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Business and Economics > Finance: General

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Cover FinTech Notes
Positioning Central Bank Digital Currency in the Payments Landscape
Manisha Patel
,
Safari Kasiyanto
, and
Andre Reslow
The IMF is frequently approached by central banks seeking guidance on the balance between central bank digital currency (CBDC), fast payment systems (FPS), and electronic money (e-money) solutions. Common questions arising include: Do central banks need a CBDC when already equipped with other well-established digital payments systems? For central banks with less-developed solutions: Should central banks establish one system over the other? This discussion is then compounded by the reality of constrained resources. This note focuses on the comparison of retail CBDC—that is, the presence of digital central bank money available to the general public—with FPS and e-money systems from a payments perspective, and how CBDC may support a jurisdiction’s vision on payments in the digital age. The note does not seek to advocate for CBDC over an FPS or e-money. The balance of arguments for any one system may change over time, and the choice may not be mutually exclusive in many jurisdictions. In the future, it is possible to envisage the coexistence of an FPS, e-money, and CBDC in many payment landscapes across the world. Through good design, all three systems could meet central bank objectives such as payments efficiency and supporting financial inclusion; some benefits are unique to CBDC, such as maintaining access to central bank money in an increasingly digitalized age. While central banks will make choices unique to their circumstances, it remains important for central banks to establish a strategy that allows them (at minimum) to monitor trends and core benefits of multiple solutions as developments occur, to allow them to plan, adapt, and drive developments in their payments landscape.
Keywords:
CBDC; Central bank digital currency; central bank; fast payments; FPS; e-money; digital currencies; digital payments; payment systems; Annex I. payment system case; positioning central bank digital currency; IMF Fintech Note 2024/006; infrastructure provider; payment infrastructure; Central Bank digital currencies; Monetary base; Digital financial services; Global
Cover IMF Working Papers
Sovereign Green Bonds: A Catalyst for Sustainable Debt Market Development?
Gong Cheng
,
Torsten Ehlers
,
Frank Packer
, and
Yanzhe Xiao
In traditional bond markets, sovereign bonds provide benchmarks and serve as catalysts for the corporate bond market development. Contrary to the usual sequence of bond market development, sovereign issuers are latecomers to sustainable bond markets. Yet, our empirical study finds that sovereign green bond issuance can have quantitative and qualitative benefits for the development of private sustainable bond markets. Our results suggest that both the number and the size of corporate green bond issuance increase more in a jurisdiction after the sovereign debut. The results are more pronounced in countries with stronger climate policies. Sovereign green bond issuance also improves the quality of green verification standards in the corporate bond market more generally, consistent with the aim of fostering third-party reviews and promoting best practice in green reporting and verification. Finally, our work provides evidence that the sovereign debut increases liquidity and diminishes yield spreads of corporate green bonds in the same jurisdiction.
Keywords:
Green bonds; sustainable bonds; sovereign debt; taxonomies; green verification; bond market development; bond issuance; corporate bond bond market; issuance increase; sustainable bond markets; Climate finance; Corporate bonds; Sovereign bonds; Securities markets; Bond yields; Global; East Asia
Cover IMF Staff Country Reports
Sweden: 2024 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. European Dept.
The 2023 Article IV Consultation discusses that the Swedish economy has slowed appreciably. Gross domestic product is estimated to have declined by 0.3 percent in 2023, driven by declining private consumption and residential investment, amid a significant tightening of financial conditions and eroding real incomes. Activity is expected to remain subdued during 2024 and pick up gradually thereafter. The labor market is showing signs of cooling, and employment growth has moderated. Wage growth has been modest. Private credit is declining, and real estate and equity prices have fallen from their 2022 peaks. Corporate bankruptcies have picked up sharply. In particular, the commercial real estate sector is severely hit, with highly leveraged and lowered-rated firms seeing their debt-carrying capacity indicators deteriorate significantly. The banking system remains resilient with strong profitability and sizeable capital and liquidity buffers. Structural reforms will be instrumental to strengthen medium-term growth and support social inclusion and the green transition. Efforts focused on upskilling and education opportunities and strengthening working incentives are welcome.
