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Digital Currencies: The Rise of Stablecoins

2 days ago

By Tobias Adrian and Tommaso Mancini-Griffoli
Español, Português
A battle is raging for your wallet. New entrants want to occupy the space once used by paper bills or your debit card.
The adoption of new, digital payment methods could bring significant benefits to customers and society: improved efficiency, greater competition, broader financial inclusion, and more innovation. But it could invite risks to financial stability and integrity, monetary policy effectiveness, and competition standards, as outlined in a recent IMF staff paper, the first of a new series of Fintech Notes.

Adoption of new forms of money will depend on their attractiveness as a store of value and means of payment.

Stablecoin adoption
Adoption of new forms of money will depend on their attractiveness as a

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Chart of the WeekVoting on Gender Parity

4 days ago

By Rasmane Ouedraogo
Español, Português
Electoral violence occurs in many African countries. Tragically, thousands are killed and displaced during election cycles on the continent. Over the next year and a half, Presidential elections are scheduled in thirteen sub-Saharan African countries, raising fears that, as in the past, violent incidents or conflict may erupt again. But what can African nations do to lessen electoral violence?

Can women then, be the leading force for democratic and peaceful elections in Africa?

Our Chart of the Week taken from recent IMF research suggests that women’s participation in the workforce could make election-related violence less likely in Africa. Nearly half the individuals surveyed say that they fear becoming a victim of electoral violence. That

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A Capital Market Union for Europe: Why it’s Needed and How to Get There

11 days ago

By Ashok Vir Bhatia, Srobona Mitra, and Anke Weber
When savers and firms invest and borrow beyond their national borders, they enjoy opportunities to diversify their portfolios and lower their funding costs, respectively. In Europe, this idea—of an integrated financial system that offers a richness of financing choice—remains an elusive goal: capital markets are far from integrated.

Our recent research finds that European finance is still sharply segmented along national lines, with savers and investors depending heavily on national banking systems. Although the landscape is dotted with many different types of investors and intermediaries, their focus is mostly domestic—“home bias” is pervasive.
An unlevel playing field
This is a problem because it results in an uneven playing field:

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New Index Tracks Trade Uncertainty Across the Globe

12 days ago

By Hites Ahir, Nicholas Bloom, and Davide Furceri
Español, Português
Rising trade uncertainty is cited as a driving factor for “sluggish global growth” in the current issue of the IMF’s World Economic Outlook, which describes the state of the world economy.
But how is trade uncertainty measured? How has it evolved over time? Are changes in trade uncertainty confined to specific countries and regions of the world? A new measure of trade uncertainty finds that by this measure of uncertainty it is surging, and not just in the United States and China, where trade tensions are highest, but also in many other countries.
How we built it
We construct the World Trade Uncertainty index for 143 countries starting in 1996. To the best of our knowledge, this is the first effort to create a trade

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Back to School Blogs

16 days ago

By IMFBlog
Trade wars and inverted yield curves do not typically top the charts of your summer, beach-friendly reading list.
But summer in the Northern Hemisphere has disappeared as quickly as your last strawberry daquiri, right along with your ability to remember your computer password. 

Trade wars and inverted yield curves do not typically top the charts of your summer reading list.

Need a hand shifting gears?  We have put together a primer of our recent blogs, each a quick read, on the state of the global economy, facts about fintech, a snapshot of countries’ debts and assets, and the outlook for Latin America and the Caribbean, just to name a few.
Taming the Currency Hype
The Slope of the US Yield Curve and Risks to Growth
Five Facts on Fintech
A Global Picture of Public

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A Role for Financial and Monetary Policies in Climate Change Mitigation

17 days ago

By William Oman
Español
July 2019 was the hottest month ever recorded on earth, with countries across the world experiencing record-breaking temperatures. A prolonged drought is affecting millions of people in East Africa, and in August 2019 Greenland lost 12.5 billion tons of ice in one day.
A review of the literature by IMF staff aims to spur discussion of what policies to mitigate climate change could or should include. The review suggests that, while fiscal tools are first in line, they need to be complemented by financial policy tools such as financial regulation, financial governance, and policies to enhance financial infrastructure and markets, and by monetary policy.

Financial and monetary policy tools can complement fiscal policies and help with mitigation efforts.

