Weekend Read: Central Bank Digital Currencies | India’s Shaktikanta Das on Innovation | Latin America’s Trade Openness | Japan’s Women Scientists

In today's edition, we highlight:

• Central bank digital currencies
• Latin America's trade openness
• Japan's women scientists
• Sahel development challenges
• Panama's drought and trade disruptions

FINTECH

Central Banks Should Continue Digital Currency Development

Countries should keep preparing to deploy central bank digital currencies and related payment platforms in the future, Kristalina Georgieva said in a speech to the Singapore Fintech Festival on Wednesday.

About 60 percent of countries are exploring them in some form today. CBDCs can replace cash which is costly to distribute in island economies. They can offer resilience in more advanced economies. And they can improve financial inclusion where few hold bank accounts, the IMF managing director said.

Georgieva said that the benefits of CBDCs will stem from what happens in the payments environment; their success will rely on policy decisions and how the private sector responds; and the benefits of CBDCs will depend on how technologies evolve.

The IMF’s Central Bank Digital Currency Virtual Handbook is a reference guide for policymakers and experts at central banks and ministries of finance. It also serves as the basis for the IMF’s engagement with country authorities and other stakeholders.

IMF PODCAST

The world of money is changing fast and central banks are at the center of that change. Reserve Bank of India Governor Shaktikanta Das is a pioneer when it comes to Central Bank Digital Currencies, or CBDCs. In this podcast, Das sits down with IMF Asia and Pacific Department head, Krishna Srinivasan , to discuss the RBI’s strategy for today and for the future. The conversation took place as part of the Governor Talks series held during the Annual Meetings in Marrakech.

LATIN AMERICA

How Latin America Can Use Trade to Boost Growth

Most countries in Latin America and the Caribbean aren’t fully harnessing the potential of international trade, an important driver of growth for emerging market economies, IMF economists write in a blog.

While the region has made some progress on trade openness, it continues to be held back due largely to poor infrastructure, burdensome customs clearance procedures, as well as relatively high tariff and non-tariff barriers to trade.

Latin America would likely enjoy large economic gains by improving important commercial infrastructure, such as transportation and customs, a new study conducted in the IMF’s latest Regional Economic Outlook shows.

Narrowing the infrastructure gap between the region and advanced economies by half, for example, would lower trade costs and result in a 30 percent increase in exports, our research shows.

This larger demand for the region’s products in turn would boost GDP by as much as 7 percent, which underscores why policymakers should pay greater attention to improving trade-related infrastructure.

?JAPAN

Japan’s Economy Would Gain With More Women in Science and Technology

Japan has one of the oldest populations globally, with its working-age population shrinking since the late 1990s.

Despite that, Japan achieved impressive per capita gross domestic product growth, trailing only the United States, from 2012 to 2019 during “Abenomics”—the combination of monetary stimulus, fiscal flexibility, and structural reform advocated by Prime Minister Shinzō Abe.

To raise output without more workers, Japan must boost the labor productivity of its existing workforce, IMF economist Rui Xi writes in a Country Focus article.

Japan’s women could, again, be the growth engine. Rather than supplying cheap labor, more women should be encouraged to pursue careers in science, technology, engineering and mathematics, Xi says.

THE SAHEL

Conflict and External Shocks Are Adding To Development Obstacles

Countries in the Sahel and the neighboring Central African Republic face a medley of development challenges: Escalating insecurity, political instability including military coups, climate change, and overlapping economic shocks. All this is making it even harder to achieve sustainable and inclusive development in one of the poorest parts of the world.

Conflict-related fatalities in these countries increased by over 40 percent last year. The deterioration of the security situation over the past decade has caused a humanitarian crisis, with more than 3 million people fleeing violence in Burkina Faso, Mali, and Niger, according to UNHCR.

In an interview with Country Focus, the IMF African Department’s Abebe Selassie and Vitaliy Kramarenko discuss the economic ramifications of these challenges and how these countries can best address priority needs.