Keywords:
liability positions vis-à-vis nonresident; money market rate; inflation risk; inflation expectation; HICP inflation; Inflation; Government finance statistics; Fiscal stance; External sector statistics; Global; Europe
Cover IMF Staff Country Reports
Nordic-Baltic Regional Report: Technical Assistance Report-Nordic-Baltic Technical Assistance Project Financial Flows Analysis, AML/CFT Supervision, and Financial Stability
International Monetary Fund. Legal Dept.
This paper presents a regional report on Nordic-Baltic technical assistance project: financial flows analysis, Anti-Money Laundering and combating the Financing of Terrorism (AML/CFT) Supervision, and Financial Stability. The purpose of the project is to conduct an analysis of cross-border ML threats and vulnerabilities in the Nordic-Baltic region—encompassing Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway, and Sweden (the Nordic-Baltic Constituency or NBC)—and issue a final report containing recommendations for mitigating the potential risks. The financial flows analysis presented in this report is based on the IMF staff’s analysis of cross-border payments data. Six out of the eight Nordic-Baltic countries have seen an increase in aggregate flows since 2013. Monitoring cross-border financial flows provides countries with a deeper understanding of their external ML threat environment and evolving cross-border related risks they are facing. Leveraging broader analysis of ML/TF cross-border risk, the Nordic-Baltic countries should develop their own understanding of higher-risk countries reflecting country-specific ML/TF threats.
Keywords:
TF risk assessment; colleges participation; TF risk; EU Anti-Money Laundering Authority; supervisory cooperation; information Sharin; Anti-money laundering and combating the financing of terrorism (AML/CFT); Virtual currencies; Correspondent banking; Internal controls; Financial sector stability; Baltics; Global
Cover IMF Working Papers
Reported Social Unrest Index: August 2023 Update
Mr. Philip Barrett
and
Euihyun Bae
This paper is the second update of the Reported Social Unrest Index (Barrett et al. 2022), outlining developments in global social unrest since March 2022. It shows that the fraction of countries experiencing major social unrest events has been stable. Reasons for social unrest can be broadly categorized as stemming from sdebate over constitutional issues, protests connected to specific policies, and other generalized disorder.
Keywords:
attempts to proxy; fraction of country; copyright page; update of the Reported Social Unrest Index; IMF surveillance; Pension spending; Machine learning; Pension reform; Stock markets; COVID-19; Global
Cover IMF Staff Country Reports
Switzerland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper on Switzerland focuses on assessing Swiss National Bank (SNB) balance sheet changes in 2022. This paper clarifies the main underlying drivers, discusses potential implications, or lack thereof, on monetary and fiscal policies, and assesses the SNB’s financial performance. Central banks’ financial results are not directly comparable with each other, given their non-profit nature, the differences in their mandates and, importantly, their different accounting policies. In particular, many other central banks would have recorded much larger financial losses in 2022 if mark-to-market accounting were applied. The SNB’s financial loss in 2022 is not expected to have an impact on monetary policy operations. The SNB has appropriately warned about risks to its balance sheet, including during periods of high profitability. In addition, the SNB put in place sound safeguards against such risks, and provided transparent communications on its investment strategy. Nevertheless, large balance sheets are subject to risks, highlighting communication challenges during periods of both large profits and losses. In this context, the SNB should continue to regularly review its investment strategy and maintain adequate safeguards.
Keywords:
ECB monetary policy; monetary policy shock; SNB balance sheet; Switzerland NBFIs; mitigation target; Greenhouse gas emissions; Stock markets; Nonbank financial institutions; Climate policy; Global; Europe
Cover IMF Staff Country Reports
Sweden: Financial Sector Assessment Program–Technical Note on Stress Testing of the Financial Sector
International Monetary Fund. Monetary and Capital Markets Department
This paper presents the technical note on risk analysis and stress testing for the Sweden financial sector assessment program. Sweden’s financial system has weathered the coronavirus disease 2019 pandemic well. Tighter monetary conditions will test the financial system. High corporate advantage and household debt create structural and cyclical risks to the financial system. Corporate sector and banking system solvency stress tests based on the adverse scenario indicate pockets of vulnerabilities due to exposure to CREs and low risk weight density of banks. The liquidity stress test performed on investment funds points to significant pressures. Given the identified vulnerabilities and shortcomings, several adjustments are recommended to improve monitoring, quantification, and mitigation of risks. Price- and quantity-based measures should be deployed as a second line of defense. Finansinspektionen should provide guidance on liquidity stress tests for the fund industry; develop and adapt the stress-testing framework and monitoring tools to conduct market wide liquidity risk analysis.