The

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Illuminating Dark Corners of the Global Economy

18 days ago

Gita Bhatt
This issue of Finance & Development reminds me of a Sufi parable. A woman sees a mystic searching for something outside his door. “What have you lost?” she asks. “My key,” he responds. So they both kneel down to look for it. “Where exactly did you drop it?” she asks after a few minutes. “In my house,” he replies. “Then why are you looking here?” “Because there is more light.”
The lesson: we all search for answers where it is easiest to look.
That is why we decided to shine a spotlight on the dark web of secret transactions that enable tax evasion and avoidance, money laundering, illicit financial flows, and corruption.
Consider these estimates: bribes to the tune of $1.5–$2 trillion change hands every year. Tax evasion costs governments more than $3 trillion a year, and

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Chart of the WeekTop 5 Charts of Summer

23 days ago

By IMFBlog
Español, Português
Our data nerds have been hard at work over the summer and we have taken a dive into the numbers beneath the surface of the daily headlines. Housing prices, powerful companies, corruption, and more have been on our sonar.  
So you can catch up and learn more about the stories below the waterline, our editors have chosen the best from our Chart of the Week series on the blog over the past few months. 

Housing prices, powerful companies, corruption, and more have been on our sonar.

US$100 Bill on the Rise
Corruption and Your Money
House Prices Are Up: Should We Be Happy?
Mapping the World’s Financial Weak Spots
The Rise of Powerful Companies

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Monitoring Global Financial Stability

26 days ago

By Tobias Adrian, Dong He, Nellie Liang, and Fabio Natalucci
“It’s awful. Why did nobody see it coming?” asked Queen Elizabeth II in November 2008 during a visit to the London School of Economics, wondering why nobody had predicted the Global Financial Crisis. The bewilderment wasn’t unique to the British monarchy; across the world, many asked the same question.
Ten years on, it remains difficult to forecast financial instability. However, progress is afoot to improve the understanding of important links between the financial sector and the economy. We now understand better how financial vulnerabilities can amplify negative shocks and hurt output and employment.
Twice a year, the IMF comes out with its latest analysis of global financial stability risks in the Global Financial Stability

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Chart of the WeekFintech, Fiber-optics, and Financial Inclusion

August 22, 2019

By IMFBlog
Peoples’ connection to new technology is built on the backbone of electrical and fiber-optic cables running beneath our feet—and under oceans.
In 2010, most economies that were not connected to the modern, cabled internet could be found in the Pacific. However, this is no longer the case, and by 2020 the region will be almost completely connected.

Governments could harness technology to improve tax collection, government transfers, trade financing, and land registries.

Our chart of the week shows the technological transformation taking place in the Pacific island countries, where the completion of submarine fiber-optic cables will facilitate technology-enabled financial inclusion.

  (Source: Teleography)
The spread of innovative financial technologies, known as

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Taming the Currency Hype

August 21, 2019

By Gustavo Adler, Luis Cubeddu, and Gita Gopinath
Escalating trade tensions are taking a toll on the global economy and are partly responsible for the recent downward revisions to our growth forecasts for 2019-20.
Facing sluggish growth and below-target inflation, many advanced and emerging market economies have appropriately eased monetary policy, yet this has prompted concerns over so-called beggar-thy-neighbor policies and fears of a currency war. In this blog post, we discuss the implications of recent policy actions and proposals and offer alternative ways to address concerns over trade imbalances that are much more supportive of global growth.

Higher bilateral tariffs are unlikely to reduce aggregate trade imbalances.

Exchange rates can’t do it all
Monetary easing can help

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chart of the weekFuel for Thought: Ditch the Subsidies

August 14, 2019

By IMFBlog
Pensions, education, healthcare, better infrastructure, technology, and climate change: fiscal policymakers have their work cut out for them on many fronts.  Whether you live in a rapidly aging advanced economy,  or a low-income or emerging market economy with a young, booming population, all these issues matter for you. 
As the Fiscal Monitor in April 2019 shows, government policies on taxes and spending have to adapt and should shift to growth-enhancing investment.  This means, for example, more money to build classrooms, hospitals and roads, while cutting wasteful spending, such as inefficient energy subsidies.

Removing fossil fuel subsidies, which typically benefit the rich more than the poor, could gain up to 4 percent of global GDP.

