BIZweek n°323 1er jan 2021
BIZweek n°323 1er jan 2021
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  • Parution : n°323 de 1er jan 2021

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 6

  • Taille du fichier PDF : 2,5 Mo

  • Dans ce numéro : risque économique au-delà de la crise Covid.

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VENDREDI 01 JANVIER 2021 BIZWEEK ÉDITION 323 Dominant currencies There are niany national currencies, but few are widely used globally. Q f vsc s Fal FI., Pour,/Foreign Exchange Re301,.er $purpes  : eank -bpi'International $ettlernerm ; Gopirrath.(20$), The International Plice $ystem, NBER Working Paper No21646 ; IMF, Curreecy Composition. of Official Foreign Exchange Reserves (COFER) clatabase ; and IMF staff calculatioes. Data art as of 2919 or mass recent. Imports invoi.cing exc Iodesidennfied curfency. I NTERNATIONALMON ETA R Y FUN D ACTA PUBLICA GLACIERS OF GLOBAL FINANCE The Currency Composition of Central Banks’Reserve Holdings The currencies that are being held by central banks as foreign exchange reserves have remained largely steady over decades. Changes in the composition of these holdings can, at best, be described as glacial in pace. But geopolitical shifts and technological revolutions are reshaping the global economy and the international use of currencies. These forces, and the fallout from the COVID-19 pandemic, could further accelerate the transformations in the reserve holdings of central banks There are currently around 180 national currencies, but only a few are widely used for international transactions, such as invoicing, paying for imports, and issuing debt or investing abroad. These currencies are the U.S. dollar, the euro, and, to a lesser extent, the Japanese yen, the British pound, and a few others. When crises hit, companies and investors usually seek safety in dollars. Central banks have long held international reserves in these same currencies. This is unsurprising as reserves are intended to backup international transactions as described above, allowing country authorities to finance balance of payments needs, intervene in foreign exchange markets, and provide foreign exchange to domestic agents. The slow pace of change in reserve holdings Building on a novel dataset, a new IMF staff paper analyzes the composition and drivers of central banks’reserve currency holdings over recent decades, and how these drivers have changed. One key finding is that, given the dollar’s (and to some extent, the euro’s) international dominance, to date, any shifts in central bank reserve holdings have been minimal. For example, despite China’s growing role in the global economy, the Chinese renminbi has gained only a small foothold in global transactions, such as issuing foreign debt or trading in the global foreign exchange market. The paper also found that financial links seem to be a key driver of reserve currency holdings, and increasingly so in the last decade. This would suggest that, as long as the dollar continues to dominate global finance and trade, its dominance as a reserve currency looks set to endure. But, just as slow-moving glaciers can sometimes unexpectedly surge forward, the currency composition of reserve holdings has the potential to undergo a sudden, unexpected, and accelerated transformation. The future of reserve currencies Our paper suggests a number of economic and financial trends that could impact the future composition of reserve holdings. Geopolitical and technological developments might prove as significant as economic considerations, and, together with the current COVID-19 pandemic, could accelerate future transformations. Potential drivers of change include  : Shifts in international finance  : the strong response to the European Commission’s large-scale bond issuance in October highlights potential demand for alternatives to dollar-denominated debt. Emerging market and developing countries could also issue more debt in the currencies of emerging creditors, such as China, to help meet increased financing needs. Our paper finds that the currency denomination of public debt is an especially important determinant of emerging market and developing countries’reserve holdings, likely reflecting central banks’desire to hedge against risks associated with debt obligations. Changing trade links and invoicing practices could also alter demand for international currencies. Both the pandemic and recent trade tensions have highlighted the fragility of global supply chains. Countries are now more interested than ever in ensuring critical supplies. A shift toward localized production would reduce the demand for international currencies. Meanwhile, lower reliance on any single trading partner might diversify demand for currencies. The recent conclusion of the Regional Comprehensive Economic Partnership in Asia – a free trade agreement between fifteen nation states in the region – may signify a larger role for alternate currencies that currently account for a small share in international reserves. The credibility of the policies of debt-issuing countries is fundamental for trust in their currencies. The COVID-19 pandemic has highlighted the need for current and potential issuers to enact sound health and economic policies to preserve their growth potential. The international use of currencies can also reflect strategic considerations. For instance, reserve currency portfolio decisions may be influenced by foreign policy considerations and security ties. The fallout from trade tensions and international sanctions can prompt countries to consider changes in their reserve holdings and potential issuers to seek to internationalize their currencies. The pandemic has accelerated advances in financial and payment technologies. Potential competition from private issuers such as Diem – Facebook’s blockchain-based payment system – has spurred major central banks to accelerate work on central bank digital currencies and cross-border payments. The European Central Bank and People’s Bank of China, among others, are exploring the issuance of central bank digital currencies which could increase demand for their currencies. Superior technology platforms could also help new currencies overcome some of the advantages of incumbent currencies. Depending on the adoption and use of public or private digital money, central banks might have to rethink what constitutes, and how to hold, reserves going forward. There is currently no sign of major shifts in the composition of central bank reserve currencies. However, the glacial pace of change over recent decades should not be taken as an indication of the future. There is considerable uncertainty around global economic and financial trends, as wellas geopolitical and technological developments, and so scope for more dynamic transformation in the future. A Paper by the IMF’s IMF’s Strategy, Policy, and Review Department. Authors  : ALINA IANCU, Deputy Unit Chief ; NEIL MEADS, Senior Economist ; MARTIN MÜHLEISEN, former Director ; YIQUN WU, Economist 4
