higher interest rates, high debt and lower growth. Government budget constraints – and a lack of foreign (official) financing – are already hampering the green investment in developing countries, which seek a ‘just transition’. So far, the majority of investments in clean technologies have come from the EU, the US and China.

Trade frictions and geopolitical concerns are also affecting the energy transition, potentially making it more costly and slower at a time when scaling up green technologies is key to preserving the environment. For example, the EU has announced an anti-subsidy investigation into electric vehicles coming from China. China has raised questions over the compliance of the EU’s Carbon Border Adjustment Mechanism with the World Trade Organization’s rules. And the US has issued local content guidelines for companies to benefit from IRA subsidies. Meanwhile, critical minerals are becoming a strategic asset.

Distribution issues associated with the green transition matter too, and not just the size of the economic pie. Globalisation failed partly due to these concerns. If safeguarding the planet is not seen as making life better for all, political support for the green growth paradigm could be at risk.

Source:Marion Amiot

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Owen Li

Energy

Natural gas-fired power generation in the United States has climbed nearly 6% through June 17 from the same period a year ago, as above-normal temperatures lifted use of power-hungry air conditioners.

U.S. power generation from natural gas from Jan. 1 through June 17 was just over 30 million megawatt hours (MWh), according to data compiled by LSEG.

That total compares to 28.4 million MWh during the same period in 2023, and is the highest gas output reading since at least 2021, LSEG data shows.

Power generation from clean sources including nuclear plants, hydro dams, solar parks and wind farms climbed 7.6% from 2023 to a record 33.5 million MWh, and clean output is set to rise further during peak solar production periods. US Power System Cranks Up Gas Output as Cooling Season Kicks Off_1

US Power System Cranks Up Gas Output as Cooling Season Kicks Off_1

But natural gas looks set to remain the largest single fuel source in the U.S. power system, and will likely be deployed in even greater quantities over the coming months as demand for cooling systems rises during the hottest time of year.

In turn, U.S. power sector emissions from gas use will likely also climb to new highs in 2024, potentially accelerating the climate warming trends that are fuelling increased higher gas demand in the first place.

Gas Up, Coal Down

Natural gas accounted for a 39.7% share of total U.S. power generation from Jan. 1 through June 17, LSEG data shows.

That share is up from 39% during the same period last year, and marks gas' highest power share since at least 2021 for that period.

Reduced use of coal in the U.S. power system accounts for some of the higher gas use. Coal's share of this year's power mix was 15.4% through June 17, down from 16% a year ago and a 23% share during the same period in 2021.

Power firms are expected to make further cuts to coal use in generation going forward as part of ongoing emissions reduction efforts and a longer-term target to decarbonize the U.S. power system.

However, higher overall power demand means that suppliers have been forced to keep increasing the overall volume of fossil fuels used in generation, even as supplies from clean power sources continue to climb.

Total power generation this year is up 3.8% from the same period a year ago, as higher power use by air conditioners, data centers, vehicle chargers and businesses push up overall demand.

To meet the higher load requirement, power firms have lifted the combined volume of power generated by natural gas and coal by the same degree, to 41.7 million MWh.

Clean Records

While natural gas remains the primary U.S. power fuel, output of several clean energy sources has hit records so far this year.

From Jan. 1 through June 17, wind power generation was an all-time high 9.6 million MWh, up 9% from the same period in 2023, while solar generation was up 38% to a record 3.607 million MWh.

Output from nuclear reactors was up 3.4% to 14.98 million MWh - the highest in more than three years - while hydro generation climbed 1.4% to the highest since 2022.

The overall share of clean power in the U.S. generation mix also climbed to a new record this year of 44.3% through June 17, compared to 42.7% a year ago.

Even so, output from fossil fuels - which includes a diminishing volume of crude oil-fired generation as well as natural gas and coal - remains the backbone of the U.S. grid system.

Key Systems

While gas-fired output has climbed by nearly 6% nationally, there are several key U.S. power systems where gas-fired output has jumped by larger margins. US Power System Cranks Up Gas Output as Cooling Season Kicks Off_2

US Power System Cranks Up Gas Output as Cooling Season Kicks Off_2

The Electric Reliability Council of Texas (ERCOT) system has boosted gas output by 10% from the Jan. 1 to June 17 period of 2023, LSEG data shows.

Gas generation in the Southwest Power Pool (SPP), which produces power for all or parts of 14 states across the Midwest and West, has climbed by nearly 14%.

Power producers in Florida have lifted gas generation by 10% through June 17, but are likely to increase gas-fired output higher still during July and August, which are the hottest months of the year in the state.

The PJM Interconnection system, which provides power for consumers across Pennsylvania, New Jersey and Maryland, has upped natural gas output by 6% and coal-fired output by 5% so far this year.

In power systems throughout the U.S. - including California which has the highest proportion of clean power among major states - gas-fired output is likely to climb over the coming months as temperatures peak and boost air conditioner use.

