BWC Blog

Crypto Regulation: From Crisis to Opportunity

In 2022 the global financial markets were rattled by a series of adverse developments in the crypto segment, which culminated in the FTX meltdown and the multiple ripple effects the markets are likely to continue to grapple with in the course of this year. The implications of the crypto debacle, while clearly negative in the near term, also concern the longer-term trajectories of market development and regulation.

Lessons of the FTX Collapse

The collapse of FTX in many ways is an example of the problems associated with a weakly regulated financial enterprise, as much as it is a demonstration of the problems associated with crypto finance in its current state. 

As a financial enterprise, the bankruptcy of FTX shows the major failings that can arise in an organization with an exceptionally weak governance structure as regards internal financial controls, record-keeping and the oversight of an independent board of directors. There also appear to have been shortcomings in the scope and scrutiny of its outside auditors.

Africa Sovereign Debt Spiral Foments Frustration

This past year, a decade-long Africa commercial borrowing binge with $30bn worth of bonds outstanding came to a screeching halt amid outright or near defaults, with distressed spreads as a measure of risk of over 1,000 basis points to US Treasuries for the sovereign benchmark index cross-section.

Debt topped the agenda at the US-Africa Leaders Summit in Washington, DC in December.

Ways to Nudge Equitable Climate Finance Forward

Last month COP27 came to a close with a historic announcement to establish a loss and damage fund, where rich countries pledge financial support to countries most vulnerable to the climate crisis.  

Emerging Markets Catharsis Recasts Investor Slate

Emerging market asset managers are eager to put this year behind them after double-digit stock and bond index losses and net outflows from their funds. Core and frontier equities though October were down 30%, external sovereign/corporate and local government bonds from 15% to 25%, and currencies, not quite as battered as developed market counterparts by the almighty dollar, off 10%.

MDBs Loans: a New Asset Class Collateralized Loan Obligations

Multilateral Development Bank balance sheet management with structured financings is still in its infancy but a number of path-breaking deals show the way. Two are by the African Development Bank (AfDB) and one by  International Finance Corporation (IFC) though there have also been some others. These  MDB transactions involve about $13 billion in public and private sector MDB loans. The two from the African Development Bank are both synthetic.

Perceived Versus Real Risk In African Credit Ratings

The ratings of African governments have allowed a robust Eurobond market for African sovereign bonds with over $300 billion issued in the last couple of decades. Maintaining access to this market has persuaded many African countries not to seek debt relief under the misconceived G-20 Common Framework (CF) which only three countries have filed to use – Zambia, Ethiopia and Chad -- and none of them has an agreement yet two years after the CF was announced.

How multilateral development banks can deliver climate action

The 2022 Annual Meetings of the World Bank and the International Monetary Fund in Washington, DC will take place against perhaps the bleakest background in decades, from the aftermath of COVID-19 to the war in Ukraine, climate change and inflation pressures. 

The Indo-Pacific Economic Framework and US-China Relations

The eagerness driving the Biden administration’s launch of its Indo-Pacific Economic Framework (IPEF) is perfectly understandable: the U.S. needs to raise its game and systematically tap into some of the fastest growing economies in the world. Indeed, the countries participating in developing the IPEF are states that have “good bones”:  rapidly rising incomes; a workforce that is young, well-educated, and eager to hone their skills; and governments who understand that “rule of law” begets investment.  

Why Central Banks Cannot Fix the State?

There are many high-profile examples these days of shifting the problems of the “state” on to other institutions, thereby placing the latter in impossible situations. Looking at Europe, we see the European Central Bank grappling with widening bond spreads caused by deeply entrenched fiscal problem, such as those facing Italy. No matter how skillfully the ECB operates in bond markets, it cannot substitute for national actions, including those which raise political uncertainty and then increase spreads within the Eurozone.