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Dear maria, We just published a new blog—please find the full text below.  Mounting Cyber Threats Mean Financial Firms Urgently Need Better Safeguards (Credit: Peter Nguyen/Unsplash) By Tobias Adrian and Caio Ferreira Cyber attackers continue to target the financial sector. What will happen when an attack takes down a bank or other critical platform, locking users out of their accounts? Tight financial and technological interconnections within the financial sector can facilitate the quick spread of attacks through the entire system, potentially causing widespread disruption and loss of confidence. Cybersecurity is a clear a threat to financial stability. Among emerging market and developing economies, most financial supervisors haven’t introduced cybersecurity regulations or build resources to enforce them, according to a recent IMF survey of 51 countries. We also found: 56 percent of the central banks or supervisory authorities do not have a national cyber strategy for the financial sector. 42 percent lack a dedicated cybersecurity or technology risk-management regulation, and 68 percent lack a specialized risk unit as part of their supervision department. 64 percent do not mandate testing and exercising cyber security measures or provide further guidance. 54 percent lack a dedicated cyber incident reporting regime. 48 percent do not have cybercrime regulations. Meanwhile, a Bank for International Settlements assessment of 29 jurisdictions identified shortcomings in the oversight of financial markets infrastructures. There are, however, defenses against these risks, including preparation and concerted regulatory action, as we discussed at our recent global cybersecurity workshop in Washington. It won’t be easy though, and comprehensive and collective responses are urgently needed. Proliferating threats Just as rapid technological advances offer attackers tools that are cheaper and easier to use, so too do the changes give financial institutions greater ability to thwart them. Even so, greater vulnerabilities are to be expected in an increasingly digitalized world. Targets proliferate as more systems and devices are connected. Fintech firms that rely heavily on new digital technologies can make the financial industry more efficient and inclusive, but also more vulnerable to cyber risks. The escalation of geopolitical tensions has also intensified cyberattacks. Perpetrators and their motivation are often obscure, and the risks are not limited to regions of conflict. History shows that spill-over of disruptive malware can cause global damage. For instance, the NotPetya malware attack that first swamped the IT systems of Ukrainian organizations in 2017 quickly spread to several other countries and caused damages estimated at more than $10 billion. Finally, reliance on common service providers means attacks have a higher probability of having systemic implications. The concentration of risks for commonly used services, including cloud computing, managed security services, and network operators, could impact entire sectors. Losses can be high and become macro critical. While financial firms and regulators are becoming more aware of, and prepared for, attacks, gaps in the prudential framework remain substantial. Neutralizing the threat Financial institutions and regulators must prepare for heightened cyber threats and potential successful breaches by prioritizing five things: Central banks, regulators, and financial firms must develop a cybersecurity strategy. Cyber risk is a multi-dimensional issue that requires sound security within authorities; robust oversight through regulation and supervision; collective action within the market; and efforts to build capacity and expertise. Financial regulators and firms need to shift their focus from classic business continuity and disaster recovery planning, to delivering critical services even when attacks disrupt normal operations. Resilience requires buy-in from the top leaders of companies and financial regulators and their board members. Firms need to prepare for severe but plausible incidents that can have a systemic impact. Supervisors should require the industry to consider such adverse scenarios and test their contingency plans both individually and collectively. Financial supervisors need to ensure that cyber regulation and supervision can effectively promote resilience. There is no one-size-fits-all approach, but many elements are common. An effective supervisory approach balances onsite and offsite activities, performed by a mix of security experts and generalist supervisors, who enforce regulation in a proportional manner. Financial firms must strengthen cyber “hygiene,” secure-by-design systems, and response and recovery strategies. While many of today’s attacks are increasingly sophisticated and rely on social engineering to get a victim to provide sensitive information, most successful attacks are the result of routine lapses—such as failing to deploy patch updates or make the correct security configurations. In this context, habitual practices for ensuring the safe handling of critical data and for securing networks makes all the difference. The international community must harmonize cyber incident reporting and effective information sharing to ensure authorities around the world can manage incidents effectively. The model for incident reporting and the common lexicon being developed by the Financial Stability Board are important steps forward. Cross-jurisdictional risk The strength of cyber defenses depends on the weakest link. With growing interconnections across the world, curbing risk requires an international effort. For its part, the IMF continues to help financial supervisors through capacity development initiatives aimed at designing and implementing international standards and best practices as an urgent priority. New Worries for Central Bankers (Credit: Pete Reynolds) By Gita Bhatt “The job of the central bank is to worry.” That’s how Alice Rivlin, vice chair of the Federal Reserve Board in the 1990s, described the work of monetary policymakers. Back then, central bankers had one main concern: to keep inflation in check. Now, inflation is one of several worries facing central banks. A rapidly changing economic backdrop leaves less maneuvering room for policy, while structural forces—from deglobalization to climate change, aging populations, and the advent of digital money—have greatly complicated the underlying policy challenge. Central bank mandates and even their independence are under increasing political pressure. These new forces and others raise questions about how monetary policy may have to change going forward. In our latest issue of Finance and Development