Economics Commentary



Greece's shrinking

17 February 2017

The International Monetary Fund (IMF) and European Union (EU) quarrel once again about the sustainability of Greece’s government debt. Debt should not be the focus. The latest IMF Article IV consultation on Greece published on 7 February illustrates the considerable shrinking of the Greek economy. Naturally, an economy that represents less than 70 percent in size in 2016 than it was originally projected to be must attract a comprehensive rethink of how to tackle its problems. Greece needs a completely new approach. This will most certainly require more debt relief from private and official creditors. [...]

Next steps for the IMF Managing Director

22 December 2016

Christine Lagarde kept her job as IMF Managing Director. She was found guilty of negligence, though not fined, by a French special court on 19 December for awarding a controversial settlement in 2008 of EUR403 million (USD636 million) to French entrepreneur Bernard Tapie from her time as French finance minister. Ms Lagarde’s conviction now risks debilitating her and the IMF. Here are therefore some suggestions for next steps for the IMF MD. [...]

IMF Managing Director selection

14 February 2016

The International Monetary Fund (IMF) closed the nomination period of the next IMF Managing Director on 10 February. Incumbent Christine Lagarde is the only candidate. Given the recent history of the selection of the IMF Managing Director, a single candidate seems odd. The lack of competition or interest in one of the most important international official positions risks undermining credibility and legitimacy of the selection process. [...]

IMF SDR valuation review: A test nobody can pass

9 August 2015

The IMF Executive Board deliberated on 29 July in informal session about next steps to conduct the 2015 quinquennial SDR valuation review. The IMF staff document guiding the review concentrates on determining whether the renminbi is a freely usable currency as necessary inclusion criterion. The review is conducted seemingly on technical considerations only on the basis of the existing inclusion criteria and does not propose revisiting those. This signals a bias against innovation. It seems to represent an extraordinary missed opportunity in light of actual and expected changes in the international monetary system. This may not be the IMF staff’s mistake. [...]

The Troika was a mistake (in German)

Süddeutsche Zeitung, 29 July 2015

Germany's self-proclaimed role as chief negotiator for the Greece arrangement has severely upset the multilateral framework.[…]

Time to transform the world's currency system

Financial Times, 22 June 2015

The pending IMF review of the SDR is much more than a rejigging of a currency basket. It is about serious steps towards the transformation of the international monetary system. […]

Why does Germany take the lead on Greece?

BBC Business Daily interview, radio podcast, 15 June 2015

The negotiations for the continuation of Greece's IMF arrangement are a muddle. It is no longer clear who is negotiating with whom and who sets the terms for the negotiations significantly undermining the multilateral framework on which basis the arrangement was established. [...]

Why IMF must reform the SDR

OMFIF May Bulletin, 13 May 2015

The Special Drawing Righ has failed as a reserve asset, and never gained ground as a financial instrument. However, it may succeed as a framework for international currency diversification. […]

Greece, SDR and the need for a new multilateralism

BNE Intellinews, 20 April 2015

The International Monetary Fund/World Bank Spring Meetings in Washington DC over an April weekend felt mostly like a routine affair. Persistent concerns about a "mediocre" global economic outlook were voiced and duly corresponding policy recommendations made. Somewhat ambitious was a call for "a new multilateralism for a sustainable future." At least two issues though were more unusual: the quinquennial special drawing rights (SDR) valuation review and a possible default of Greece to the IMF. Both have caused considerable background tussles. [...]

Why Wimp label sticks to emerging nations

Financial Times, 16 March 2015

[Emerging markets] suffer from the fact that they are without international monetary power: they are Wimps.
International monetary power is the ability to conduct economic policy without immediate regard to external constraints. […]

Fed has built a thorny central bank divide

Financial Times, 6 November 2014

Top Federal Reserve officials […] underlined the divide between central banks that have access to the Fed’s dollar swap facility and those that do not [have] a Fed backstop . [...]

International illiquidity and a BRICS payments union

BRICS Economic Think Tank Forum, Beijing 6 November 2014

Ladies and Gentlemen

It is a great pleasure to participate in this timely initiative to reflect on the international financial architecture through the prism of the BRICS countries. The considerable advances BRICS countries have made in the world economy remain in stark contrast to their role in the international financial system. There are few areas where this is more pronounced that in the international monetary sphere. The world economy has remained highly dependent on a narrow set of national currencies to conduct cross border financial transactions. This constitutes a critical vulnerability and disadvantage for BRICS countries. Commemorating the 70-year anniversary of the Bretton Woods Conference this year, it is an opportune moment to think about needed reforms of the international financial architecture. I will try to make the case for a BRICS payments union.[...]

Why does the international monetary system matter?

Johns Hopkins School of Advanced International Studies (SAIS), Washington, D.C. 9 October 2014

Ladies and Gentlemen

It is a great pleasure to be here at U.S. Korea Institute at SAIS. I’m most grateful to the organisers for the opportunity to moderate this outstanding panel. Before we start the discussion, I would like to offer some short introductory remarks focusing on what the Bretton Woods Conference was about, why it should matter to the public and why it offers critical insights for international investors. [...]

