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II. Passage Completion (10%)Please choose the best answer for each of the following blanks. The answers are CASE INSENSITIVE, and there is only ONEcorrect answer for each blank.(AB) jumps (AC) illicit (AD) sitting ducks (AE) debt (BC) then(BD) the above mentioned (BE) independence (CD) authoritarian (CE) Churchillian (DE) still more(ABC) grumbling (ABD) meant (ABE) poised (BCD) three times (BCE) resortedEmerging markets have long resented quantitative easing (QE). When America’s Federal Reserve began its third round ofasset purchases in 2012, Guido Mantega, then Brazil’s finance minister, accused it of starting a “currency war”. In 2013 RaghuramRajan, 11 the chief economic adviser to India’s government, expressed his displeasure in the manner of WinstonChurchill: “Never in the field of economic policy has so much been spent, with so little evidence, by so few.”In response to the COVID-19 pandemic, much is being spent again. But not by so few. The central banks of America, theeuro area, Britain and Japan are set to buy $6trn-worth of assets between them this year, according to Fitch, a rating agency, 12what they bought in 2013, the previous peak. And emerging markets are no longer 13 on the sidelines. Monetaryauthorities in Chile, Colombia, Costa Rica, Croatia, Hungary, Indonesia, Poland, Romania, South Africa and Turkey haveprepared or begun purchases of bonds of various kinds. 14 are contemplating it. Even in Brazil, congress has passedwhat it calls the “war budget” law, amending the constitution to give the central bank more freedom to buy government bondsand other assets during this crisis.The scale of emerging-market purchases is small so far in comparison with the 15 appetites of central banks in the richworld. Bank Indonesia, which already owns about 15% of tradable government bonds, may end up adding significantly to itsholdings. The National Bank of Poland could end up owning bonds worth about 8.7% of GDP, according to UBS, a bank, if itbuys all of the additional 16 required to finance the country’s stimulus plan. But no other central bank is 17 tobuy bonds worth more than 5% of GDP, UBS calculates. By comparison, the Federal Reserve already held Treasuries equivalentto about 10% of GDP at the start of 2020, and is expected to roughly double that percentage over the course of the year.Critics nonetheless worry that QE is both more dangerous and less necessary in emerging markets than it is elsewhere. Itimperils the hard-won 18 of monetary authorities that have struggled in the past to keep their distance from bigspending politicians. Brazil’s constitutional limits on the central bank, for example, reflect its history of hyperinflation, whengovernments 19 to the printing press to finance their populism. And although inflation is now firmly under control inmost big emerging markets (exceptions include Argentina, Nigeria and Turkey), many of these countries still worry that monetaryindiscipline can lead to destabilizing runs on their currency.Why then are central banks pressing ahead? They believe their bond purchases serve a distinct purpose. They are neither anunconventional way to lower borrowing costs nor an illicit one to finance the government. The aim instead is to stabilize financialmarkets. In Brazil the president of the central bank says its bond purchases will resemble foreign-exchange intervention. It willnot try to peg bond yields any more than it pegs the real. But it will try to smooth out 20 . The South African ReserveBank says that its purchases are not meant “to stimulate demand”, but to ensure a “smoothly functioning market”.(Adapted from the Economist, May 7th 2020 edition.)
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