IMF Market Insights

Many central banks are currently exploring the possibility of issuing retail central bank digital currency (CBDC). While the primary objective varies between jurisdictions, many central banks consider improved cross-border payments as a potential benefit. Previous work has shown that CBDC can help overcome some of the frictions in cross-border payments. CBDC is a safe and liquid asset reducing the number of financial intermediaries and the settlement risk. Designing CBDC systems for cross-border payments is not fundamentally different from tailoring other payment systems. However, the roles and responsibilities might be slightly different in a CBDC system, and the central bank may play a more pivotal role given CBDC’s nature as public money as opposed to commercial bank money. In a new IMF Fintech Note, authors André Reslow, Gabriel Söderberg, and Natsuki Tsuda focus on retail CBDC—a CBDC primarily targeting households and non-financial firms. Wholesale CBDC considerations will be addressed in future work, however much of the discussion in the Note is applicable to wholesale CBDC and other forms of money as well. The Note draws lessons from ongoing experimentation and research to identify design and policy considerations when developing retail CBDC systems so it may be compatible for cross-border payments. Read the Fintech Note 👉 https://lnkd.in/d5fAS8G3 #IMF #economy #CBDC #payments

This week, the IMF announced the conclusion of its latest Article IV consultation with Japan, which also included an assessment of Japan’s financial sector under the IMF’s Financial Sector Assessment Program (FSAP). Japan’s large and globally well-integrated financial system has remained resilient through a series of shocks, including the COVID-19 pandemic, aided by strong policy support and improved policy frameworks since the 2017 FSAP. The financial system is, however, at a critical juncture amid an evolving macroeconomic environment. After years of deflationary concerns and ultralow interest rates, sustained inflationary pressures have emerged, leading the Bank of Japan to end its negative interest rate policy and yield curve control. Key risks to macrofinancial stability at present stem from the sizable security holdings of financial institutions under mark-to-market accounting, some banks’ notable foreign currency exposures, and signs of overheating in parts of the real estate markets. These challenges come atop several structural transformations stemming from climate change, rapid digitalization, and an aging population. Read the press release: https://lnkd.in/e4kRMu-z Read the full FSAP report: https://lnkd.in/eTfxjdZd 

The IMF’s latest report on global financial stability found that near-term global financial stability risks have receded amid expectations that global disinflation is entering its last mile. However, along the way there are several salient risks and a build-up of medium-term vulnerabilities. In a new podcast, IMF Deputy Director Fabio Natalucci and Assistant Director Jason Wu join Bloomberg Intelligence Chief EM Fixed Income Strategist Damian Sassower to share their views on underlying asset valuations amid the recent surge in financial market volatility. They also cover global monetary policy, central bank divergence, foreign exchange carry, Chinese shadow banks, and US private credit. Read the IMF’s report 👉 https://lnkd.in/ebNTGSks Listen to the podcast 👇 🔹 Apple: https://lnkd.in/ekHtNAwg 🔹 Bloomberg: https://lnkd.in/euw-m8sa 🔹 Spotify: https://lnkd.in/eJfkuk9k

In the years since the global financial crisis, central banks in major economies—the US Federal Reserve, European Central Bank, Bank of Japan, and the Bank of England—undertook sizeable purchases of long-term bonds to provide economic stimulus and anchor inflation expectations. With more recent inflationary outcomes now having led to tighter monetary policy, implemented by raising short-term interest rates and by selling-off long-term bonds via “quantitative tightening” (QT), a new IMF Working Paper studies these alternative approaches to the withdrawal of prolonged unconventional monetary stimulus (“exit strategies”). Authors Christopher Erceg, Marcin Kolasa, Jesper Lindé, haroon mumtaz, and Pawel Zabczyk first show empirically that large-scale asset purchases affect the exchange rate and domestic and foreign term premiums more strongly than conventional short-term policy rate changes when normalizing by the effects on domestic GDP. A two-country New Keynesian model is constructed that features segmented bond markets, cognitive discounting, and strategic complementarities in price setting that is consistent with these findings. The model implies that quantitative easing (QE) is the only effective way to provide monetary stimulus when policy rates are persistently constrained by the effective lower bound, and that QE is likely to have larger domestic output effects than QT. The paper concludes that exit strategies by large advanced economies that rely heavily on QT can trigger sizeable inflation-output tradeoffs in foreign recipient economies through the exchange rate and term premium channels. These tradeoffs are likely to be stronger in emerging market economies, especially those with fixed exchange rates. Read the paper 👉 https://lnkd.in/eMTvARec #IMF #economy #inflation #centralbanks

