N 41

Turkish Lira Plunges After Erdogan Fires Central-Bank Chief

The removal of the central bank governor, Turkey's currency fell 7.5 percent, the most in a
single day since 2018. The upheaval comes after President Recep Tayyip Erdogan abruptly
sacked Naci Agbal, the central bank governor who has raised interest rates multiple times in
an attempt to control inflation since his November appointment. The new governor of the
bank’s, Sahap Kavcioglu, attempted to calm markets by announcing that the bank's top
mission is to reduce inflation. He also promised to cut borrowing rates and boost growth in
order to promote economic stability.

The benchmark Borsa Istanbul 100 stock index in Turkey fell 9.8%, the steepest drop in its
history. Since June 2013, there has been a selloff that has resulted in two market halts.
Lira was one of the best-performing emerging-market currencies during that period. During
Mr. Agbal's tenure, foreign money managers invested a total of $4.6 billion in Turkish stocks
and local currency bonds, anticipating that higher interest rates would help curb inflation
and support the lira. Investors sold Turkish assets for much of 2020 before Mr. Agbal was
appointed to the central bank, as low interest rates and high credit expansion stimulated
imports. Even as investors expected that the currency would continue to decline, the
currency dropped, necessitating numerous rounds of intervention to stabilize the lira.
Investors are concerned about the interest rate decreases, but Turkey's Finance and
Treasury Minister assured them that no further cuts are imminent.

N 42

British Pound Reaches Strongest Level in Nearly Three Years

In recent years, the British pound has been pounded by the twin storms of Brexit concerns
and the particularly acute Covid-19 crisis. However, with a trade agreement in place and a
world-leading vaccine programmed, investors believe the currency's positive factors are
now just as strong. The British pound surged to its highest level against the dollar in over
three years on Friday, crossing $1.40 for the first time since April 2018. However, following
vaccination and the end of the Brexit process, some investors are rethinking their
expectations for U.K. assets. Hedge firms' wagers on the pound's rise against the dollar have
surged. Sterling has benefited from its reputation as a riskier currency than safe-haven
currencies such as the US dollar and the Japanese yen. This permits it to rise when investors
exit U.S. assets, assuming that economies with cheaper assets will have a better chance of
recovering if the vaccination is implemented.

However, the pound may be vulnerable to falls if the UK government does not lift
coronavirus restrictions as swiftly as some predict, and unforeseen delays in vaccine
implementation may further hurt sentiment. Prime Minister Boris Johnson said he hopes to
present a road map for breaking the lockdown this week, once the most vulnerable people
have been inoculated.
N 43
China Gives Market More Say in Setting Yuan’s Value

China is giving investors more control over the yuan's value, a move that economists believe
is more likely to increase the currency's international appeal rather than push it lower.
Onshore markets, the yuan is only permitted to trade in a small range around the central
bank's daily midpoint. That level is determined by historical trading prices from Chinese
banks; however, banks have occasionally altered their inputs using a countercyclical
component in the past. As a result, the currency has become less volatile, and any selloffs in
the yuan have been slowed.

As China's economy has recovered as a result, and international investors have poured
money into local bonds and stocks. This step aims to make the market neutral, as there is
currently a greater tolerance for the market to go through trial and error in order to reach
an equilibrium level” for the currency. The yuan's attraction to investors might be boosted
by making the system less opaque and more indicative of market values. Instead of relying
too heavily on transacting in dollars, China's leaders attempted to attract more international
capital to their markets. At the same time, a weak currency might prompt new charges from
the US that Beijing is purposely undervaluing the yuan in order to boost exports. Alicia
Garcia-Herrero, head economist for Asia-Pacific at French bank Natixis, also believes that
the central bank's shift will make the yuan uneasy as the currency grows stronger.

N 44
JPMorgan Currency Deal Highlights Finance’s Green Shift

Enel was able to raise capital by selling bonds in the United Kingdom. The British pounds
were given over to JPMorgan, which changed them to € in a cross-currency basis swap, in
which one party borrows another's currency and lends its own currency in exchange. The
agreement is the latest example of Wall Street's efforts to meet rising demand for financial
products with environmental, social, and governance aims, as investors want to do good
while making money.

The lack of laws to identify what constitutes a sustainable investment has been a source of
contention. This has raised questions about whether issuers and investors are inflating their
environmental claims or soliciting money on the back of promises they would have made
otherwise, a practice known as greenwashing.
Everyone wants to show investors, the general public, and shareholders that they are doing
everything they can to participate in this arena. Green cross-currency basis swaps
complement green bonds, a popular form of sustainable investing that raises funds for
environmental projects. The green finance business has expanded swiftly, encompassing
loans, mortgage-backed securities, and now currency derivatives.