The World Bank, IMF and BIS push for central bank cryptocurrencies to improve cross-border payments

G20
G20

  • The BIS, IMF and World Bank released a report on central bank digital tokens for the G20.
  • The report suggests CBDCs could make cross-border payments faster, cheaper, and more transparent.
  • However, countries must collaborate with one another as the implications “will go beyond borders,” the report said.
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Central bank digital currencies could vastly improve today’s international payments systems, according to a report by the World Bank, the International Monetary Fund and the Bank for International Settlements late last week.

The report, which the group sent to the G20, outlined that so-called CBDCs had the power to offer faster, cheaper, transparent and more inclusive cross-border payments than the traditional financial system. But, the group said, collaboration will be essential.

“Implications of CBDCs, even if only intended for domestic use, will go beyond borders, making it crucial to coordinate work and find common ground. If coordinated successfully, the clean slate presented by CBDCs might – in time and in combination with other improvements – be leveraged to enhance cross border payments,” the report said.

A CBDC is a digital currency issued by a central bank. CBDCs have already been issued by the Bahamas which launched the Sand Dollar and the Eastern Caribbean’s DCash.

The current system suffers from long transaction delays and can be costly because of all the systems in place across the world, according to the report. There is also a lack of transparency and traceability.

Central banks like the Federal Reserve, which is looking into a digital dollar, have said the tokens would not be completely anonymous to prevent fraud and money laundering. Account users would need identification to access a wallet for both retail and wholesale use.

There is the option of countries restricting the CBDC to residents only, such as is the case with China’s digital yuan.

With a number of countries considering their own CBDCs, there are still many unanswered questions around how new and existing infrastructures will co-exist, the impact on monetary policy and what role the private sector might play among others.

“In order to achieve the potential benefits for public welfare while preserving financial stability, further exploration on CBDC design choices and their macro-financial implications is essential,” the report said.

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IMF lifts US growth outlook for this year to 7%, says Fed may need to hike rates earlier than it expects

FILE PHOTO: The International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington, U.S., April 8, 2019. REUTERS/Yuri Gripas
FILE PHOTO: The International Monetary Fund (IMF) headquarters building is seen ahead of the IMF/World Bank spring meetings in Washington

  • The IMF raised its forecast for US growth to 7% for 2021, from the previously predicted 4.6%
  • The fund believes the Federal Reserve will need to hike interest rates in late 2022, or early 2023.
  • Last month, the Fed said it expected to raise rates in 2023, but individual policymakers expect earlier hikes.
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The International Monetary Fund has lifted its outlook for US economic growth to 7% for this year, and believes the Federal Reserve will raise interest rates by the end of 2022, as recovery takes root.

The IMF had previously anticipated an annual growth rate of 4.6% for this year. Should the US economy indeed by 7% in 2021 – as both the Fed and now the IMF expect – this would be the fastest expansion since 1984.

Kristalina Georgieva, the IMF managing director, said the improved outlook was based on the American Jobs and Families plans being implemented in line with the outlines presented by the Biden administration, as they appear likely to improve living and income standards in the long term.

“We believe that these two packages will add to near-term demand, raising GDP by a cumulative 5ΒΌ percent over 2022-24. And-perhaps more importantly-our assessment is that GDP will be 1 percent higher even after 10 years, thanks to the significant, positive effects on labor force participation and productivity introduced by these two plans.” she said in a report released on Thursday.

Biden’s infrastructure plan was also referenced in the IMF’s assessment. The bipartisan program allocates $1.2 trillion over the next five years to improving things such as roads, broadband access and education.

The IMF also said it expected US interest rates to rise more quickly than the Fed currently anticipates.

“Presuming staff’s baseline outlook and fiscal policy assumptions are realized, policy rates would likely need to start rising in late-2022 or early-2023,” the IMF said.

At its mid-June meeting, the Fed said it expected to raise interest rates by 2023. Several individual policymakers have however since said they expect monetary policy to tighten sooner than this.

The Fed’s more hawkish outlook initially fueled some concern among investors, particularly relating to the implications for the central bank’s highly accommodative monetary policy stance. Stocks wavered for a few weeks, but have since recovered and hit successive record highs in the last week. Government bond yields have fallen to around six-month lows, highlighting that investors trust the Fed’s ability to target inflation without derailing the economy.

Both the IMF and the Fed expect inflation to be transitory and short-term, rather than weigh on markets for a prolonged period of time.