MANAGING DIRECTOR AT SINGAPORE TRAINING INSTITUTE

Central Bank Digital Currencies

Watch remarks by the Managing Director Kristalina Georgieva at the IMF Singapore Training Institute’s 25th anniversary event on central bank digital currencies and emerging good practices.

IMF DATA

Measuring Money in the Digital Age

As countries steam ahead with new forms of digital payments, cooperation—across borders, industries and professions—will be critical to develop a comprehensive approach to measuring new payment methods, IMF Managing Director Kristalina Georgieva said at a statistical forum on Wednesday.

This year’s forum focused on measuring money in the digital age and hosted discussions among academics, policymakers, statisticians, representatives of the private sector, and national and international organizations.

The forum explored how digitalization continues to impact the future of money and the exchange of value and what kind of policy and regulation are needed to ensure a stable and equitable financial system. Participants also discussed the need to close data gaps by having consistent and comparable international statistics to better measure new forms of payments.

Watch Georgieva’s opening remarks?as well as the opening and closing sessions.

CHART OF THE WEEK

Around 1,000 ships pass through the Panama Canal each month carrying a total of over 40 million tons of goods—about 5 percent of global maritime trade volumes. But water levels in this vital link between the Atlantic and Pacific oceans have fallen to critical lows because of the worst drought in the canal’s 143-year history. As the Chart of the Week shows, ports in Panama, Nicaragua, Ecuador, Peru, El Salvador and Jamaica are suffering most from delays. But the drought’s effects are felt as far away as Asia, Europe and North America.

Weekly Roundup

MALAWI

Extended Credit Facility

The IMF Executive Board has approved a 48-month Extended Credit Facility (ECF) arrangement for Malawi worth about $175 million, with an immediate disbursement of around $35 million. The ECF-supported program will support the authorities’ macroeconomic adjustment and reform agenda aimed at restoring macroeconomic stability, building a foundation for inclusive and sustainable growth, and addressing weaknesses in governance. Read our FAQs.

STAFF PAPER

COVID-19 Wages and Prices

The pass-through of labor costs to prices increased during the COVID-19 pandemic recovery, temporarily in goods and persistently in services, according to an IMF staff paper. Elevated pass-through contributed at least 0.8 percentage points to goods inflation in 2021 and 0.7 percentage points and 0.5 percentage points to services inflation in 2021 and 2022, respectively. The analysis suggests it will take a reduction in wage growth to bring inflation back to target, supported by policies to re-balance the labor market.

STAFF PAPER

Social Unrest and Initial Public Offerings

First-day returns on initial public offerings (IPOs) are lower during times of greater social unrest, a new IMF staff paper finds. This is consistent with the notion that social unrest dampens investor sentiment. Limits to arbitrage intensify the negative relation between social unrest and IPO underpricing. Notably, strong institutional frameworks mitigate the impact of social unrest on underpricing, suggesting that quality institutions weaken the link between investor sentiment and returns.

PUBLIC FINANCIAL MANAGEMENT

Digital Solutions Guidelines

The IMF, with funding support from the Bill and Melinda Gates Foundation, has published Digital Solutions Guidelines for PFM. It aims to help governments address public financial management challenges including silos, poor data quality, cybersecurity risks, and evolving needs not supported by legacy systems. The guidelines are also intended to help country authorities make important policy choices when designing and implementing digital transformation plans.

ASIA

Economics Scholarships

IMF Deputy Managing Director Antoinette Sayeh delivered remarks to celebrate the 30th Anniversary of the Japan-IMF Scholarship Program for Asia, a program for young policymakers from the region to pursue graduate degrees in Japan. With more than 950 scholarship recipients from 24 countries, many of whom now hold senior public positions, it has built a strong network of economic policymakers in the region and built a foundation for regional collaboration to safeguard financial stability.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know in the comments what issues and trends we should have on our radar.

Nick Owen

Editor, IMF Weekend Read