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Business and Economics > Finance: General

You are looking at 1 - 10 of 560 items for :

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Cover Technical Assistance Reports
Colombia: Technical Assistance Report-Foreign Exchange Market Development and Regulatory Framework Review
International Monetary Fund. Monetary and Capital Markets Department
This report provides an overview of the technical assistance provided by the International Monetary Fund (IMF) to the Banco de la República to support the authorities in reviewing the regulatory framework and formulating development strategies for the foreign exchange market.
Keywords:
Currency internationalization; regulatory framework; foreign exchange market development; Colombia.; FX Market development strategy; FX channeling; Banco de la República; IMF's Monetary; Currency markets; Currencies; Exchange rate risk; Exchange rates; Global
Cover IMF Staff Country Reports
South Africa: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for South Africa
International Monetary Fund. African Dept.
A new Government of National Unity (GNU) has been in place since June 2024, which the markets have welcomed. The GNU faces difficult challenges: declining GDP per capita, high unemployment, poverty and inequality, and rising public debt and debt service, which crowd out other urgent spending needs. Its fresh mandate represents an opportunity to pursue ambitious reforms to safeguard macroeconomic stability and address these challenges, placing the economy on a path toward higher, more inclusive, and greener growth.
Keywords:
support policy credibility; headline inflation; debt management strategy; Policy recommendation; implementation framework; Policy credibility; Government debt management; Exchange rate arrangements; Currency markets; Africa; Global; private sector; short-term debt; Financial sector stability; Inflation
Cover FinTech Notes
Tokenization and Financial Market Inefficiencies
Itai Agur
,
German Villegas Bauer
,
Tommaso Mancini-Griffoli
,
Maria Soledad Martinez Peria
, and
Brandon Tan
Most financial assets are digital today. Tomorrow, they may be tokenized. Tokenization implies recording and transferring assets on a widely shared and trusted digital ledger that can be programmed. Interest in tokenization is strong and experiments abound, but what are the consequences of this new trend for financial markets? This note introduces a taxonomy and a conceptual framework centered on market inefficiencies to evaluate this question. Some inefficiencies could decline across the asset life cycle. Others would remain, however, and new ones could emerge. Issuing, servicing, and redeeming assets might involve fewer intermediaries and thus become cheaper. The costs of trading assets may also decrease as tokenization lowers some counterparty risks and search frictions and offers flexibility in settlement. Additionally, greater competition among brokers could lower transaction fees. However, tokenization may amplify shocks if it induces institutions to become more interconnected and hold lower liquidity buffers or higher leverage, potentially jeopardizing financial stability. Programs themselves may introduce new risks related to strings of contingent contracts or faulty code. While competition may grow among financial intermediaries, the provision of market infrastructure could become more concentrated due to network effects.
Keywords:
Tokenization; central banks; asset lifecycle; financial markets; financial asset market friction; B. market infrastructure investment externality; financial market inefficiency; IMF Library; Note 2025/001; D. knowledge externality; Bonds; Smart contracts; Securities markets; Liquidity; Blockchain and DLT; Global
Cover IMF Staff Country Reports
Albania: Selected Issues
International Monetary Fund. European Dept.
2024 Selected Issues
Keywords:
risk result; market liquidity; Albanian banking sector; banks' liquidity resilience; LCR value; Currency markets; Exchange rates; Commercial banks; Liquidity requirements; Capital adequacy requirements; Global
Cover IMF Working Papers
Portfolio Inertia and Expected Excess Returns in Currency Markets: Evidence from Advanced Economies
Bas B. Bakker
The economic literature has long attributed non-zero expected excess returns in currency markets to time-varying risk premiums demanded by risk-averse investors. This paper, building on Bacchetta and van Wincoop's (2021) portfolio balance framework, shows that such returns can also arise when investors are risk-neutral but face portfolio adjustment costs. Models with adjustment costs but no risk aversion predict a negative correlation between exchange rate levels and expected excess returns, while models with risk aversion but no adjustment costs predict a positive one. Using data from nine inflation targeting economies with floating exchange rates (2000–2024), we find strong empirical support for the adjustment costs framework. The negative correlation persists even during periods of low market stress, further evidence that portfolio adjustment costs, not risk premium shocks, drive the link between exchange rates and excess returns. Our model predicts that one-year expected excess returns should have predictive power for multi-year returns, with longer-term expected returns as increasing multiples of short-term expectations, and the predictive power strengthening with the horizon. We confirm these findings empirically. We also examine scenarios combining risk aversion and adjustment costs, showing that sufficiently high adjustment costs are essential to generate the observed negative relationship.These findings provide a simpler, testable alternative to literature relying on assumptions about unobservable factors like time-varying risk premiums, intermediary constraints, or noise trader activity.