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Richer countries have most available vaccine doses as the global recovery becomes K-shaped

vaccination
A woman receives the Johnson & Johnson vaccine in the US, which is ahead of vaccination compared to other countries.

  • The wealthiest countries are vaccinating 25 times faster than the poorest countries, per Bloomberg.
  • Wealthier countries were snapping up doses in November, creating a vaccine shortage.
  • Poorer countries may not have enough vaccine supply until 2024, a Duke University analysis found.
  • See more stories on Insider’s business page.

The vaccine race has intensified wealth inequality across the globe.

Bloomberg’s Vaccine Tracker found that the world’s wealthiest countries are vaccinating at 25 times the rate of the poorest countries. The database has thus far tracked more than 726 million doses administered in 154 countries.

So far, per the tracker, about 5% of the global population is able to get fully vaccinated. But the vaccines have been unevenly distributed, with 40% going to 27 wealthy countries that comprise 11% of the global population and 1.6% going to the countries comprising the poorest 11%.

Consider Pakistan. It has 2.7% of the world’s population, but has only received 0.1% of the vaccines. Meanwhile, the US, which accounts for 4.3% of the world’s population, has nearly a quarter of the world’s vaccines.

As of Thursday, the US has vaccinated nearly 20% of its population. It’s set to have enough vaccines for 75% of Americans by the end of June, per Bloomberg.

The pandemic has widened many wealth gaps

Patchy vaccine distribution is just the latest way the pandemic is exacerbating wealth inequality. In the US, the divide between the rich and the poor deepened as the economy’s recovery turned K-shaped, with higher-earning Americans recovering and lower-income Americans continuing to struggle.

From nabbing coronavirus tests when there was a shortage during the first stages of the pandemic to taking advantage of loopholes to get vaccinated early, the system has been working for the wealthy since the pandemic began.

The same dynamic has manifested on a global scale. While the global economy is expected to grow by 6% in 2021, according to IMF’s World Economic Outlook, that growth is projected to be uneven. Lower-income countries are expected to see an average annual loss of 5.7% per capita GDP from 2020 to 2024, but advanced economies will see a smaller loss of 2.3% in the same time frame.

“Recoveries are diverging dangerously across and within countries,” wrote Gita Gopinath, chief economist for the IMF.

Wealthier countries were snapping up “billions of doses” as early as November, reported The Washington Post’s Emily Rauhala, creating a supply shortage for poorer countries that could last until 2024.

She cited an analysis from researchers at Duke University’s Global Health Innovation Center that suggested these priority-supply deals between countries and drug manufacturers were undermining the World Health Organization’s initiative to equitably distribute vaccines.

The Biden administration committed $4 billion in February to Covax, a global vaccine alliance dedicated to ensuring equitable vaccine distribution, to help bolster the worldwide vaccine effort. More than 190 countries are participating.

“It’s unconscionable,” Zain Rizvi, an expert on access to medicine at Public Citizen, told Rauhala in a follow-up story. “Many countries will be lucky if by the end of the year they are close to where the US is now.”

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Germany is about to unveil a plan to rebuild Beirut port – but it’ll only happen if Lebanon roots out corruption: report

Beirut port blast damage
A general view shows the damage at the site of the blast in Beirut’s port area, Lebanon August 5, 2020

  • Germany is poised to present a plan to rebuild Beirut port, sources have told Reuters.
  • Lebanon remains in political and economic crisis since the port was rocked by a massive explosion.
  • Any funding offered for the project would be contingent on the country forming a stable government, sources told Reuters.
  • See more stories on Insider’s business page.

Germany plans to unveil a massive project to reconstruct the port of Beirut, but it would be conditional on Lebanon addressing rampant government corruption, sources have told Reuters.

The multi-billion-dollar reconstruction plan, which has not yet been financed, would be designed to attract cash from bodies such as the European Investment Bank (EIB) and the International Monetary Fund (IMF), sources told the news agency on Thursday.

Beirut’s port suffered catastrophe in August last year, when 2,750 tons of improperly-stored ammonium nitrate exploded, killing at least 100 people. The massive explosion, whose effects could be felt miles away, devastated much of the city.

The explosive material had been impounded after being seized from an abandoned cargo ship in 2014, and remained in storage until it ignited in the horrifying event, as Insider reported.

The country, which was already in the midst of a financial crisis, was left reeling.

Beirut
A view of the partially destroyed Beirut neighbourhood of Mar Mikhael on August 5, 2020 in the aftermath of a massive explosion in the Lebanese capital.