Keywords:
risk analysis; liquidity shortfall; liquidity tracking; liquidity profile; liquidity shock; Stress testing; Liquidity stress testing; Mutual funds; Corporate bonds; Liquidity; Global
Cover IMF Staff Country Reports
Sweden: Financial Sector Assessment Program–Technical Note on Crisis Management and Resolution
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses the technical note on Crisis Management and Resolution for the Sweden financial sector assessment program. The Swedish financial safety net and crisis management arrangements rest on sound foundations and have been strengthened further by legislative and policy reforms in the financial sector. Developing crisis management capacity within and between agencies is required to ensure credible crisis management plans, including for bank resolution. On preparing for future bank failure, banks are yet to remove known barriers to resolvability, including reporting capabilities on resolution valuation, funding in resolution, and operational services dependencies. The Riksbank should improve market transparency by publishing a policy framework describing the central bank’s lender of last resort bilateral liquidity facilities’ capability for crisis management purposes, including funding in resolution. The Ministry of Finance should work to improve the operational independence of the SNDO by updating its funding arrangements.
Keywords:
implementing resolution; EU bank recovery; capital markets department; crisis simulation exercise; bank Resolvability; EU Economic; authority crisis coordination; Crisis management; Bank resolution framework; Bank resolution; Crisis resolution; Crisis management framework; Baltics; Global
Cover IMF Staff Country Reports
Sweden: Financial Sector Assessment Program–Technical Note on Macroprudential Policy
International Monetary Fund. Monetary and Capital Markets Department
This paper highlights the technical note on Macroprudential Policy for the Sweden financial sector assessment program. The increase in market-based finance challenges macroprudential policy. Tools are not yet well developed for borrower-based measures beyond those applying to lending to households, and many market based finance participants are outside national regulatory perimeters. The authorities should make more use of ‘soft power’ and joint communication, especially when risks become more systemic, as with market-based finance. There are still data gaps for almost all sectors. Finansinspektionen and the Riksbank need to better model tail risk, spillovers, and interconnectedness. As the financial system becomes increasingly complex and interlinked with the risk of market-based finance, the need for these models will increase. Short of introducing new borrower-based measures to curb market funding, Commercial Real Estate firms should be made to improve their disclosures, including on contingency plans when market funding dries up.
Keywords:
Sweden FSAP; capital markets department; Macroprudential authority; FSAP's finding; risk modeling; Financial sector stability; Systemic risk; Mortgages; Macroprudential policy; Financial sector risk; Global; Baltics
Cover IMF Staff Country Reports
Sweden: Financial Sector Assessment Program–Technical Note on Basel Core Principles for Effective Banking Supervision
International Monetary Fund. Monetary and Capital Markets Department
The paper highlights a technical note on Basel Core Principles (BCP) for Effective Banking Supervision for the Sweden financial sector assessment program. The authorities have adopted a number of regulatory reforms to enhance the resilience of the Swedish financial system. The key changes to the legal framework for banks and banking supervision in Sweden have mainly been a direct result of legal initiatives at European Union level. The supervisory framework for banks and its implementation in Sweden is broadly in line with a number of the BCP essential criteria. However, several gaps should be addressed, to enhance the effectiveness of banking supervision in Sweden and to contribute toward ensuring a safe financial system. Most of the shortcomings that have been identified are attributable to gaps in the legal or regulatory frameworks and to significant resource constraints within the banking supervision function at Financial Supervisory Authority (FI). Sweden has a relatively efficient supervisory framework that has evolved over the years, but which requires enhancements to align with best practice. FI’s supervision follows a risk-based approach, where most of its resources are devoted to the largest institutions and significant branches in Sweden. The principle of disclosure and transparency is well established in the Swedish context.
Keywords:
Sweden FSAP; financing business act; Risk mitigation program; due diligence; FI's regulation; securities commission; Tier 1; Credit risk; Credit; Market risk; Operational risk; Stress testing; Baltics; Europe; Global