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International Monetary Fund. Finance Dept. and International Monetary Fund. Legal Dept.
This paper presents to the Executive Board for information the second set of new borrowing agreements for the Poverty Reduction and Growth Trust.
Mr. Yan Carriere-Swallow, Mr. Vikram Haksar, and Manasa Patnam
We examine how the development of the digital infrastructure known as the “India Stack”—including an interoperable payments system, a universal digital ID, and other features—is delivering on the government’s objective to expand the provision of financial services. While each individual component of the India Stack is important, we argue that its key overarching feature is a foundational approach of providing extensive public infrastructures and standards that generates important synergies across the layers of the Stack. Until recently, a large share of India’s population lacked access to formal banking services and was largely reliant on cash for financial transactions. The expansion of mobile-based financial services that enable simple and convenient ways to save and conduct financial transactions has provided a novel alternative for expanding the financial net. The Stack’s improved digital infrastructures have already allowed for a rapid increase in the use of digital payments and the entry of a range of competitors including fintech and bigtech firms.
Mr. Serhan Cevik and João Tovar Jalles
Climate change is already a systemic risk to the global economy. While there is a large body of literature documenting potential economic consequences, there is scarce research on the link between climate change and sovereign risk. This paper therefore investigates the impact of climate change vulnerability and resilience on sovereign bond yields and spreads in 98 advanced and developing countries over the period 1995–2017. We find that the vulnerability and resilience to climate change have a significant impact on the cost government borrowing, after controlling for conventional determinants of sovereign risk. That is, countries that are more resilient to climate change have lower bond yields and spreads relative to countries with greater vulnerability to risks associated with climate change. Furthermore, partitioning the sample into country groups reveals that the magnitude and statistical significance of these effects are much greater in developing countries with weaker capacity to adapt to and mitigate the consequences of climate change.
Sonja Davidovic, Ms. Elena Loukoianova, Cormac Sullivan, and Hervé Tourpe
The Bali Fintech Agenda highlights 12 principles for policymakers to consider when formulating their approaches to new financial technology (fintech). The agenda aims to harness the potential of fintech while managing associated risks. This paper looks at how some elements of the Bali Fintech Agenda could be used in Pacific island countries, which face significant financial-structural challenges.
Mr. Gee Hee Hong, Anne Oeking, Mr. Kenneth H Kang, and Changyong Rhee
Asian countries have high demand for U.S. dollars and are sensitive to U.S. dollar funding costs. An important, but often overlooked, component of these costs is the basis spread in the cross-currency swap market that emerges when there are deviations from covered interest parity (CIP). CIP deviations mean that investors need to pay a premium to borrow U.S. dollars or other currencies on a hedged basis via cross-currency swap markets. These deviations can be explained by regulatory changes since the global financial crisis, which have limited arbitrage opportunities and country-specific factors that contribute to a mismatch in the demand and supply of U.S. dollars. We find that an increase in the basis spread tightens financial conditions in net debtor countries, while easing financial conditions in net creditor countries. The main reason is that net debtor countries are, in general, unable to substitute smoothly to other domestic funding channels. Policies that promote reliable alternative funding sources, such as long-term corporate bond market or stable long-term investors, including a “hedging counterpart of last resort,” can help stabilize financial intermediation when U.S. dollar funding markets come under stress.
Ms. Alison Stuart, Jihad Alwazir, Ms. Yan Liu, Mr. Scott Roger, Mr. Si Guo, Chau Nguyen, Mr. Emmanuel Mathias, and Mr. Jonathan Pampolina
The paper looks at feasible concrete action that can be taken by correspondent and respondent banks, money transfer operators, the Pacific authorities, the Australian and New Zealand authorities, and international organizations.
International Monetary Fund. Monetary and Capital Markets Department
This technical note provides an update on the Australian insurance sector and an analysis of certain key aspects of the regulatory and supervisory regime. The note analyzes the practice in relation to selected Insurance Core Principles (ICPs) in the context of a wider discussion of key issues in regulation and supervision. Despite the negative impact of the low interest rate environment, the life insurance industry retains sufficient loss absorption capacity. The Australian Prudential Regulation Authority (APRA) has undertaken a comprehensive reform of prudential regulation while improving the consistency of the framework between life and general insurers. This focused review confirms that prudential regulation and supervision by APRA is reasonably conservative. The risk-based capital framework is reasonably conservative, which facilitates supervisory risk assessments. APRA has high technical capacity to conduct effective supervision. While there are some gaps in the regulatory regime, APRA seeks to address these through its supervisory process. The report recommends that APRA should expand and deepen its scrutiny of group activities, especially those entailing risky investments and material intragroup transactions.