Our chart of the week shows that

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US Business Investment: Rising Market Power Mutes Tax Cut Impact

August 8, 2019

By Emanuel Kopp, Daniel Leigh, and Suchanan Tambunlertchai
US business investment has been on the rise. Since the passage of the Tax Cuts and Jobs Act at the end of 2017, US businesses have bought more machinery, developed software, and created new intellectual property.
Some believe that the key to this growth in business investment has been the Act’s cut to the corporate tax rate from 35 percent to 21 percent, which lowered the cost of capital. Lower capital costs could, at least theoretically, encourage business owners to increase investment.
But our recent study suggests a simpler reason: business investment has been rising because domestic demand and sales have been rising. We also find that rising market power—the ability of companies to charge prices above production costs—has

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Chart of the WeekCanada’s Housing Market Slowdown

August 7, 2019

By IMFBlog
Following a period of escalating prices, Canada’s housing market is cooling. Measures designed to strengthen financial stability such as more stringent tests of borrowers’ ability to repay their loans, along with higher interest rates, combined to make mortgage financing more expensive. As a result, residential mortgage credit slowed to just 3.4 percent annual growth in December 2018.
Nationwide, house prices are 2.5 percent lower than the peak in mid-2018. This week’s chart of the week shows that prices in most major cities have stabilized. In Toronto and Vancouver, declines in house prices reduced speculative “froth” but prices remain overvalued.

Overall, policies that strengthen financial stability succeeded in containing housing-related financial stability risks.

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Outlook for Latin America and the Caribbean: A Stalling Recovery

July 29, 2019

By Alejandro Werner
Español
Economic activity in Latin America and the Caribbean remains sluggish. Real GDP is expected to grow by 0.6 percent in 2019—the slowest rate since 2016—before rising to 2.3 percent in 2020.
The weak momentum reflects negative surprises in the first half of 2019, elevated domestic policy uncertainty in some large economies, heightened US-China trade tensions, and somewhat lower global growth.

Elevated policy uncertainty in some large economies of the region has also contributed to the weak growth momentum.

Slower growth
Sluggish activity in the first half of this year largely reflects temporary factors, including adverse weather conditions that reduced mining output in Chile and agricultural output in Paraguay. Mining activity in Brazil moderated

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chart of the weekUS$100 Bill on the Rise

July 25, 2019

By IMFBlog
A curious thing has happened in US currency: the $100 bill recently overtook the ubiquitous $1 bill in circulation volume, for the first time in history. In other words, the most valuable banknote in the United States became the most widely circulated.
As we show in our chart of the week, based on an article in the IMF’s Finance & Development magazine, there are more $100 bills circulating now than ever before, roughly doubling in volume since the global financial crisis.

So what explains this boom in Benjamins, as the bills are known, especially when cashless options are increasing by the day? In this age of digital everything, are Americans suddenly growing nostalgic for greenbacks in high denominations?
Not exactly. While overall demand for US currency is indeed on the

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Sluggish Global Growth Calls for Supportive Policies

July 23, 2019

By Gita Gopinath
عربي, 中文, Español, Français, 日本語, Português, Русский
In our July update of the World Economic Outlook we are revising downward our projection for global growth to 3.2 percent in 2019 and 3.5 percent in 2020. While this is a modest revision of 0.1 percentage points for both years relative to our projections in April, it comes on top of previous significant downward revisions. The revision for 2019 reflects negative surprises for growth in emerging market and developing economies that offset positive surprises in some advanced economies.
Growth is projected to improve between 2019 and 2020. However, close to 70 percent of the increase relies on an improvement in the growth performance in stressed emerging market and developing economies and is therefore subject to high

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Rebalancing the Global Economy: Some Progress but Challenges Ahead

July 17, 2019

By Gita Gopinath
Español, 日本語
Following the global financial crisis, overall current account surpluses and deficits fell sharply from about 6 percent of global GDP in 2007 to about 3.5 percent in 2013. Since then, as shown in our new External Sector Report, global current account imbalances have declined only slightly to 3 percent of world GDP in 2018, while rotating toward advanced economies and away from emerging economies, including China whose current account is now broadly in line with fundamentals.
Trade actions and tensions have so far not significantly affected global current account imbalances, as trade has been diverted to other countries with lower or no tariffs. Instead, as highlighted in an earlier blog, these trade tensions and related uncertainties are weighing on global