US Power System Cranks Up Gas Output as Cooling Season Kicks Off_3

Higher gas use in generation will in turn yield higher power sector emissions, which in peaked last summer peaked at around 98 million metric tons of carbon dioxide in July and August, according to energy think tank Ember.

In 2024, gas emissions are already tracking ahead of last year's record pace, and loads could top 100 million tons a month for the first time if gas use continues to climb.

Source: Reuters

Risk Warnings and Disclaimers

Add to Favorites

Justin

Economic

In January, five new members joined the Brics bloc: Saudi Arabia, the United Arab Emirates, Egypt, Iran and Ethiopia. This means that five new currencies are in the pot for payments and mutual holdings, joining those of Brazil, Russia, India, China and South Africa.

The Brics mechanism is lacking a vehicle currency like the one provided by the European Payments Union in 1950, where several currencies – weak ones as well as strong ones – were cleared. In the end the D-Mark emerged as the main vehicle currency after the dollar served in the interim.

While the renminbi will be the main currency for trade, payments and settlements within Brics, the role of a new prime holding currency offers fresh possibilities. Regarding trade, Saudi Arabia and the UAE will most likely trade with China in renminbi, independent of the denominator currency. This will significantly affect the global supply of renminbi and further internationalise the currency.

The transactions will be recorded by Swift and foreign exchange reserves by the International Monetary Fund. Conducting trade in local currencies will strengthen the Saudi riyal and the UAE dirham within the Brics bloc.

Which currency will emerge as the Brics vehicle currency in the short and medium term is still open. This currency will have to be strong and offer stable relations with the rest of the world – first and foremost the dollar – and be freely convertible. The renminbi has shown its limitations in playing this role due to depreciation and exchange rate volatility in addition to Chinese restrictions on financial accounts and a highly managed offshore renminbi market.

Only two real contenders

Among the new currencies the only ones that meet these criteria are the Saudi riyal and the UAE dirham. Both currencies have full capital account convertibility, for residents and foreigners, and have been pegged to the dollar since the mid-1990s. While the Saudi government might have some qualms about internationalising its currency, the UAE seems more market friendly, open to trading in all the other Brics currencies. As a market maker it could fulfil the role of vehicle currency in the short term.

The well-developed financial centre in the UAE would offer Brics partners cash deposits or dirham instruments, or freely convert Brics currencies into dollars. Offshore renminbi holdings were never free of restrictions and exchange rate risk. This will satisfy the need for dollars, which have been denied to them by China. Buying dirham cash or instruments poses no risk as they can be freely converted into dollars at a fixed exchange rate.

The UAE financial system would have to play the role of the EPU, accepting strong and weak currencies, such as rupees for remittances or renminbi for imports from China, and disposing of them or adding to their portfolio of reserves. These will be held by private financial institutions as well as the Central Bank of the United Arab Emirates. They would step in where political agreement has failed to provide a mechanism.

The only open question at the moment is in which direction the pressures for appreciation of the dirham or the depreciation of weak currencies within Brics will lead. The revaluation of the D-Mark in the European case is worth studying.

Source:Herbert Poenisch

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

Add to Favorites

Daily News

Remarks of Officials

Central Bank

Forex

FastBull Events

FastBull Featured

Devin

Mohammad Omar

Recent Searches

Top Searches

Markets

News

Analysis

User

24/7

Economic Calendar

Education

Data

The Long-Term Effects of Inflation Include Rising Inequality

Inflation undermines real economic growth

Inflation increases inequality

Inflation promotes frustration and resentment

Source: GIS

China's Key Plenum Aims to Fix Decades-Old Tax Revenue Imbalance

'Mature society'

Still Imbalanced

Planting Seeds

($1 = 7.2564 Chinese yuan renminbi)

Source: Yahoo

Week Ahead – US PCE Inflation the Highlight of a Relatively Light Agenda

Will PCE data confirm Fed rate cut bets?

How likely is a July hike by the BoJ?

Back-to-back rate cuts for the BoC?

Source:XM

Fossil Fuel Demand Probably Peaked in Developed Economies Last Year

Methane emissions

Source: The National News

Climate Mitigation Doesn’t Have to Come at the Expense of Growth

New theories have broadened our understanding of the green transition

Green growth policies have already had success

Figure 1. US carbon dioxide emissions per capita decoupled from GDP 20 years ago

Source: BP, World Bank, Global Carbon Budget, S&P Global Ratings

Figure 2. Public climate financing is attracting private investors

Source: Climate Policy Initiative, S&P Global Ratings

Time and money are not the only impediments

Source:Marion Amiot

US Power System Cranks Up Gas Output as Cooling Season Kicks Off

Gas Up, Coal Down

Clean Records

Key Systems

Source: Reuters

New Brics Members Could Provide Much-needed Vehicle Currency

Only two real contenders

Source:Herbert Poenisch

Risk Disclosure