66 Finance & economics The EconomistNovember 23rd 2019
21decision, reported on November 20th, was
not unexpected. Last month the Vatican’s
gendarmes raided the offices of the aif and
the Secretariat of State, the Holy See’s
equivalent of a foreign ministry. They were
acting on a warrant that had been issued by
Vatican prosecutors in connection with a
controversial investment in property in
London by the Secretariat of State, which
had been reported by the auditor-general’s
office and the Vatican bank.
The aif’s director, Tommaso Di Ruzza,
was among several Vatican officials who
were subsequently barred from entering
the walled city. But why he was targeted re-
mains a mystery. The warrant did not level
any specific accusation at him, merely stat-
ing that the aif’s role in the transaction was
unclear. The raid on the aifwas all the
more controversial because its statutes
guarantee protection for the often highly
sensitive data it gathers.
The authority has not had an inventory
of the data the police impounded, and has
thus been unable to provide the Egmont
Group with an assurance that its informa-
tion is safe. The group has evidently decid-
ed it could not run the risk of supplying fur-
ther information to the aif, which acts as
both a banking supervisor and a financial-
intelligence unit.
“The direct consequence is on the aif’s
role as financial-intelligence unit, which is
now dysfunctional,” says Mr Brülhart. “You
cannot have an effective system for fight-
ing money-laundering if you can’t ex-
change information with your interna-
tional partners.” The authority’s other,
supervisory, role will be indirectly affected
by the suspension of Mr Di Ruzza and the
board resignations, he adds.
First to go, mere hours after Mr Brül-
hart, was Marc Odendall, a retired Swiss-
German banker, who declared there was no
point in staying in an “empty shell”. Ac-
cording to two Vatican sources another of
the four board members, Juan Zarate, an
American counter-terrorism expert, has
since resigned.
Cock-up or conspiracy? The aif may
simply have got caught in the crossfire of
an attack on the Secretariat of State by its
internal enemies. But few in the Vatican
believe that anything there happens by
chance, and there are plenty of people
within and beyond its walls who would be
happy for it to return to its previous status
as a refuge for tax-dodging and other finan-
cial shenanigans.
In any event, the shambles casts serious
doubt on the judgment of Pope Francis,
who made it a priority of his papacy to
clean up the Vatican’s tenebrous financial
sector. Speaking to the Wall Street Journal,
Mr Odendall said that the raids could not
have happened without the pontiff’s ap-
proval. “This has been completely man-
aged by the Holy Father from ato z.” 7I
t is nearly15 years since Ben Bernanke,
then the chairman of the Federal Reserve,
argued that a “global saving glut” had fu-
elled America’s giant current-account defi-
cit. Much has changed since then. The
American deficit has shrunk, oil exporters’
surpluses have dwindled and central banks
everywhere have dramatically expanded
their balance-sheets. But another feature
of the world that Mr Bernanke described in
early 2005 looks strikingly familiar: Asia’s
stockpile of savings remains enormous,
and it is getting bigger by the year.
For East Asia as a whole, each year gross
domestic savings add up to 35% of gdp, and
little has changed over the past three de-
cades (see chart). This is not just an aca-
demic curiosity. Mr Bernanke’s concern in
the early 2000s was that Asia’s excess cash
was flooding into bond markets in America
and beyond, depressing long-term real in-
terest rates. When the global financial cri-
sis erupted in 2008, some economists
pointed to the Asian saving glut as an un-
derlying cause of the housing boom and
bust from Las Vegas to Dublin. With inter-
est rates even lower now, some are again
asking whether excessive saving in Asia is
storing up trouble for the global economy.
There are certainly echoes with 15 years
ago. High savings rates in Asia continue to
translate into large current-account sur-
pluses. Over the past five years East Asia’s
current-account surplus has averaged
about $525bn annually, a touch higher in
cash terms than the average in the five
years preceding the 2008 crisis. The distri-
bution has shifted: China’s surplus peaked
a decade ago, while those of South Korea
and Taiwan are bigger than they used to be.The current-account surpluses in Asia’s big
economies add up to about 0.6% of global
gdp, roughly the same as that of Europe’s
surplus economies, including Germany’s,
in combination.
“It is one of the main global cross-bor-
der flows impacting asset markets and
pulling down yields globally,” says Brad
Setser, an economist with the Council on
Foreign Relations in New York. In the early
2000s the focus was on Asia’s currency re-
serves, especially China’s, much of which
ended up in safe assets such as American
treasuries. Now a wider array of Asian in-
vestors are channelling household and
corporate savings into global markets. But
their impact can, in some segments, be
more pronounced.
The imf calculates that Taiwanese life
insurers own 18% of all dollar debt issued
by non-American banks. Japanese banks
own about 15% of globally issued collater-
alised loan obligations, potentially risky
securitisations of corporate debt. South
Korea’s national pension fund, the world’s
third-biggest, with nearly $600bn in as-
sets, plans to double its investments in for-
eign bonds over the next five years.
Nevertheless, the continued rise in
Asian savings looks less harmful from oth-
er angles. Most crucially, it has not been ac-
companied by the same degree of interven-
tion to hold down currencies as in the early
2000s. Then, China was the most flagrant
actor. But its central bank is no longer a big
buyer of dollars. If anything, its enforce-
ment of capital controls has probably kept
the yuan from falling more sharply. Across
much of Asia, tolerance for stronger cur-
rencies has increased. Of the 60 economies
monitored by the Bank for International
Settlements, a club of central banks, only 16
have seen their real effective exchange
rates rise by more than 5% since 2010; of
this small group, seven are Asian.
Some countries have also taken steps to
make their role in currency markets more
transparent. America’s Treasury has wel-
comed decisions by South Korea and Singa-
pore to start publishing regular data about
their interventions. That said, other coun-
tries are now intervening more heavily.
Vietnam and Thailand have started accu-
mulating foreign-exchange reserves at a
rapid clip. And Mr Setser has published fo-
rensic analysis suggesting that Taiwan’s
currency reserves might be 40% bigger
than officially declared, because the coun-SHANGHAI
Is Asia’s love affair with saving still distorting global interest rates?Asia’s economyGlut maximus
Hey, big saver
Gross domestic savings, % of GDPSource:WorldBank0102030401980 85 90 95 2000 05 10 17European UnionUnited StatesEast Asia and Pacific