Anglo-Saxon capitalism: Despite its name, Anglo-Saxon capitalism has nothing to do with the trade in stone axes. Instead it is a term often used to describe a form of capitalism that is said to be prevalent in the English speaking world - in particular the US and UK, but also in Canada, Australasia and Ireland.
The "Anglo-Saxon" variant of capitalism is thought to be characterised, at the level of states, by lower taxes, looser regulation, a weaker social-safety net and greater ease for firms to hire and fire employees - and to take each other over. At the level of individual firms and businesses, Anglo-Saxon capitalism is said to emphasise the interests of shareholders, rather than other stakeholders such as employees. Its critics say that it emphasises short-term profits at the expense of long-term planning.
Anglo-Saxon capitalism is sometimes contrasted with the more "corporatist" models, traditionally favoured in Germany, France and Japan - which can emphasise long-term relationships with banks, rather than shareholders - and which are more accepting of the idea of a state-led industrial policy.
Another variant is "nordic capitalism", where firms operate against the background of a high-tax, high-spend government. [ref: FT Lexicon]
Carry trade: A carry trade is a strategy in which an investor borrows money at a low interest rate in order to invest in an asset that is likely to provide a higher return. This strategy is very common in the foreign exchange market. For example, in the period up to 2007 many investors borrowed in Japanese yen or Swiss francs, taking advantage of very low interest rates in Japan and Switzerland, and used the money to take long positions in currencies backed by high interest rates, such as the Australian and New Zealand dollars and South African rand.
This strategy relies on relative stability in asset prices, as an adverse exchange rate movement can easily wipe out the returns from the underlying interest rate differential. This leads some to refer to the carry trade as akin to picking up pennies in front of a steamroller.
Developmental state: A concept adopted by some Asian Tiger nations, including Singapore and Malaysia, where the state plays a key role in supporting the private sector to produce jobs. A number of Asian states, including the communist Vietnam, were actually privatising state entities and China was underpinning private sector industrial projects. However, there were few signs that this was the model that South Africa favoured. It is not clear what a developmental state means in the South African context.
Financial stability: a condition in which the financial system is capable of withstanding shocks, thereby reducing the likelihood of disruptions in the financial intermediation process which are severe enough to significantly impair the allocation of savings to profitable investment opportunities.
The financial system can be said to be stable if it displays the following three key characteristics:
- The financial system should be able to efficiently and smoothly transfer resources from savers to investors.
- Financial risks should be assessed and priced reasonably accurately and should also be relatively well managed.
- The financial system should be in such a condition that it can comfortably absorb financial and real economic surprises and shocks.
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Forward rate agreement (FRA): An agreement to buy a particular amount of currency for delivery at a fixed price on a fixed date in the future. The interest rate specified in the FRA is called the forward rate.
Inflation targeting: A monetary policy strategy used by central banks for maintaining prices at a certain level or within a specific range. Using methods such as interest rate changes, this could help guide inflation to a targeted level or range. This policy is designed to assure price stability.
Initially, it was a radical plan adopted by New Zealand in 1989, although other countries, most notably Germany, had evolved something close to inflation targeting considerably earlier.
The term “inflation targeting” does not have a formal definition and is practised in different ways around the world.
It does have some core elements. There is an explicit inflation target; it is announced to the public; the monetary authorities aim to hit that target at a defined point in the future; there is some leeway for inevitable errors and shocks; and the monetary authority is not told how to hit the target but is accountable to the public for its performance.
Another benefit is transparency. If the monetary authorities have sufficient respect and credibility that people believe the target will be hit, households and companies can plan ahead, negotiating wages on the basis of expecting low and stable inflation. The policy is self-reinforcing: low inflation expectations lead to low inflation, confirming the low expectations and so on.
Countries adopting inflation targets have tended to have lower and more stable inflation after the change than before, and the framework has proved durable.
Prior to the financial crisis, inflation targeting was widely lauded for helping the UK to sustain more than a decade of stable prices and growth. But after explicit targets for consumer prices failed to prevent the credit bubble and recession that followed, some economists now believe that greater weight should be put on asset prices in determining economic policy. [also see Price level targeting]
Macroprudential: Efforts have been made to clarify the meaning of the term and to define it with reference to its antonym, “microprudential”. In this narrower sense, closer to its origin, the term refers to the use of prudential tools with the explicit objective of promoting the stability of the financial system as a whole, not necessarily of the individual institutions within it. Most of the tools lie with the regulation and supervision of individual institutions. The challenge is to achieve a better balance in their use, with the aim of successfully marrying the two perspectives.
Price level targeting: A monetary policy goal of keeping overall price levels stable, or meeting a pre-determined price level target. The price level used as a barometer is the Consumer Price Index (CPI), or some similarly broad measure of cost inputs. A central bank or monetary authority operating under a price level targeting system raises or lowers interest rates in order to keep the index level consistent from year to year.
Price level targeting is similar to inflation targeting in that both establish targets for a price index like the CPI. However, where inflation targeting only looks forward (i.e., a 2% inflation target per year), price level targeting actually takes past years into account when conducting open market operations. So, if the price level rose by 2% in the previous year (from a theoretical base of 100 to 102), the price level would have to drop the next year in order to bring the price level back down to the 100 target level. This could mean more forceful action needs to be taken than would be required if inflation targeting were used.
Price level targeting is generally considered a risky policy stance, and one not used by any of the world's advanced economies. It is believed to bring more variability in inflation and employment in the short run compared to inflation targeting Most economies feel that a small amount of annual inflation is actually a good thing, up to about 2% per year. [also see Inflation targeting]
Purchasing Managers' Index (PMI): An indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.
A PMI of more than 50 represents expansion of the manufacturing sector, compared to the previous month. A reading under 50 represents a contraction, while a reading at 50 indicates no change.
Repo rate: In 1998 the South African Reserve Bank implemented a system of repurchase transactions (repos) as the main instrument for managing liquidity in South Africa's money market. The repurchase rate or repo rate, the price at which the central bank lends cash to the banking system, has become the most important indicator for short-term interest rates.
The repurchase agreements entered into between the Reserve Bank and banks in South Africa are conducted on the basis of an outright buy-and-sell transaction, with full transfer of ownership of underlying assets. The system also provides for a "marginal lending facility", available to banks at their initiative to bridge overnight liquidity needs.
Shadow banking: The collection of instruments, structures, firms or markets which, alone or in combination, and to a greater or lesser extent, replicate the core features of commercial banks: liquidity services, maturity mismatch and leverage. They are often considered a product of ‘regulatory arbitrage’ and can be problematic if the resulting non-bank forms of financial intermediation replicate the systemic risks posed by banking itself. [Ref: Financial Regulation Forum]
Walking Through the Doors Project: Brings together around 60 academics, experts and COSATU leaders in a range of teams focussing on politics and governance, economic and workplace issues. COSATU is launching a strategy to take forward concretely the gains its has made and convert them into real improvements at the political, socio-economic and workplace level.
An article in the Mail and Guardian provides more information about this project.