Keywords:
Exchange Rates; Portfolio Balance; Uncovered Interest Parity; Portfolio Adjustment Costs; Risk Premium; Currency Markets; Expected Returns; excess return; portfolio adjustment; adjustment cost; portfolio balance framework; portfolio Inertia; Exchange rate adjustments; Return on investment; Currencies; Interest rate parity; Global
Cover IMF Working Papers
Foreign Exchange Intervention Under the Integrated Policy Framework: The Case of India
Jesper Lindé
,
Patrick Schneider
,
Nujin Suphaphiphat
, and
Hou Wang
This paper analyzes the effectiveness of foreign exchange intervention (FXI) in mitigating economic and financial shocks in India by applying the Integrated Policy Framework (IPF). It highlights how FXI can be a complementary tool in mitigating the tradeoff between output and inflation, specifically under large economic shocks amid temporarily shallow FX markets. The paper indicates that while FXI can soften adverse impacts on domestic demand and output during severe risk-off shocks, its benefits under normal conditions with liquid FX markets are limited.
Keywords:
Integrated policy framework; foreign exchange intervention; risk-off shocks; EM FX intervention proxy; RBI FX intervention; FX Market development; OTC FX turnover; rate Policy; Currency markets; Inflation; Central bank policy rate; Global
Cover IMF Working Papers
Identifying Determinants of FX Stability in Mozambique
Samuel Mann
and
Alexis Meyer-Cirkel
In early 2021, as monetary policy tightening reversed a multi-year trend of Metical depreciation, the exchange rate vis-à-vis the US dollar de facto stabilized. This report discusses elements of the market structure and other drivers of Metical stability since mid-2021. The particularities of Mozambique, a small open economy with an export sector that has a strong foreign currency cost structure, provide important insights into that discussion, as does the structure and development of the Foreign Exchange (FX) market.
Keywords:
Mozambique; Foreign Exchange Stability; Exchange Rate Regimes; Central Bank Policy; FX Market Structure; Market Intervention; FX stability; cost structure; development of the foreign exchange; reference rate; MZN exchange rate fluctuation; market participant; FX supply; Exchange rates; Currency markets; Currencies; Imports; Global
Cover IMF Staff Country Reports
The Federal Democratic Republic of Ethiopia: First Review Under the Extended Credit Facility Arrangement, Request for Modification of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia
International Monetary Fund. African Dept.
This paper presents Ethiopia’s First Review under the Extended Credit Facility (ECF) Arrangement, Request for Modification of Performance Criteria, and Financing Assurances Review. The Ethiopian authorities have shown strong commitment to their homegrown economic reform program. Implementation of ECF-supported reforms is advancing well. The transition to a market-determined exchange rate has been progressing well with a significant narrowing of the spread between the parallel and official market rate and no signs of significant inflationary pressures, albeit the supply of foreign exchange to the market has picked up more slowly than anticipated with some unmet demand persisting. Program performance has been in line with program commitments and all quantitative performance criteria were met, with an overperformance in the net international reserves target. Four out of five structural benchmarks (SBs) were met. The SB on the Emergency Liquidity Assistance framework was missed but is expected to be implemented in October, after incorporating feedback from IMF staff.