Two diplomatic sources with knowledge of the plans, who Reuters did not name, said the German government will make a multi-billion dollar proposal to rebuild the port and its surrounding area on April 7.

A senior Lebanese official, also unnamed, confirmed to the outlet that Germany was preparing a proposal for the port.

The German foreign ministry did not respond to Insider’s request for comment, nor to one from Reuters.

Both Germany and France have been competing for the opportunity to become involved, Reuters said. In February, a German company was assigned to safely remove the hazardous materials that remain at the port, as Voice of America reported.

Germany’s offer, which would cost between $5-15 billion, does not have financing yet – and to get it, the country must form a government capable of fending off financial collapse, the sources told Reuters.

There would be “strings attached,” one source said.

“Germany and France want first to see a government in place committed to implementing reforms,” the source added. “There is no other way around it and this is good for Lebanon.”

An EIB spokesperson told Reuters no funding had been confirmed, adding the bank “stands ready” to help – as long as due diligence was followed.

In the immediate aftermath of the explosion, Lebanon’s entire government quit, as the BBC reported at the time. Its cabinet has stayed on in a caretaker capacity, but Prime Minister designate Saad al-Hariri and President Michel Aoun have not been able to form a cabinet, Reuters reported.

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The IMF lifts its global growth forecast with vaccination and stimulus likely to be a shot in the arm

Kristalina Georgieva
IMF Managing Director Kristalina Georgieva speaks at a press conference in Washington D.C., the United States, on March 4, 2020.

  • The IMF will lift its forecast for global economic growth in a report set for release next week.
  • Vaccination and new US stimulus were grounds for the upgrade, the IMF’s managing director said.
  • Still, developing economies are recovering far slower than advanced countries, she added.
  • See more stories on Insider’s business page.

The International Monetary Fund will lift its projections for global economic growth in the wake of encouraging vaccination trends and major new stimulus in the US, Managing Director Kristalina Georgieva said Tuesday.

The IMF will roll out an upgraded set of forecasts for this year and for 2022 next week when it publishes its World Economic Outlook report, she said. The organization’s January estimates saw global output growing 5.5% in 2021 after a forecasted tumble of 3.5% the previous year. The months since have seen COVID-19 cases fall from their peaks, vaccine rollouts begin, and $1.9 trillion in new fiscal support from the Biden administration.

The developments all stand to boost global economic recoveries through the summer, Georgieva said in prepared remarks.

“This allows for an upward revision to our global forecast for this year and for 2022,” she said.

Without “extraordinary effort” from essential workers and scientists, the global recession seen through most of 2020 would have been “at least three times worse,” the managing director added.

The news isn’t all good. Georgieva highlighted that, despite the broadly improved outlook, the global recovery remains uneven and gaps between countries could widen in the coming months. The US and China are likely to reach pre-pandemic levels of gross domestic product by the end of the year, but “they are the exception, not the rule,” she said.

New virus strains in Europe and Latin America are fueling high uncertainty about the region’s prospects. Emerging and developing countries also endured a 20% drop in per-capita income, roughly twice that seen in advanced economies. The plunge leaves emerging countries with a much harder climb back to pre-crisis health.

“They already have more limited fiscal firepower to fight the crisis. And many are highly exposed to hard-hit sectors, such as tourism,” Georgieva said

One upgrade among many

The IMF joins a handful of other institutions turning more bullish toward the US and global rebounds. Fitch lifted its own forecast for global expansion on March 18 to 6.1% from 5.3%, similarly citing stimulus and progress toward reopening. The estimate implies the strongest year of global growth since at least 1980.

US growth will outperform slightly at 6.2%, Fitch said. That’s up from the previous estimate of 4.5%.

“It still looks reasonable to assume that the health crisis will ease by midyear, allowing social contact to start to recover. But immunization delays or problems remain the key risk,” the firm said.

Wall Street giants have also boosted their estimates in recent weeks. Morgan Stanley is among the most bullish, lifting its US growth estimate to 8.1% in 2021 from 7.6% in an early March note. The forecast also calls for US GDP to reach pre-pandemic levels by the end of the first quarter.

Bank of America raised its 2021 US growth estimate to 7% from 6.5% on Thursday, marking its fourth upgrade this year alone. The revision was entirely linked to Democrats’ new stimulus measure and the “exceptional consumer spending” seen among those receiving relief checks, the team led by Michelle Meyer wrote.

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