As inflation slowly subsides and optimism around a soft landing pervades financial markets, the IMF’s latest Global Financial Stability Report (GFSR) warns of potential setbacks. In a podcast released this week 👉 https://lnkd.in/enzgHm-D Fabio Natalucci and Jason Wu, who led the work on the Report, discuss risks associated with debt and the private credit market, struggling real estate sectors in China and the US, geopolitical tensions, cybersecurity, and a host of other risks to the much anticipated soft landing. #IMF #GFSR #economy #finance

This week, the IMF released its latest report on global financial stability. The report finds the overall outlook for global macrofinancial stability risks has improved in the past year, alongside declines in global inflation. But as the fight against inflation is entering its “last mile” with central banks set to ease monetary policy in the coming months, there are likely to be some bumps along the way. Geopolitical tensions could intensify and weigh on investor sentiments. Strains in commercial real estate have become more acute, which could increase pressure on some lenders. And China’s financial markets continued to be weighed down by ongoing problems in the property sector. Beyond these more immediate concerns, debt vulnerabilities continue to grow, with both the public and private sectors in many countries borrowing heavily, even though interest rates are still high and economic growth will likely not accelerate. Read the full report 👉 https://lnkd.in/e2i7Tkd7 Read the executive summary 👉 https://lnkd.in/ehVZrM6S Read the blog by IMF Financial Counselor Tobias Adrian 👉 https://lnkd.in/e9ZDp7CT Listen to the podcast 👉 https://lnkd.in/enzgHm-D Watch the press conference 👉 https://lnkd.in/e-47FZ6h #IMF #GFSR #economy #inflation #finance

Geopolitical tensions among several major economies have risen in the past few years, raising concerns of a reversal of global economic and financial integration—or “geoeconomic fragmentation.” This fragmentation could have potentially important implications for global financial stability by affecting the cross-border allocation of capital, international payment systems and asset prices, and by undermining economic growth and generating inflationary pressures. Geoeconomic fragmentation could also exacerbate macro-financial volatility in the longer term and raise the likelihood of crises by amplifying the impact of adverse shocks through a reduction in international risk diversification opportunities. For IMF Spring Meetings’ registered participants, join us in-person on Wednesday April 17th 1:00 PM ET in Cedar Hall in IMF HQ1 where IMF Monetary and Capital Markets Department Deputy Director Fabio Natalucci will lead a discussion among representatives from central banks from across different regions as they exchange views on how to maintain financial stability amid geoeconomic fragmentation, as well as how to identify and manage the risks. #IMF #economy #fragmentation #finance

JOIN US LIVE AT 10:15 AM ET today Tuesday, April 16 for the release of the IMF’s latest report on global financial stability, where IMF Financial Counsellor Tobias Adrian, Deputy Director Fabio Natalucci, and Assistant Director Jason Wu will take questions from members of the press. 🔹🔹🔹 https://lnkd.in/dWFjfEZk 🔹🔹🔹 #IMF #GFSR #economy #inflation

Capital markets play a pivotal role in the global economy and financial system. They are the arteries through which capital flows—helping businesses grow, governments fund infrastructure projects, and people realize their financial goals. But the characteristics that make capital markets efficient—including complexity, interconnectedness, and rapid innovation—also make them susceptible to risks that can threaten financial stability. The first-ever joint conference of the IMF and the International Organization of Securities Commissions (IOSCO) examines stability issues related to growing capital markets. Join IMF Financial Counsellor Tobias Adrian as he moderates a high level policy panel on evolving interactions between central banks and securities market regulators beginning at 4:40 PM ET on Monday, April 15. Joining the panel will be 🔹 IOSCO Chair Jean-Paul Servais; Japan Financial Services Agency Vice Minister for International Affairs Ariizumi Shigeru; 🔹 U.S. Department of the Treasury Under Secretary for Domestic Finance Nellie Liang; 🔹 Central Bank of Ireland Governor Gabriel Makhlouf; and 🔹 Securities & Exchange Board of India Chair Madhabi Puri Buch Watch here 👉 https://lnkd.in/eEcsw5pm #IMF #economy #finance #capitalmarkets

Where does the global economy stand in the fight against inflation? How are geopolitical events likely to impact global financial stability? What are the broader systemic effects of the latest developments in commercial and residential real estate markets? Join us live on April 16 at 10:15 AM ET for the launch of the IMF’s April 2024 Global Financial Stability Report, where these and other questions will be addressed. https://lnkd.in/dNvTazu #IMF #GFSR #economy #inflation