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Economics Commentary offers analyses and opinions on international monetary affairs and emerging markets capital markets developments. The content is primarily concerned with changes in the international monetary system and its impact on economic policies and international capital markets and draws extensively on participations in key international economic policy fora. Economics Commentary aims to support the public debate and markets' understanding of major international monetary and emerging capital markets developments.

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Beggar-thy-neighbour and inter-RFA coordination

Second joint RFA research seminar

Cartagena, 17 May 2018

The importance of coordination among regional financing arrangements (RFAs) to strengthen the global financial safety net (GFSN) has been well established. The number of institutions offering adjustment lending requires some coordination to mitigate duplication and strengthen effectiveness. However, too little attention is given to the outcome of adjustment such that adjustment of one country does not unduly impair prospects of other countries or regions. This fundamental principle of avoiding a beggar-thy-neighbour approach represents one of the most important rationales for seeking close coordination of RFAs. Yet, it remains elusive. [...]

Emerging markets vulnerability to exchange rate shocks—A curative approach

3 May 2018

The U.S. Federal Reserve announced on 2 May that it will keep its policy rate at its current level. The Fed reiterated that it sees economic conditions warranting "further gradual increases in the federal funds rate." Emerging markets currencies have notoriously been vulnerable to U.S. interest rate rises and in particular a stronger dollar. The prospect of a sustained rate increase therefore causes some disquiet or worse. Yet, it is important to be reminded that emerging markets exchange rate vulnerability seems largely "self-inflicted." A curative approach is needed. [...]

The geography of money

OMFIF May Bulletin, 1 May 2018

The quest for international currencies is not new. The 18th-century Maria Theresa thaler was one of the first international currencies and may be considered something of a model for bitcoin. The denationalised properties of the cryptocurrency have highlighted the advantages of such currencies. [...]

Maria-Theresa thaler, bitcoin and capital flows

London School of Economics—Reinventing Bretton Woods Committee Conference: Innovations in global financial governance and the role of emerging economies

Buenos Aires, 20 March 2018

[...] I hope to leave you with some confidence that cryptocurrencies have a natural role to play in the international economy, that there is a case to change the geography of money, that there is a continuum of types of money and that adoption of cryptocurrencies should be highest where monetary experiences have been bleakest. [...]

Cryptocurrencies challenge the status quo

VOX, with Piroska Nagy-Mohacsi, 15 March 2018

Cryptocurrencies have been the subject of recent attacks by official sector representatives, and the G20 finance ministers will consider regulatory proposals at their next meeting in Buenos Aires. This column argues that while cryptocurrencies present certain risks, they also represent an important innovation that promises to enhance choice and efficiency in monetary transactions. A proportionate, risk-based regulatory approach is required to accommodate differential attitudes and experiences and to avoid stifling innovation and competition. This implies having an open debate before sweeping regulatory action. [...]

Completing Europe's monetary union

OMFIF News and Commentary, 15 March 2018

The new German government may propose as one of its first European policy initiatives the establishment of a European Monetary Fund, a critical missing piece in the euro area monetary architecture. The coalition treaty between Chancellor Angela Merkel's Christian Democrat/Christian Social Union group and the Social Democratic Party states prominently that the 'existing European Stability Mechanism is to be developed into a European Monetary Fund'. The idea of an EMF is not new and failed a few times in the past to get off the ground, notably when the European Monetary System was set up in 1978 as the forerunner to economic and monetary union. Yet, in the light of continuous nervousness regarding prospects for the euro area, exacerbated by an unfavourable Italian election outcome, an EMF would signal that the bloc is willing to do what it takes to strengthen confidence. [...]

Venezuela’s petro digital currency

22 February 2018

Venezuela launched the pre-sale of its digital currency petro on 19 February. It is the first government to issue a digital currency and hopes to establish a new ecosystem around the token. Because the government of Venezuela is behind it, it raises naturally fundamental doubts about its credential as a currency. Its valuation makes it a more an oil price-linked voucher. It does not reflect the underlying ideas and ideals of cryptocurrencies. [...]