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Chart of the weekCorporate Tax Rates: How Low Can You Go

July 15, 2019

By IMFBlog
In life, two things are certain: death and taxes, the saying goes.
Unless you are a large multinational corporation, in which case, maybe not.  Over the past 30 years, corporate tax rates in all countries have fallen to very low levels, as we show in our chart of the week.
This is a problem on several fronts and is one of the reasons why a new approach to international corporate taxation is urgent.
First, the ease with which multinationals seem able to avoid tax, combined with the three-decade long decline in corporate tax rates, undermines both tax revenue and faith in the fairness of the overall tax system.

In life, two things are certain: death and taxes.

Second, the current situation is especially harmful to low-income countries, depriving them of much-needed

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Chart of the weekTrade Balances Mostly Driven by Economic Forces, Not Tariffs

July 10, 2019

By IMFBlog
Español, Português
Over the past two decades, most of the changes in bilateral trade balances—the difference in the value of exports and imports between two countries—were explained by macroeconomic factors, according to IMF research.
These factors include fiscal policy, demographics, and weak domestic demand. They may also include exchange rate policies and domestic supply-side policies, like subsidies to state-owned enterprises or to export sectors.
In contrast, changes in tariffs played a much smaller role in influencing trade balances.
Our chart of the week from the April World Economic Outlook quantifies the drivers of changes in bilateral trade balances. It specifically looks at the roles of macroeconomic factors, tariffs, and how countries organize their production

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Tariff Shocks: The Role of Value Chains in Europe

July 3, 2019

By Raju Huidrom, Carlos Mulas-Granados, Laura Papi, and Emil Stavrev
(Español, Português)
The Czech Republic exports only a small number of cars and car parts directly to the United States, but it’s likely to suffer significant economic damage if that country were to impose tariffs on auto imports. The reason: the Czech Republic supplies parts that are used to build cars exported by other European countries.
Europe’s auto industry is one of many that are part of global value chains, in which different stages of manufacturing are dispersed among several countries. Because almost 70 percent of European exports are linked to value chains, tariffs imposed on products shipped by one country can affect many others. That is why, as we explain in a recent study, it’s important to view

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The Slope of the US Yield Curve and Risks to Growth

July 2, 2019

By Tobias Adrian, Rohit Goel and Fabio Natalucci
The slope of the yield curve in the US has inverted in recent months, making long-term debt significantly cheaper than short-term debt. This inversion is a gauge of investors’ confidence in the economy and signals doubts about future growth.
The slope of the Treasury yield curve is the difference between the interest rate on long-term and short-term debt; and each time the curve inverts, there are questions about the reliability of the signal. For example, the fact that interest rates have been low for a prolonged period may change the information provided by the yield curve. Moreover, due to unconventional monetary policies, central banks hold a significant share of outstanding long-term bonds, which influences the “long end” of the yield

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Chart of The WeekThe Price of Capital Goods and the Threat to Investment

July 1, 2019

By IMFBlog
Español, Português
Over the past three decades, the prices of machinery and equipment have fallen sharply relative to overall prices. Rising trade and sweeping technological improvements have led to more efficient production of capital goods. This has helped countries around the world raise real investment and improve living standards.
However, trade tensions and sluggish productivity growth could slow the decline in the relative price of machinery and equipment, which would hold back investment growth worldwide.
Our chart of the week from the April World Economic Outlook  shows that since 1990, the price of machinery and equipment relative to the price of consumption fell about 40 percent in emerging market and developing economies.

Over the past three decades, the

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Five Facts on Fintech

June 27, 2019

By Tobias Adrian and Ceyla Pazarbasioglu
From artificial intelligence to mobile applications, technology helps to increase your access to secure and efficient financial products and services.
Since fintech offers the chance to boost economic growth and expand financial inclusion in all countries, the IMF and World Bank surveyed central banks, finance ministries, and other relevant agencies in 189 countries on a range of topics and received 96 responses.
A new paper details the results of the survey alongside findings from other regional studies, and also identifies areas for international cooperation—including roles for the IMF and World Bank—and in which further work is needed by governments, international organizations, and standard-setting bodies.

