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Dollar drop, Beirut shock, credit top


This week in Keeping Tabs: confronting dollar bears, Lebanon’s crisis, the power of debt in Ireland, and funding equity research.

This week, Robin Brooks and Jonathan Fortun at the Institute of International Finance discuss the dollar, in the wake of falls in its price and even questions about its status as the world’s reserve currency.

Will the US’s appalling handling of coronavirus and concerns about a contested presidential election affect its status?

Brooks and Fortun reckon the dollar bears are overdoing it. They note that over the past year, the dollar is roughly flat against other G10 currencies and 10% up against non-Chinese emerging market currencies.

As for the fundamentals, they say that the pandemic has hit the eurozone hard, and deflation is more of a risk there than in the US.

One country struggling with intense inflation amid a jaw-dropping economic crisis is Lebanon. The explosion in Beirut on Tuesday added another layer to the country’s misery.

Maria Abi-Habib at The New York Times has a heart-wrenching story about one of the victims of the blast, Sahar Fares .

“Each death is a unique, unfathomable tragedy, but the story of Ms. Fares, the young bride-to-be, has rippled across social media, capturing the attention and heartache of many Lebanese,” Abi-Habib writes. “The determined daughter of a family of modest means, she had managed to break into the nearly all-male world of the Beirut Fire Brigade, devoting herself to public service and making plans to build a family of her own.

Instead, her relatives and Mr. Karaan, 29, buried her.”

Amid bubbling political anger, this quote from the mayor of the village where Fares grew up was striking: “Sahar is a message to our youth that there are people who commit to the nation and lose everything. I wish there was a nation that was worth such sacrifice and commitment, though.”

Abi-Habib shows how the dire macroeconomic picture was already causing woe for ordinary Lebanese before this week.

“In the months before she died, Ms. Fares was saving up to prepare her home for the wedding and to buy her wedding dress. But like other Lebanese citizens, she saw her savings evaporate overnight as the currency crashed, losing 80% of its value this year.

“The Lebanese government put a curb on bank withdrawals, allowing citizens to pull out only a few hundred dollars a month. Hyperinflation quickly ate into what little money she had, making everyday products like groceries unaffordable.”

Let’s now turn to Ireland and the mourning of John Hume, a Nobel peace prize winner and recognised as one of the architects of the Irish peace process.

Economist David McWilliams focused on a part of Hume’s life that was less explored this week: his support for people to be able to access credit. Hume was one of the founders of Northern Ireland’s first credit union in Derry, which helped, among others, punk group The Undertones.

McWilliams explains in his podcast how credit unions have been crucial for disadvantaged people, in allowing them to plan ahead rather than live day-to-day. “Credit allows you to live in the future,” he says.

The podcast goes on to explore how bonds helped achieve land reform in Ireland. The message across the two stories is the same: credit allows you to reduce the present-day costs of personal and societal developments, and ultimately, to think big. Let’s hope politicians see the light.

Finally, Marc Rubinstein takes a look at the history of equity research and the troubled question of how to fund it: from doing that through equity underwriting to bundling it with trading commissions.

He says that the research itself is difficult to value. It is hard to keep it private and therefore exclusive, and the value of any particular note to the reader can vary greatly. However, pricing it together with other activities can cause conflict-of-interest problems.

Yet, we need to remember that research has a wider benefit that is harder to pin down, beyond its immediate application.

“It benefits everyone with an interest in functioning markets that scores of analysts are engaged in the scrutiny of company financial statements; and crucially that they are not paid to do it by the companies themselves,” said Rubinstein. “Newspapers do it in politics; equity research does it in business.”