BRICS development bank and contingency reserve arrangement

24 July 2014

The establishments of a BRICS development bank (DB) and a contingency reserve arrangement (CRA) seem to indicate new momentum for change in intergovernmental finance and cooperation. It may mark a rebuttal of the existing framework dominated by the main multilateral institutions but also increasing confidence that China and leading emerging markets can do it on their own. It is only a modest start though. [...]

Internationalisation of currencies, capital account opening and the SDR basket

China Society for Finance and Banking, Hangzhou, 17 May 2014

Ladies and Gentlemen,

My remarks will focus on the SDR basket to reflect on the role it plays today and more importantly could play. The internationalisation of currencies, capital account opening and the SDR basket are naturally linked to one another. Capital account opening constitutes to some extent a necessary condition for currency internationalisation and major international currencies should normally be eligible as constituents of the SDR basket. Yet, one of the most salient features of the international economy is the fact that very few currencies have become truly international despite important and widespread capital account openings.[...]

What next for the IMF?

G20 Australia, Washington, D.C., 9 April 2014

The IMF was widely applauded for being the only entity capable of putting together at short notice a sizeable financial support package for Ukraine. It is indeed the very strength of the IMF. Yet, the IMF merely lends by borrowing money. The IMF moves international liquidity around but for all practical reasons cannot create international liquidity. Ukraine thus serves as a good reminder that the IMF remains highly constrained in supporting countries in distress. To remedy this sustainably the IMF should not principally look at its own resources to be able to offer more countries more financial support actual and contingent, as has been normally the case in the past, but rather based on one of its main purposes prioritise broadening the usability and convertibility of currencies in international financial transactions. This would address one of the key causes of emerging markets distress rather than the remedy.[...]

IMF economic forecasts

14 October 2013

The International Monetary Fund’s (IMF) economic forecast is a serious matter. It is the most authoritative of economic projections. The IMF also gives policy advice on the basis of those projections. No institution employs more resources and a greater number of highly qualified economists—a gross budget of US$1.1 billion and 2061 professional and managerial staff—to follow countries’ economic developments in detail. It seems therefore safe to assume that the IMF should know best. Yet, the IMF has recently been exceedingly optimistic or pessimistic in its economic projections and more importantly appears to exhibit important projection biases.[...]

Dollar-based system is inherently unstable

Financial Times, 2 October 2013

The international monetary system does not work as intended. An international economy relying predominantly on one currency is inherently unstable. This is amply demonstrated by the recent turbulence in foreign [...].

The IMF must quit the Troika to survive

Financial Times, 17 April 2013

There are many victims of the eurozone crisis but one loser is seldom mentioned: the IMF has suffered considerable collateral damage. It has been dragged along in an unprecedented set-up [...].

Next IMF Managing Director

19 May 2011

The IMF needs a new boss. Dominique Strauss-Kahn resigned as IMF Managing Director amid his pending indictment on criminal charges. Any new MD needs to be apolitical, provide credible leadership to ensure the IMF remains influential yet be seen as impartial, deal with governance and reputational concerns of the institution and be visionary and effective in enforcing its man- date especially also in a post-crisis environment. [...]

2010 SDR basket review

16 November 2010

The IMF is working on a new SDR basket to take effect on January 1, 2011 with a decision on the new basket probably around mid- November. There are rumours that a revised SDR basket may comprise emerging markets currencies for the first time again since 1980. This would provide a strong signal that emerging markets currencies are on the rise and need to be taken seriously. It would also be illustrative of what the IMF aims to achieve with the SDRs. Following the recent promotion of SDRs through the large allocation of August 2009 and more importantly interest in the role of SDRs voiced by key emerging markets notably China and Russia, SDRs seem back from the wilderness. [...]

What role can the SDR play today?

15 May 2009

The IMF’s Special Drawing Right (SDR) is seeing an unexpected revival. Only in 2006, the Managing Director of the IMF concluded that there was not the necessary support from IMF member countries to seek issuance of SDRs, reflective of what had been a steady decline in the relevance of the SDR since the 1980s. [...]

Need for a new international monetary system?

28 April 2009

The global financial crisis has caused significant interest and exchange rate volatility. Both can be deemed failures to manage global liquidity. This risks causing commercial and trade disruptions, lead to competitive devaluations and fuel protectionism thus undermining prospects of a sustained recovery. Many commentators have attributed those market dislocations to a failure of the international monetary system, the set of rules that govern cross-border monetary transactions. [...]

Central banks and emerging markets liquidity

27 July 2008

Central banks have traditionally attached a high priority to market liquidity for the investment of their foreign exchange reserves. This is due in part to criteria governing the definition of central bank reserves. While many central banks have tiered their reserves to allow differential allocation criteria and investment horizons, liquidity considerations have remained important. Very large central banks contemplating building sizeable portfolios in emerging markets assets, generally in excess of US$10 billion, are concerned that they would have to overly compromise on liquidity and that significant allocations may cause unwanted price movements. [...]