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Dear Colleague,
In today's edition, we highlight:
- IMF resource increase
- Risks to banks from higher-for-longer interest rates
- India's central bank governor on currency intervention
- The drag on global growth from "derisking" strategies
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IMFC
(Credit: IMF Photo/Joshua Roberts)
The International Monetary and Financial Committee (IMFC), which provides strategic direction to the IMF’s work, has said it supports a meaningful increase in quota resources so that the Fund can remain at the center of the global financial safety net.
In a statement on Saturday at the end of the annual meetings in Marrakech, IMFC chair Nadia Calviño called on the executive board to bring a proposal to the board of governors and prioritize approval of a quota increase that at least maintains the Fund’s current level of resources.
Quotas are the building blocks of the IMF’s governance structure. An individual member country’s quota reflects its relative position in the world economy and is a key determinant of voting power.
The meetings in Marrakech were the first to be held on the African continent for 50 years. The committee called for the creation of a new chair on the executive board for sub-Saharan Africa to improve its voice and representation.
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GLOBAL BANKING
(Credit: Credit: AerialPerspective Works/Getty Images)
Higher interest rates have exposed vulnerabilities in some banks, and many more would be weakened by a prolonged period of tight monetary policy, IMF economists write in a blog.
The global banking system appears broadly resilient, according to a new stress test of almost 900 lenders across 29 countries, outlined in a chapter of the latest Global Financial Stability Report. But the exercise, which shows how lenders would fare under the World Economic Outlook’s baseline scenario, identified 30 banking groups with low capital levels.
If beset by severe stagflation, the losses would be much greater. The number of weak institutions would rise to 153 and account for more than a third of global bank assets.
Now that banking strains have abated, banks, regulators and supervisors should use this time to increase resilience, the authors say.
“And they should prepare for a possible resurgence of these risks, as interest rates may stay higher for longer than currently priced in markets.”
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Congratulations to Claudia Goldin on winning the Nobel Prize! She pioneered the study of women’s role in the economy 40 years ago, inspired new generations of female economists, and helped bring gender economics into the mainstream. In this podcast, Goldin sat down with journalist Rhoda Metcalfe to discuss her work and how she came to write the definitive book on gender economics, Understanding the Gender Gap. Also read our profile of the Nobel Prize-winning economist in F&D magazine. |
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PER JACOBSSON LECTURE
(Credit: IMF Photo/Joshua Roberts)
Emerging-market economies face a multitude of challenges, from rapid inflation and food insecurity to costly borrowing and mounting debt. This year’s Per Jacobsson lecture took the form of a discussion between Lesetja Kganyago, Governor of the Reserve Bank of South Africa, and Masood Ahmed, President of the Center for Global Development, and moderated by Guillermo Ortiz, the chairman of the Per Jacobsson Foundation.
Kganyago stressed the importance of rebuilding policy buffers and implementing structural reforms, especially given the need to absorb Africa’s young population into the labor market. In view of high debt levels, a just energy transition must involve non-debt financing. Kganyago also said that the IMF needs adequate permanent resources to help countries cope with economic shocks.
Ahmed agreed that buffers need strengthening and added that decision-making processes must be more agile so countries can respond to shocks. International institutions must also reassess their role in a more shock-prone world, including by integrating climate and pandemic considerations into their everyday work. To build overall resilience, policymakers must come together to take practical and achievable steps, he said.
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GOVERNOR TALKS
(Credit: IMF Photo/Sarah Silbiger)
India intervenes in the foreign-exchange market only to prevent excessive volatility of the rupee and does not target a particular exchange rate for the currency, the Reserve Bank of India’s Shaktikanta Das told a Governor Talk at last week’s annual meetings.
Since 2019, India has amassed a war chest of about $600 billion in foreign reserves, a rise of 70-80 percent. “It was a conscious decision to build up reserves, as a buffer against spillover risks,” Das told IMF Asia Pacific Department Director Krishna Srinivasan.
“When you have capital inflows, there will be a day where you will have capital outflows.”
Watch all the annual meeting's Governor Talks:
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IMF SEMINAR
Financial inclusion and resilient growth
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In this seminar, IMF Deputy Managing Director Bo Li, Morocco’s central bank governor Abdellatif Jouahri, the Arab Monetary Fund’s Adbulrahman Al Hamidy, the Alliance for Financial Inclusion’s Alfred Hannig, and Micro Connect’s Charles Li discuss the transformative power of financial inclusion and explore its links to financial stability and economic growth. |
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PANELS AND PRESENTATIONS
(Credit: IMF Photo/James Mertz)
The annual meetings provided a forum for experts from the IMF and beyond to showcase their work in panel discussions and presentations. Catch up on all these Analytical Corner, New Economy Forum and Capacity Development talks, covering everything from artificial intelligence in Africa, food shocks in poorer countries, trade disruptions as seen from space, climate finance in conflict countries, and much more. Highlights include:
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China’s importance in the global economy has increased dramatically in recent decades, and it has been a particularly crucial driver of trade integration in Asia. As the Chart of the Week shows, so-called “de-risking strategies” by China and the United States and other OECD countries that aim to reshore production or friend-shore away from one another can result in a significant drag on growth—especially in Asia.
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Weekly Roundup
FINIANCIAL STABILITY
A year ago, the Bank of England intervened to restore financial stability after a spike in government bond yields linked to stress in “liability-driven investment” funds. In a staff paper, IMF economists explain the factors that amplified the bond-market turmoil and how the central bank finally stabilized the situation.
COMMODITY MARKETS
Commodity trade fragmentation could cause large price changes and volatility, according to an IMF staff paper. Mineral markets critical for the clean-energy transition and some agricultural commodity markets appear most vulnerable if the world were to divide into two opposing geopolitical blocs, the authors say.
GENDER GAPS
Men’s employment falls more than women’s after monetary policy shocks, narrowing the gender gap in labor markets over time, according to a staff paper. This is because monetary policy has a greater impact on industry, which employs more men, and a larger response of the employment gap in services, which employs the largest share of men and women, the authors say.
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Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar. |
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