Second Thoughts About Central Bank Digital Currencies

Sustained decline in central banks’ monetary liabilities (reserves and currency in circulation), which the emergency of cryptocurrencies may have hastened, has been enabled by technological innovations that over time have allowed financial institutions and their customers to execute transactions and settle their debts without resorting to central bank currency. Policymakers are concerned about their ability to guarantee public’s access to government-backed currency. This has implications for central banks’ balance sheet and income position, which central bank digital currency might reconstitute. But the introduction of central bank digital currency (CBDC) comes with its own risks and could be disruptive for financial markets. We believe that retaining the option to have access to government-guaranteed currency is of utmost importance, despite the sporadic demand for physical currency in the modern society, but it could be addressed within existing institutional structures without the introduction of CBDC. However, policy authorities are right in seeking oversight and regulation for cryptocurrencies to address the destabilizing potential of cryptocurrencies for financial markets, and they should continue modernizing payment infrastructures to bring retail settlement systems at par with cryptocurrencies in terms of settlement speed but without associated liquidity and credit risks. These steps would preserve the status quo and allow private sector to continue innovating while limiting central banks’ footprint in the financial markets

Wage Growth Puzzle and Capacity Utilization

Wage growth and consumer price inflation in the United States remain weak, despite robust labor market and a healthy economy. This has been a conundrum for policymakers and economists alike, albeit it is not without parallels. In this paper, we analyze recent trends in the labor market. We point out that a number of indicators are providing mixed signals about the tight labor market, including wage growth that has remained muted, vacancy duration rates that have stayed remarkable stable in certain sectors, and the rate of capacity utilization, which is cyclically low and out of sync with other measures of resource utilization (e.g., output gap and unemployment rate). This leads us to conclude that there could be other forces that explain these phenomena. In this paper, we focus on capacity utilization and contend that low capacity utilization rates are the outcome of strategic decision-making by corporations, rather than inefficient demand, which permits firms to manage their resources more effectively. It seems to be particularly important when economic and policy uncertainties are elevated, such as in the post-financial crisis environment. More flexible use of capacity has implications not only for the labor market, but also for investments. Understanding capacity utilization would contribute to monetary policy formulation when the signal coming from the rate of capacity utilization is not consistent with those coming from the labor market and the output gap. This points to the need to continue monitor a broad range of indicators to avoid potential policy errors

Indonesia: Anatomy of a Banking Crisis Two Years of Living Dangerously, 1997-99

https://www.imf.org/en/Publications/WP/Issues/2016/12/30/Indonesia-Anatomy-of-a-Banking-Crisis-Two-Years-of-Living-Dangerously-199799-407

International capital flows in Finland 1975-1990: The role of expectations

Financial markets in Finland have undergone important structural changes over the 1980's. Most important have been the emergence of a wellfunctioning short-term money markets and the relaxation of most of the foreign exchange controls. These elements have created a situation where the economy is increasingly dependent on the developments in the rest of the world. The present study may be viewed as an extension to Hämäläinen and Kovanen (1991). The purpose is to examine how income and exchange rate expectations influence the determination of intemational capital flows. Theoretical foundations are supported by empirical evidence. Exchange rate expectations have a statistically significant role to play in the adjustment process, in particular during the final years of 1980's. Also income expectations are important for the adjustment of the demand for money. A somewhat less important, but nevertheless interesting, result concems the possibility of short-run overshooting in the net capital flows in response to changes in domestic credit. in the short run

Population Dynamics, Macroeconomic Risks, and the Future of Pensions in Finland

The hybrid pay-as-you-go system currently in use in Finland could become increasingly untenable in the longer run, should macroeconomic developments turn out weaker than expected. Unfavorable population trends would amplify the effects of adverse macroeconomic shocks on the Finnish pension system and its financial health.  Although Finnish government has demonstrated willingness to respond to challenges facing the pension system and has been successful in building consensus for necessary pension reforms, a more strategic approach would serve policymakers and retirees (current and future) better in the longer run. This study focuses on risks to productivity and investment returns and how they would impact the longer-term health of the Finnish pension system, given unfavorable population dynamics. In order to protect the longer-term finances of the pension system, government should transition away from the pay-as-you-go model to an arrangement where pensions are fully funded from investment returns instead of being dependent on the contributions of current working-age population. We suggest alternative options to achieve that but at the same time emphasize that the authorities need to be mindful of burden-sharing between workers and pensioners in their considerations, as pension cuts would hurt retirees while contribution rates are already quite high

Capital Account Liberalization in Finland

The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.

Monetary Policy Transmission in Ghana

This paper analyzes interest rate pass-through in Ghana. Time series and bank-specific data are utilized to highlight linkages between policy, wholesale market, and retail market interest rates. Our analysis shows that responses to changes in the policy interest rate are gradual in the wholesale market. Prolonged deviation in the interbank interest rate from the prime rate illustrate the challenges the Bank of Ghana faces when targeting a short-term money market interest rate. Asymmetries in the wholesale market adjustment possibly relate to monetary policy signaling, weak policy credibility, and liquidity management. In the retail market, pass-through to deposit and lending interest rates is protracted and incomplete.1Banks;Central bank policy;Financial systems;Interest rates;monetary policy, central bank, inflation, money market, monetary fund, monetary policy implementation, money market interest rate, monetary authorities, liquidity management, monetary transmission, lead, reserve requirements, inflation-targeting, monetary transmission mechanism, monetary aggregates, monetary aggregate, monetary policy framework, reserve requirement, open market operations, monetary authority, monetary targets, money demand, monetary system, monetary systems, demand for money, monetary policy regimes, monetary policy rules, monetary union, monetary policy transparency, monetary economics

Foreign Exchange Auctions and Fixing

The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.