Keywords:
interest rate; IMF policy requirement; authorities' fiscal policy; authorities' monetary policy reform; FX market development; exchange market policy; ECF arrangement; Policy discussion; Exchange rates; Currency markets; Commercial banks; Global
Cover IMF Staff Country Reports
Vietnam: Selected Issues
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper overviews the different tools employed by the State Bank of Vietnam (SBV) and empirically analyzes the monetary policy transmission mechanism, comparing the effects from different SBV rate shocks. The results presented in this chapter indicate that the monetary policy’s interest rate channel affects main financial variables, but there are other factors in the transmission that curtail its effectiveness. In contrast, the transmission to inflation or industrial production is found to be generally weak, with only the combined repo/SBV bill rates generating a statistically significant effect. These findings stress the importance of modernizing SBV’s monetary policy framework to strengthen its transmission mechanism and better achieve its goals. Most central banks usually have one main policy rate employed to achieve one main objective and conduct open market operations to make the policy rate effective throughout the economy. Achieving this, along with a clear communication strategy that it is easy to understand would supply the SBV with a stronger monetary policy framework and greater ability to weather future eventual shocks.
Keywords:
sovereign bond market; Vietnam's government bond bond market; government bond market; Policy trade-off; market size; Sovereign bonds; Currency markets; Central bank policy rate; Securities markets; Inflation; Global; Southeast Asia
Cover Departmental Papers
Navigating External Shocks in Southeast Asia's Emerging Markets: Key Lessons and Challenges in Applying the IMF’s Integrated Policy Framework
Corinne C Delechat
,
Umang Rawat
, and
Ara Stepanyan
As relatively small open economies, South-East Asian emerging markets (Indonesia, Malaysia, Philippines and Thailand or ASEAN-4) are highly susceptible to external shocks—both financial and real—that could induce large capital flows and exchange rate volatility that could lead to foreign exchange market dysfunction. With the exception of Bank Negara Malaysia, ASEAN-4 central banks mostly have flexible inflation-targeting frameworks for monetary policy implementation. Their main policy objectives include medium-term price stability, sustainable economic growth, and financial stability. Central Banks in ASEAN-4 economies have been early pilots in the operationalization of the IMF’s Integrated Policy Framework (IPF) in 2022-23, given their experience in using multiple policy tools besides the monetary policy rate, including macroprudential measures, foreign exchange intervention (FXI), and capital flow management measures, to achieve their multiple objectives. They have welcomed the IPF as a systematic, frictions-based approach to analyze the use of these multiple tools to manage trade-offs across policy objectives. This paper takes stock of the experience from these pilots, both from the perspective of country authorities and of IMF country teams. It aims at distilling key lessons, which could be used to inform broader IPF operationalization. The IPF conceptual framework and a related quantitative model were used to assess policy trade-offs in ASEAN-4 in the event of adverse external shocks. These applications reaffirmed the importance of using monetary policy to address persistent inflationary pressures stemming from real shocks and allowing the exchange rate to act as a shock absorber. However, a complementary use of FXI could improve trade-offs between price, financial, and output stability when economies are faced with large and financial shocks that result in abrupt spikes in uncovered interest rate parity premia resulting in inefficiently tight financial conditions that could hurt growth or risking to de-anchor inflation expectations. The IPF pilots also highlighted some challenges faced when operationalizing IPF principles, notably regarding the assessment of frictions and shocks that might justify the use of FXI. In particular, country teams at times lacked sufficient information to adequately assess the extent of frictions. Moreover, the time-varying nature of IPF frictions and the non-linear effects of shocks make it difficult to assess situations when benefits of a complementary use of FXI would overweigh its costs.
Keywords:
ASEAN; foreign- exchange intervention; Inflation targeting; Integrated policy framework; capital flows; IPF pilot; market dysfunction; IMF country team; IPF model; Policy mix; IMF seminar participant; Currency markets; Exchange rates; Inflation; Southeast Asia; Global