📚 Weekend Read: Securing a Resilient Recovery | Dominant Currencies | The COVID-19 Gender Gap | Unemployment and Telework | Rethinking Governance and Global Risk | Future of Digital Payments

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Dear Colleague,

In today's edition we focus on how best to secure a resilient recovery, the connection between dominant currencies and exchange rates given the crisis, the COVID-19 gender gap, U.S. unemployment and telework, rethinking governance and global risk, how Jordan is tackling the pandemic, Africa's uncertain recovery, the future of digital payments and much more. On that note, let's dive right in.

📢 But first, next week we have a very special one-on-one live conversation between Managing Director Kristalina Georgieva and President of the Eurasia Group Ian Bremmer focusing on the impact of the pandemic on inequality, rising debt levels in emerging markets and low-income countries, and how countries can lay the groundwork for a more resilient economy. As a subscriber, we wanted to give you the exclusive chance to send in your questions in advance. Email me here.

SECURING A RESILIENT RECOVERY

At the conclusion of the (virtual) G20 meeting, chaired by Saudi Arabia, where finance ministers and central bank governors discussed the state of the crisis and how best to recover, Managing Director Kristalina Georgieva said that to prevent long-lasting scarring of the global economy—particularly waves of bankruptcies, risks to financial stability, high unemployment, and increasing inequality—we must focus on four key areas.

First, the public health response remains the main priority to protect people, jobs, and economic activity. lifelines should be maintained as needed and, in some cases, expanded. Second, supportive fiscal and monetary policies will need to continue until we can secure a safe and durable exit from the crisis. Premature withdrawal of this support could derail the recovery and incur larger costs. Third, policies need to prepare for and support transformational change, as some sectors may permanently shrink, while others—such as digital services—will expand. And fourth, we need to unite to help the poorest and most vulnerable economies, especially those struggling with high debt or dependent on hard-hit sectors.

Interested in a deeper dive on the global crisis, the IMF response, and how best to secure a resilient recovery? Watch this new 25-minute interview of MD Georgieva with Al Arabiya, which also focuses on Egypt, Lebanon and the wider region.

And if you're looking for a discussion that focuses more on Europe, and how best to create the right incentives for greening the global economy as we emerge from the crisis, I would recommend you take some time to watch this new interview between MD Georgieva and Réka Szemerkényi of the Center for European Policy Analysis.

DOMINANT CURRENCIES AND THE GREAT LOCKDOWN

Faced with an unprecedented shock of collapsing global demand and commodity prices, capital outflows, major supply chain disruptions and a generalized drop in global trade, many emerging markets and developing economies’ (EMDEs) currencies have weakened sharply. Will these currency movements support the recovery of these economies? In a new blog, the IMF's Gita Gopinath, Gustavo Adler, and Carolina Osorio Buitron take a closer look.

Building on a new dataset, research laid out in a just-published IMF Staff Discussion Note indicates that the short-term gains from weaker currencies may be limited. This is especially true for EMDEs where firms price their international sales and finance themselves in a few foreign currencies, notably the US dollar.

The central assumption underlying the traditional view on exchange rates is that firms set their prices in their home currencies. As a result, domestically-produced goods and services become cheaper for trading partners when the domestic currency weakens, leading to more demand from them and, thus, more exports. Similarly, when a country’s currency depreciates, imports become more expensive in home currency terms, inducing consumers to import less in favor of domestically-produced goods. Thus, if prices are set in the exporter’s currency, a weaker currency can help the domestic economy recover from a negative shock.

However, there is growing evidence that most of global trade is invoiced in a few currencies, most notably the US dollar—a feature dubbed Dominant Currency Pricing or Dominant Currency Paradigm. In fact, the share of US dollar trade invoicing across countries far exceeds their share of trade with the US. This is especially true in EMDEs and, given their growing role in the global economy, increasingly relevant for the international monetary system. Read the full blog here.

For a broader discussion on these issues, watch this 75-minute panel discussion with IMF Chief Economist Gita Gopinath, Philip Lane from European Central Bank, Ana Fernanda Maiguashca from Colombia's Banco de la República, and Hyun Shin from the Bank for International Settlements—moderated by Soumaya Keynes of The Economist.

Need to brush up on how exchange rates actually impact trade? Watch this 4-minute IMF explainer to get up to speed.