Foremost in all countries’ minds

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When Disaster Strikes: Preparing for Climate Change

June 26, 2019

By Seán Nolan and Krishna Srinivasan
Earlier this year, Cyclone Idai devastated Mozambique, Malawi, and Zimbabwe by leaving more than 1,000 people dead, thousands more missing, and damages in the billions. These storms were among the recent reminders of how natural disasters can cause severe and catastrophic damage. Natural disasters destroy lives and property and have large and lasting effects on economies by reducing production and increasing debt burdens. They also tend to disproportionately affect the poor, who have a limited ability to cope with the impact.
Although not alone, the small island countries in the Caribbean and Pacific are particularly vulnerable to natural disasters. They have suffered, on average, disaster-related losses of 2 to 3 percent of GDP per year over the past

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Chart of the WeekGrowing Through Education in Nigeria

June 24, 2019

By Vivian Malta and Monique Newiak
Our chart of the week, drawn from the IMF’s 2019 economic health check for Nigeria, highlights substantial inequality in access to education between girls and boys, and between rich and poor.
It is widely accepted that addressing educational gaps results in rapid and large benefits for children, their families, communities, and the country more broadly.

 
Limited schooling for girls
According to a survey conducted by the Nigeria Bureau of Statistics, a girl born into a Nigerian family in the poorest fifth of society spends about 1 year in school—approximately a third of the already limited schooling enjoyed by, say, her brother.
Access to education improves as a family gets richer, but gender inequality in education is entrenched and barely

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Chart of the WeekMapping the World’s Financial Weak Spots

June 20, 2019

By IMFBlog
Español, Português
Where will the next financial crisis come from? The short answer is: We don’t know. We can, however, look for vulnerabilities in the system that, if left untreated, can develop into problems.
What do we mean by a vulnerability? It is an area of weakness that can amplify and spread an unexpected economic shock, increasing the level of risk to the financial system. Imagine the impact of an earthquake on a house built on sand, as opposed to bedrock. In the financial world, cracks in the bedrock can arise from high levels of debt and mismatches of institutions’ risk factors such as currencies or the maturities of their exposures.

Government debt in the euro area remains one of the most serious vulnerabilities.

One such weak spot is the debt level in US

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China Deepens Global Finance Links as It Joins Benchmark Indexes

June 19, 2019

By Sally Chen, Dimitris Drakopoulos, and Rohit Goel
中文, 日本語
China is embarking on the next stage of its integration into global financial markets. It is a stage that is likely to see a fresh flood of overseas investment, improved liquidity, better governance, and a broader range of instruments.
The catalyst: inclusion of Chinese stocks and bonds in a larger number of global financial-market indexes. As Chinese securities are added, investment managers who seek to match or surpass the returns of the indexes will adjust their portfolios to include Chinese stocks and bonds. And increasingly it is these benchmark-driven asset managers who are propelling portfolio flows.

This trend of rising foreign ownership is likely to accelerate further.

In the past five years alone, foreign

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A Global Picture of Public Wealth

June 18, 2019

By Jason Harris, Abdelhak Senhadji, and Alexander F. Tieman
Español, Português
Our new data on government assets shows that when governments know what they own, they can make better use of the assets for the well-being of all their citizens.  We make these data free and publicly available for all to use because we believe transparency can help create better public policy. 
The chart shows that advanced economies have larger balance sheets compared to emerging markets and low-income developing countries. This reflects the size of their public sectors, which generally provide more infrastructure and services. But advanced economies also have larger liabilities and, on average, lower net worth.

We wrote about countries’ assets back in October in the Fiscal Monitor and in our blog about

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State Ownership in Europe’s Former Socialist States: The Unfinished Reform Agenda

June 18, 2019

By Poul Thomsen
As we approach the 30th anniversary of the fall of the Berlin Wall, the former socialist countries of Central, Eastern, and Southeastern Europe (CESEE) have made tremendous progress in becoming full-fledged market economies and raising income levels. Large-scale privatization in the 1990s was a key element of this transition but produced mixed results. In some cases, privatization generated broad-based ownership and healthy competition, while in some other countries, privatization did not advance so far, or led to public monopolies being replaced by private ones. This experience has highlighted the importance of a strong institutional and competitive environment, including better governance of both public and private entities.  

State owned enterprises systematically

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