Groningen Valley Bank (GVB) invests in hydrogen production in Eemshaven. To finance this, it finds a Dutch investor in December 2022. This is Mr Heiko Sprik, a wealthy individual residing in Veendam who buys 100 mln of unlisted shares. Mr Sprik borrows 20 mln of this from ING bank. The GVB is successful and in January 2023 the Australian Retirement Trust (ART) borrows Dollars in New York to buy more unlisted GVB shares, at a higher price than Mr Sprik bought them in December. The bank of ART converts its member’s pension payment into US Dollars so that ART can buy the shares, and the Rabobank of GVB converts the dollars received from ART into Euros for GVB. Rabobank then invests the Dollars in US Treasury Bills. As the value of participations in GVB rise, Mr Sprik sells some of his shares to build a second home and to buy a ship in Hamburg, fine wines in France and three Maserati’s in Genoa, as well as living the good life more generally. Many of his local investor friends do the same, and the Groningen economy registers high economic growth. b) What is happening during this story… i. to the level of global gross wealth, ii. to the level of global gross debt, iii. to the value of the Euro, iv. to the NIIP of the Netherlands, v. … and to the return on US debt? Motivate each answer.
Groningen Valley Bank (GVB) invests in hydrogen production in Eemshaven. To finance this, it finds a Dutch investor in December 2022. This is Mr Heiko Sprik, a wealthy individual residing in Veendam who buys 100 mln of unlisted shares. Mr Sprik borrows 20 mln of this from ING bank. The GVB is successful and in January 2023 the Australian Retirement Trust (ART) borrows Dollars in New York to buy more unlisted GVB shares, at a higher price than Mr Sprik bought them in December. The bank of ART converts its member’s pension payment into US Dollars
so that ART can buy the shares, and the Rabobank of GVB converts the dollars received from ART into Euros for GVB. Rabobank then invests the Dollars in US Treasury Bills. As the value of participations in GVB rise, Mr Sprik sells some of his shares to build a second home and to buy a ship in Hamburg, fine wines in France and three Maserati’s in Genoa, as well as living the good life more generally. Many of his local investor friends do the same, and the Groningen economy registers high
b) What is happening during this story…
i. to the level of global gross wealth,
ii. to the level of global gross debt,
iii. to the value of the Euro,
iv. to the NIIP of the Netherlands,
v. … and to the return on US debt?
Motivate each answer.
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Then what are the changes in the current account, the financial account and the BoP in the Netherlands over the time period described? And in this story, in which transactions does excess financial elasticity change the Dutch NIIP positions more than would be the case without excess financial elasticity?
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