THE COVID-19 GENDER GAP

The COVID-19 pandemic threatens to roll back gains in women’s economic opportunities, widening gender gaps that persist despite 30 years of progress, write Kristalina Georgieva, Stefania Fabrizio, Cheng Hoon Lim, and Marina M. Tavares in a new blog. Well-designed policies to foster recovery can mitigate the negative effects of the crisis on women and prevent further setbacks for gender equality. What is good for women is ultimately good for addressing income inequality, economic growth, and resilience.

Why has COVID-19 had disproportionate effects on women and their economic status? First, women are more likely than men to work in social sectors — such as services industries, retail, tourism, and hospitality — that require face-to-face interactions. These sectors are hit hardest by social distancing and mitigation measures. In the United States, about 54 percent of women working in social sectors cannot telework. In Brazil, it is 67 percent. In low-income countries, at most, only about 12 percent of the population is able to work remotely.

Women are also more likely than men to be employed in the informal sector in low-income countries. Informal employment—often compensated in cash with no official oversight—leaves women with lower pay, no protection of labor laws, and no benefits such as pensions or health insurance.

The livelihoods of informal workers have been greatly affected by the COVID-19 crisis. In Colombia, women’s poverty has increased by 3.3 percent because of the shutdown in economic activities. The UN estimates that the pandemic will increase the number of people living in poverty in Latin America and the Caribbean by 15.9 million, bringing the total number of people living in poverty to 214 million, many of them women and girls.

There are other reasons, too, like how women tend to do more unpaid household work than men, and the fact that pandemics put women at greater risk of losing human capital. For example, in many developing countries, young girls are forced to drop out of school and work to supplement household income.

For more, including what measures policymakers should adopt to limit the scarring effects of the pandemic on women, and examples of some countries who have already enacted just that, read the full blog here.

UNEMPLOYMENT IN THE UNITED STATES: COMPARING CRISES

There has been much discussion in recent months about how workers who transitioned to working from home—and those who were deemed “essential”—are less affected by the layoffs and job losses brought on by lockdowns than are workers in “social” jobs that require closer human interaction, like restaurant workers. However, our new IMF staff research suggests that this does not tell the full story.

In particular, we find that while teleworkable jobs are indeed more secure than non-teleworkable occupations during the current pandemic-related recession, writes the IMF's Ippei Shibata in a new blog, this pattern has also been observed during the global financial crisis of 2007–09—meaning that something more than pandemic-related restrictions is at play.

Unemployment has increased less for teleworkable occupations during both recessions. This pattern suggests that people in teleworkable occupations tend to keep their jobs not only because they satisfy the need for social distancing and other novel requirements of the current pandemic, but also because such people tend to be more highly-skilled and educated—and hence less vulnerable to recessions.

Our research also confirms some interesting observations regarding the distributional aspects of recessions. For example, It finds that young and low-skilled workers have always been harmed more in recessions. Read the full blog here.

RETHINKING GOVERNANCE AND GLOBAL RISK

"The pressures of the COVID-19 pandemic are forcing an overdue reckoning about our world’s ability to manage systemic hazards," write Ann Florini and Sunil Sharma in a new article for F&D. "Driven by increasing fragility in our political, social, economic, and financial orders—all dependent on a natural environment nearing the brink—these apparent bolts from the blue will keep striking. With all systems simultaneously in flux, the 21st century is set to experience massive disruptions that pose serious and possibly existential threats to society."

Florini and Sharma discuss how a narrow focus on efficiency and shareholder returns for decades have yielded somewhat efficient but largely fragile systems stripped of resilience. Instead of putting efficiency first, they argue, policies must ensure societies’ resilience to a full range of threats including pandemics, climate volatility, and economic and financial stress.

We now face the monumental task of rethinking how to govern and manage. The reality of systemic hazards—with their complexity, uncertainty, and ambiguity—calls for decision criteria based on a new set of principles: robust decision-making, multilayered governance, empowered self-organization and more.

Read the 1800-word article here. Interested in the PDF? Download here. And if you wish there was a podcast with the authors, you're in luck: listen to the 24-min discussion.

INSIDE JORDAN'S FIGHT TO TACKLE COVID-19

In a new interview with IMF Country Focus, Jordan’s Minister of Finance Mohamad Al-Ississ digs deeper into the economic impact of COVID-19 on his country, policies they’ve pursued to limit the fallout and protect the vulnerable, and how rapid IMF financing has softened the blow of the pandemic and allowed the government to invest in critical areas during the crisis.

