Crypto

Systemic Crypto Risks

Early reactions to the Omicron coronavirus variant included a significant crypto selloff. It underscored the volatility of these fast-expanding yet so far largely unregulated assets, especially in an environment of stretched valuations.

Today the crypto market is worth more than $2.4 trillion. Owing to increasing interlinkages with the regulated financial system, crypto assets could soon pose systemic risks in some countries, say the IMF’s Tobias Adrian, Dong He and Aditya Narain in a new blog.

–Patchy protection: Patchy consumer protection presents risks, too. Already there have been several high-profile cases of hacking-related thefts of customer funds. And that’s aside from the enormous damage to the environment done by carbon-intensive “mining” of crypto assets such as Bitcoin.

Crypto’s cross-sector and cross-border remit limits the effectiveness of national approaches to regulation, reckon Tobias Adrian and authors. What’s needed, they say, are comprehensive, consistent and coordinated international standards that more fully address risks to the financial system from crypto assets and their related transactions.

–Plenty of potential: Increased international regulation should not, however, undercut the enabling environment for useful crypto-asset products and applications. After all, digital money—including central bank digital currencies, stablecoins as well as crypto assets—has tremendous potential to make financial services more accessible and cheaper. Emerging market and low-income economies especially stand to benefit—so long as the risks are managed.

–Governments should step up: Governments need to step up to provide new forms of digital money while preserving stability, efficiency, equality and environmental sustainability. In 2020 the Bahamas became the first country in the world to issue a central bank digital currency, known as the Sand Dollar. It has since been joined by Nigeria, among others. Some countries have even made crypto assets such as Bitcoin national currency. This, however, is very risky.

Commodities

Metals Demand and the Energy Transition

The global transition to clean energy sources such as batteries, charging stations and wind turbines will create a demand for metals that could far exceed current supply. In a new blog, the IMF’s Nico Valckx, Martin Stuermer, Dulani Seneviratne, and Ananthakrishnan Prasad assess whether there are enough mineral and metal deposits to satisfy needs for low-carbon technologies and how to best address factors that could restrain mining investment and metals supplies.

Such demand could send metal demand and prices surging for many years, as outlined in another recent blog based on research for the October World Economic Outlook and a new IMF staff paper.

–Supply and demand gap: Given the projected increase in metals consumption through 2050 under a net zero scenario, current production rates of graphite, cobalt, vanadium, and nickel appear inadequate, showing a more than two-thirds gap versus the demand. Current copper, lithium and platinum supplies also are inadequate to satisfy future needs, with a 30 percent to 40 percent gap versus demand.

Read the blog

F&D Magazine

ART: STOCKHOUSE / CONTRIBUTOR

Rethinking Multilateralism for a Pandemic Era

Has multilateralism failed us during the pandemic? Maybe not entirely, but we must organize ourselves on a whole-of-society basis within nations and rethink how we collaborate internationally to mitigate its profound consequences for livelihoods, social cohesion, and global order, World Trade Organization Director-General Ngozi Okonjo-Iweala, Singapore Senior Minister Tharman Shanmugaratnam, and former US Treasury Secretary Larry Summers write in a new article for our latest edition of Finance & Development Magazine. Future crises may depend on a fundamental reset of international cooperation.

“Rethinking multilateralism has never been more urgent,” the authors write. “The window for action is narrow. As the experience of earlier crises shows, the impetus to make bold change will fade once we are past the worst of the pandemic in the richest countries.”

Read the Full Article

Read the Full December Finance & Development Issue.

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📢 COMING SOON: F&D Special Feature: “Africa at a Crossroads”

Next week, F&D will mark the 60th anniversary of the IMF’s African Department with a special online feature “Africa at a Crossroads: Learning from the Past and Looking to the Future.” A package of new articles will highlight the challenges and opportunities sub-Saharan Africa faces in the areas of debt, climate, gender equality, and how the IMF has evolved to help the region’s low-income countries.

To get started, read this new article from our December issue by IMF African Department Director Abebe Aemro Selassie, which takes a look at what actions today will ensure sub-Saharan Africa thrives in a post-COVID world.

Quote of the Week

“We are now in the phase where countries around the world just don’t have the space to keep monetary policy very loose, to kind of keep interest rates extremely low. We are seeing inflationary pressures building up around the world.”

—IMF Chief Economist Gita Gopinath said during a Dec. 9 World Health Organization event.  

WEEKLY ROUND-UP

01. Boosting Competition and Prosperity

The growing market power of fewer, more powerful firms is diminishing competition and harming workers. The IMF estimates that rising market power accounts for at least 10 percent of the decline in the share of income going to workers in advanced economies, IMF Managing Director Kristalina Georgieva said in a speech this week at the OECD Global Forum on Competition. Three trends threaten competition: technological decoupling, trade restrictions, and asymmetric or uncoordinated climate policies, she said, adding that global competition depends on domestic policy action and global cooperation.

02. The Managing Director in Africa

IMF Managing Director Kristalina Georgieva traveled to the Democratic Republic of the Congo (DRC) and Senegal this week where she met with DRC President Félix Tshisekedi, Senegal President Macky Sall, policymakers, civil society, youth representatives, development partners, and private sector leaders. The purpose of the trip was to see on-the-ground efforts in response to the pandemic and hear local perspectives on how to secure a sustainable, greener, fairer future for Africa.

03. After the Pandemic

IMF Middle East and Central Asia Department Director Jihad Azour participated in a panel discussion this week on the pandemic’s long-term economic, political, and social consequences and policy options for growth and stability. The event, hosted by the Carnegie Middle East Center, sought to answer the question of whether the world would return to normal or a new abnormal.

04. Learn About Tax Administration

The IMF, in partnership with the Organisation for Economic Co-operation and Development, the Intra-European Organisation of Tax Administrations, and the Inter-American Center of Tax Administrations, launched three free and open online course modules on their “Virtual Training to Advance Revenue Administration:” Strategic Management, Setting up a Reform Program, and Managing a Reform Program. The courses address the concepts related to strategic management of a tax administration, key management and governance arrangements of tax administrations reforms, and the tools and methods in planning, monitoring, and reporting tax administration reform programs. In addition, the IMF launched new sessions of its courses on Monetary Policy Analysis and Forecasting, Revenue Forecasting and Analysis, and Inclusive Growth/Climate Change.

MARK YOUR CALENDAR

01. IMF African Department @ 60

To mark the 60th anniversary of the IMF’s African Department, a virtual high level event starting at 8:30 AM ET on Dec. 15 will explore the ways that Africa, the IMF, and the African Department have evolved since the department’s inception.

The discussion will focus on IMF programs in Africa, greater transparency, enhanced policy dialogue and capacity development. Panelists will include WTO Director-General Ngozi Okonjo-Iweala, Côte d’Ivoire Minister of Economy and Finance Adama Coulibaly, Angola Minister of Finance Vera Daves de Sousa, and United Nations Economic Commission for Africa Executive Secretary Vera Songwe, among many others.

Send your questions on the roundtable topics ahead of the event to imf-afr60@imf.org 

02. Global Debt Database Update

The 2021 update of the IMF’s Global Debt Database documents the largest one-year debt surge after World War II. As countries were hit by the pandemic, global debt rose to $226 trillion, or 256 percent of GDP in 2020. An event on Dec. 15 starting at 9:30 AM ET will discuss how countries can manage this elevated debt. The panel will feature IMF Fiscal Affairs Department Director Vitor Gaspar, Georgetown University Law Professor Anna Gelpern, and World Bank Chief Economist Carmen Reinhart.