International financial developments

Quarterly Bulletin 1987 Q2
Published on 01 June 1987

Among the main developments:

  • The weakness of oil prices was reflected in a marked strengthening in the combined current account deficit of the major seven industrialised countries and a corresponding decline in the position of the OPEC economies during 1986. The surpluses of Japan and Germany rose very sharply in dollar terms, more than offsetting a further substantial increase in the US current deficit.

  • Activity in the capital markets increased substantially in the first quarter of 1987, despite continuing weakness in the FRN sector. As a result in part of the dollar's weakness, issuance of non-dollar fixed-rate bonds rose very sharply, more than compensating for a decline in eurodollar issues.

  • There was record growth in international banks' external assets in the fourth quarter of 1986. Activity was dominated by interbank business and was boosted by the opening of Tokyo's offshore market in December. The Japanese were significant net takers of banking funds. There was an upturn in lending by banks to developing countries.

  • In the foreign exchange markets, the dollar fell back further, particularly against the yen and the deutschemark, on continuing concern about the US trade deficit and, towards the end of the period, worries about trade frictions. The EMS was realigned in January, with the deutschemark and the Netherlands guilder revalued by 3% and the Belgian franc by 2%.

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