"Jordan’s response to COVID-19 is in line with the country’s overarching principle: prioritize human safety. After only a few infections, we were one of the first countries to implement a strict lockdown," explains Al-Ississ. "We invested in affordable and widespread testing, delivered food and necessary items to households, and lowered sales tax on key protective equipment. Consequently, we have one of the lowest numbers of per capita COVID-19 cases worldwide, and were therefore able to pursue a gradual reopening."

AFRICA'S UNCERTAIN RECOVERY

The Regional Economic Outlook for sub-Saharan Africa was the subject of discussion at an event hosted earlier this week by George Washington University’s Institute for International Economic Policy. The IMF’s Andrew John Tiffin, Seung Mo Choi and Preya Sharma presented the findings of the latest report. Economic activity in the region is now projected to contract by roughly 3.2 percent, a downward revision from estimates made in the initial April report. Panelists focused on the need for more support for the region as countries face uncertainty in containing the virus, a drop in government revenues and shrinking fiscal space to address the impact of the pandemic.

So far, 29 countries in the region have received around $10 billion in funding through IMF facilities, or through expanded access under existing programs. IMF staff also highlighted how the pandemic presents an opportunity to accelerate action on longer term threats and opportunities, such as investing in adaptation to climate change and digitalization.

If you're looking for an incredibly deep dive into all-things sub-Saharan Africa and the pandemic, I would highly recommend you watch this 2-hour presentation and Q&A. 

THE FUTURE OF DIGITAL PAYMENTS

Earlier this week, Financial Counsellor and Director of the Monetary and Capital Markets Department Tobias Adrian delivered a speech to a group of fintech innovators and entrepreneurs on the future of central bank digital currency (CBDC).

"Public-private partnerships look good on paper. But if we’re serious about them, we — the central bankers and regulators of the world — have to shift our focus to market design and contestability, firm entry and exit, anti-trust, and business model viability. Perhaps we must learn to be a little more agile, a little more open to change. And you — the innovators — have to learn about safety, resilience, stability, and policy objectives. These might constrain your products, and might require longer development times — but for good reason." Read the full 1400-word speech.

IMF AND COVID-19

We just updated our global policy tracker to help our member countries be more aware of the experiences of others in combating COVID-19, and we are regularly updating our lending tracker, which visualizes the latest emergency financial assistance and debt relief to member countries approved by the IMF’s Executive Board.

To date, 72 countries will have been approved for emergency financing, totaling more than US$25 billion. Recent approvals include Chad and Burundi. In addition, the Executive Board recently approved a temporary increase in annual access limits to financial support.

Looking for our latest Q&A about the IMF's response to COVID-19? Click here. We are also continually producing a special series of notes—more than 50 to date—by IMF experts to help members address the economic effects of COVID-19 on a range of topics including fiscal, legal, statistical, tax and more. The most recent PDF additions include a focus on pension schemes during the crisis and return to workplace policies associated with central banks.

🔴 UPCOMING LIVE EVENTS

As a subscriber, you can now participate in live events regularly hosted by the IMF with world-leading experts from inside and outside the institution—covering a wide range of pressing economic, finance, development and policy issues. As a reminder, next week we have a very special one-on-one live conversation between Managing Director Kristalina Georgieva and President of the Eurasia Group Ian Bremmer. Sign-up for these alerts: click here and press send. It's that easy.

FINAL THOUGHT

Thank you again very much for your interest in the Weekend Read. We really appreciate your time. If you have any questions, comments or feedback of any kind, please do write me a note. 

And if you're on LinkedIn, subscribe to this newsletter in a more 📈 visual format.

Have a safe weekend,

Rahim Kanani Editor, IMF Weekend Read rkanani@IMF.org

P.S. IMF Research Perspectives just launched their Spring/Summer 2020 issue (PDF). Focusing on an economy for all, the latest edition features articles on reducing barriers in access to finance, tackling stubbornly high youth unemployment, and why women are underrepresented in economics departments throughout academia, especially at higher ranks.

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"We need to prevent long-lasting scarring of the global economy—particularly waves of bankruptcies, risks to financial stability, high unemployment, and increasing inequality."

Kristalina Georgieva