Findings on Important Business Services identification On IBS, our current view is that firms have generally made positive progress against our expectations for identifying these services. This is good to see and reflects well on the sector as a whole. We also know that firms have taken a wide variety of approaches to the granularity with which they have identified their IBS. To illustrate this I will use a couple of examples of different approaches we have seen. These represent only a small subset of the IBS that firms’ submitted but I think illustrate the point. So, taking payment services as one example, we saw that some firms have identified all types of payments as a single business service, whilst others have split out different types of payment (for example payments made via individual systems including BACS, CHAPS and Faster Payments). Others have gone in a different direction, for example differentiating services for credit card payments versus debit card transactions. We have seen similar themes in other areas, such as services to do with lending. Here some firms have taken a granular approach – for example listing services such as “obtaining a loan” and separating different types of loan – while other firms have kept their IBS at a higher level or gone in different directions by identifying different types of products and/or the split between preand post-trade execution.
While theoretically feasible through issuance of central bank bills, large-scale sterilisation proves problematic in practice, especially in emerging economies, which are not always fully equipped with market-based policy instruments. In order to effectively control exuberant credit expansion, emerging economies have often had to recourse to large increases in reserve requirement ratios or even non-market policy instruments such as the rationing of credit. In a context in which credit and interest rates are largely administered, the fiscal cost of sterilisation can effectively be transferred to the banking sector, and ultimately to bank customers and stockholders; but that does not remove the opportunity costs of sterilisation for the private sector or the monetary risks of incomplete sterilisation. The bottom line is that in economies where largescale foreign asset accumulation needs to be sterilised, it is very likely that capital allocation efficiency will be reduced, especially if non-market instruments have to be used. Foreign reserves and international competition A second risk is that reserve hoarding may exacerbate trade competition and emphasise regional tensions. Emerging economies compete in their exports towards developed economies, as much as they compete with developed economies. As noted by Aizenman 4 “in a world with symmetric emerging markets competing in similar industries, competitive [reserve] hoarding tends to dissipate most competitive gains, leading to a “beggar-yourself” [outcome] and excessive hoarding”. By contrast “in an asymmetric world, an emerging market with low enough cost of sterilisation may win the hoarding war […] akin to the “beggar-thy-neighbor” outcome of asymmetric Tariff Wars”.