The Financial Action Task Force’s gray list publicly identiﬁes countries with strategic deﬁciencies in their AML/CFT regimes (i.e., in their policies to prevent money laundering and the ﬁnancing of terrorism). How much gray-listing aﬀects a country’s capital ﬂows is of interest to policy makers, investors, and the Fund. This paper estimates the magnitude of the eﬀect using an inferential machine learning technique. It ﬁnds that gray-listing results in a large and statistically signiﬁcant reduction in capital inﬂows.
Some central banks have maintained overvalued official exchange rates, while unable to ensure that supply of foreign exchange meets legitimate demand for current account transactions at that price. A parallel exchange rate market develops, in such circumstances; and when the spread between the official and parallel rates is both substantial and sustained, price levels in the economy typically reflect the parallel market exchange rate. “Recognizing reality” by allowing economic agents to use a market clearing rate benefits economic activity without necessarily leading to more inflation. But a unified, market-clearing exchange rate will not stabilize without a supportive fiscal and monetary context. A number of country case studies are included; my thanks to Jie Ren for pulling together all the data for the country case studies, and the production of the charts.
International Monetary Fund. Asia and Pacific Dept
The coronavirus disease (COVID-19) pandemic is still unfolding around the globe. In Asia, as elsewhere, the virus has ebbed in some countries but surged in others. The global economy is beginning to recover after a sharp contraction in the second quarter of 2020, as nationwide lockdowns are lifted and replaced with more targeted containment measures.