magazine, distinguished contributors offer insights on how central bankers can navigate an increasingly complex world. The IMF’s Gita Gopinath details how economists need improved tools after existing models missed the recent inflation surge. Masaaki Shirakawa, former governor of the Bank of Japan concurs, noting that it’s time to reconsider the foundation and framework for monetary policy, paying attention to national differences. Princeton's Markus Brunnermeier argues that in a post-pandemic world with higher inflation, lower growth, and more debt, central banks are still pursuing policies modelled for the days of tepid inflation, low interest rates, and robust growth. How, then, should central bank frameworks and mandates change? Less is more, says Raghuram Rajan, former governor of the Reserve Bank of India. He explains why central banks should refocus on their primary role, price stability, while respecting financial stability. For Giancarlo Corsetti of the European University Institute, exceptional circumstances such as the pandemic may call for monetary and fiscal authorities to work together—but only temporarily and never at the cost of their independence.  David G. Blanchflower and Andrew T. Levin of Dartmouth college suggest ways central bankers can avoid the temptation of groupthink, which can threaten their credibility. Academics Greg Kaplan, Benjamin Moll, and Giovanni Violante show how new economic models help us understand monetary policy's influence on income and wealth distribution. Using a series of surveys, University of Chicago’s Michael Weber reveals how better monetary policy communications can shape expectations. Elsewhere in the issue, we hear from other central bankers. The European Central Bank’s Philip Lane discusses euro area inflation and the challenge of shrinking its balance sheet. Lesetja Kganyago, Governor of the South African Reserve Bank, Sukudhew Singh, former Deputy Governor at Bank Negara Malaysia, and Leonardo Villar, Governor of Colombia’s central bank provide their take on the interaction of fiscal and monetary policy, foreign exchange intervention, and inflation targeting, respectively. In a wide-ranging interview, Karnit Flug, former Governor of the Bank of Israel, and its first female head, talks about the importance of central bank accountability and transparency. Economics as a discipline is evolving in a highly uncertain era—one that demands reflection on models, customs, and assumptions. I hope you find this issue thought-provoking and one that helps spark further debate. Thank you, as ever, for reading us. Jeff Kearns Managing Editor IMF Blog jkearns@IMF.org   Thank you again for your interest in IMF Blog. Read more of our latest content here. Take good care!

(Photo: IMF Photo) While the currency values of today’s economic powerhouses help maintain global financial stability, the currency systems in the 19th century were tied to precious metals and France played the stabilizing role. In the early 1800s, most countries tied their currencies to silver or gold, but Napoleon tied the French franc to both, which sparked the era of global bimetallism. IMF economist Johannes Wiegand has studied bimetallism, and in this podcast, he says this almost-forgotten 19th-century episode shows that international cooperation is essential for a stable global monetary system. Read the article in our latest issue of Finance & Development. Johannes Wiegand is an advisor in the IMF’s Strategy, Policy, and Review Department.   Listen to the podcast on: IMF.org | Apple Podcasts | Spotify | Libsyn |  Soundcloud | Google Podcasts | Amazon Music   Read the transcript     Thanks for listening to the podcast. We're always looking to improve your experience so let us know if you have any suggestions! Send your comments to me at bedwards2@imf.org.   Bruce Edwards

F&D March 2023 Issue: New Directions for Monetary Policy (Credit: Pete Reynolds) Dear maria, With inflation dynamics resulting from the COVID-19 pandemic and Russia’s invasion of Ukraine forcing a re-think of how central banks conduct monetary policy, the March 2023 edition of F&D Magazine looks at New Directions for Monetary Policy. “A rapidly changing economic backdrop leaves less maneuvering room for policy, while structural forces—geopolitical fragmentation, climate change, an aging workforce, and the advent of digital money—have greatly complicated the underlying policy challenge,” writes F&D editor-in-chief Gita Bhatt. “Central bank mandates and even their independence are under increasing political pressure. These new forces and others raise questions about traditional economic policy models.” Our authors—from the IMF, central banks, academia, and beyond—present a range of views on analyzing inflation trends, central bank roles and regimes, monetary policy toolkits, inflation expectations, and much more.  We hope this issue offers a thought-provoking read. FEATURED ARTICLES: Crisis and Monetary Policy | Gita Gopinath Rethinking Monetary Policy in a Changing World | Markus K. Brunnermeier Less is More | Raghuram Rajan Time for Change | Masaaki Shirakawa The Costs of Misreading Inflation | Jonathan Ostry How We Missed the Recent Inflation Surge | Christoffer Koch and Diaa Noureldin The Very Model of Modern Monetary Policy | Greg Kaplan, Benjamin Moll, and Giovanni L. Violante Diverse Views in Monetary Policy | David G. Blanchflower and Andrew T. Levin An Unconventional Collaboration | Giancarlo Corsetti Shaping Expectations | Michael Weber Monetary Policy Under Test | Claudio Borio Perspectives from Emerging Markets: A Road Well Traveled | Lesetja Kganyago The Case for Intervention | Sukudhew Singh Sticking to the Target | Leonardo Villar Also in this issue, the ECB’s Philip Lane discusses euro area inflation, Prakash Loungani profiles Lars Svennson, and Former Governor of Israel’s Central Bank Karnit Flug emphasizes the importance of central bank accountability and transparency. Siddharth Tiwari, Frank Packer and Rahul Matthan assess India’s approach to data governance. In a nod to the past, Johannes Wiegand examines lessons from 19th century bimetallism and Harold James looks at the historical relationship between trade and inflation. Francesco Grigoli explains inflation expectations for our Back-to-Basics series, and Picture This illustrates how long-term economic trends shape monetary policy. Peter Conti-Brown reviews Alan S. Blinder’s new book, A Monetary and Fiscal History of the United States, Jeff Kearns looks at The Price of Time: The Real Story of Interest by Edward Chancellor, and Mart Laar reviews John Odling-Smee’s Towards Market Economies: The IMF and the Economic Transition in Russia and Other Former Soviet Union Countries. Sincerely, F&D Team Nick Owen Senior Editor F&D Magazine nowen@IMF.org