VENDREDI 01 JANVIER 2021 BIZWEEK ÉDITION 323 CRISTIAN ALONSO (economist in the IMF’s Fiscal Affairs Department) SIDDHARTH KOTHARI (economist in the IMF’s Asia and Pacific Department) SIDRA REHMAN (economist in the IMF’s Middle East and Central Asia Department) week ADMINISTRATION Jessie Bappaya MARKETING ET PUBLICITÉ Emall  : 5. Antonio-Street, Port Look (+230)2211744 2141743 I Fax:IA-230)2/3744 Ernail  : FUTURE How Artificial Intelligence Could Widen the Gap Between Rich and Poor Nations New technologies like artificial intelligence (AI), machine learning, robotics, big data, and networks are expected to revolutionize production processes, but they could also have a major impact on developing economies. The opportunities and potential sources of growth that, for example, the United States and China enjoyed during their early stages of economic development are remarkably different from what Cambodia and Tanzania are facing in today’s world Results from a Model Our model looks at two countries (one advanced, the other developing) that both produce goods using three factors of production  : labor, capital, and « robots. » We interpret « robots » broadly, to encompass the whole range of new technologies mentioned above. Our main assumption is that robots substitute for workers. The AI revolution in our framework is an increase in the productivity of robots. We find that divergence between developing and advanced economies can occur along three distinct channels  : share-in production, investment-flows, and terms-of-trade. Share-in-production  : Advanced economies have higher wages because total factor productivity is higher. These higher wages induce firms in advanced economies to use robots more intensively to begin with, especially when robots easily substitute for workers. Then, when robot productivity rises, the advanced economy will benefit more in the long run. This divergence grows larger, the more robots substitute for workers. Investment-flows  : The increase in productivity of robots fuels strong demand to invest in robots and traditional capital (which is assumedto be complementary to robots and labor). This demand is POST SCRIPTUM The International Monetary Fund’s (IMF) recent staff research finds that new technology risks widening the gap between rich and poor countries by shifting more investment to advanced economies where automation is already established. This could in turn have negative consequences for jobs in developing countries by threatening to replace rather than complement their growing labor force, which has traditionally provided an advantage to less developed economies. To prevent this growing divergence, policymakers in developing economies will need to take actions to raise productivity and improve skills among workers larger in advanced economies due to robots being used more intensively there (the « share-in-production » channel discussed above). As a result, investment gets diverted from developing countries to finance this capital and robot accumulation in advanced economies, thus resulting in a transitional decline in GDP in the developing country. Terms-of-trade  : A developing economy will likely specialize in sectors that rely more on unskilled labor, which it has more of compared to an advanced economy. Assuming robots replace unskilled labor but complement skilled workers, a permanent decline in the terms of trade in the developing region may emerge after the robot revolution. This is because robots will disproportionately displace unskilled workers, reducing their relative wages and lowering the price of the good that uses unskilled labor more intensively. The drop in relative price of its main output, in turn, acts as a further negative shock, reducing the incentive to invest and potentially leading to a fall not just in relative but in absolute GDP. Robots and wages Our results critically depend on whether robots indeed substitute for workers. While it may be too early to predict the extent of this substitution in the future, we find suggestive evidence that this is the case. In particular, we find that higher wages coincide with significantly higher use of robots, consistent with the idea that firms substitute away from workers and towards robots in response to higher labor costs. Implications Improvements in the productivity of robots drive divergence between advanced and developing countries if robots substitute easily for workers. In addition, those improvements will tend to increase incomes but also increase income inequality, at least during the transition and possibly in the long run for some groups of workers, in both advanced and developing economies. There is no silver bullet for averting divergence. Given the fast pace of the robot revolution, developing countries need to invest in raising aggregate productivity and skill levels more urgently than ever before, so that their labor force is complemented rather than substituted by robots. Of course, this is easier said than done. In our model, increases in total factor productivity—which account for the many institutional and other fundamental differences between developing and advanced countries not captured by labor and capital inputs— are especially beneficial as they incentivize more robots and physical capital accumulation. Such improvements are always beneficial, but the gains are stronger in the context of the AI revolution. Our findings also underscore the importance of human capital accumulation to prevent divergence and point to potentially different growth dynamics among developing economies with different skill levels. The landscape is likely going to be much more challenging for developing countries which have hoped for high dividends from a much-anticipated demographic transition. The growing youth population in developing countries was hailed by policymakers as possibly a big chance to benefit from a transition of jobs from China as a result of its graduating middle-income status. Our findings show that robots may steal these jobs. Policymakers should act to mitigate those risks. Especially in the face of these new technologically-driven pressures, a drastic shift to rapidly improve productivity gains and invest in education and skills development will capitalize on the much-anticipated demographic transition. 5

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