IMF Weekend Read

 

Dear maria, In today's edition, we highlight: Climate ambition at COP Europe's vulnerability to fragmentation Melissa Dell on history and development F&D magazine on artificial intelligence Central bank digital currencies

CLIMATE CHANGE World Needs More Policy Ambition, Private Funds, and Innovation (Credit: Adobe Stock) With each passing year, the stark reality of a hotter planet becomes clearer and the ensuing risks to the global economy intensify. But as the world is waking up to the scale of the climate crisis, geopolitical tensions are undermining global coordination to solve this planetary problem, IMF economists write in a blog published ahead of this week’s UN Climate Change Conference, or COP28. Eight years on from the Paris Agreement, policies remain insufficient to stabilize temperatures and avoid the worst effects of climate change. Collectively, we are not cutting emissions fast enough and are falling short on the needed investment, financing, and technology, the authors say. New IMF analysis shows that current global commitments to cut carbon dioxide and other greenhouse gases would reduce emissions by just 11 percent from 1990 levels by the end of this decade. That compares with the cuts of 25 percent to 50 percent needed to limit global warming to 1.5 degrees to 2 degrees Celsius. “The window is closing, but we still have time—just—to change our trajectory and leave a healthy, vibrant, and livable planet to the next generation.” Read more about the IMF and climate change and our participation at COP28.

Walking through the forest or by a lake is proven to have both physical and psychological benefits. But nature is undervalued in our economies and all too often left off the balance sheet. Catherine Kling is an environmental economist at Cornell University and has focused much of her career on creating data that encourages governments to include the value of nature in their economic decision-making. In this special episode of our Women in Economics series, Kling and journalist Rhoda Metcalfe discuss why putting a price tag on nature will help save it.

MIDDLE EAST AND CENTRAL ASIA How To Better Address Climate Challenges The Middle East and Central Asia face a sobering climate reality. Temperatures have risen twice as fast as the global average, and rainfall has become scarcer and less predictable. The toll this is taking on people and economies is poised to worsen, Jihad Azour, director of the IMF’s Middle East and Central Asia department, writes in a blog. From devasting floods in Libya and Pakistan to drought in Somalia, the far-reaching impact of climate change is obvious. Record temperatures amid scorching heatwaves are becoming a new normal. Droughts leave farmland parched and rivers depleted. Violent storms batter coastal areas. In addition to the human toll, climate change has huge economic and social costs. Over the past three decades, changing temperature and rainfall patterns have eroded per capita incomes and significantly altered the sectoral composition of output and employment. “Governments in the Middle East and Central Asia must step up their goals both to adapt to climate change and to reduce their own contribution to global warming,” Azour and co-authors write.

FRAGMENTATION Europe Is Particularly Vulnerable To Fragmentation With global economic relations increasingly dictated by security considerations, it is understandable that policymakers give resilience greater consideration in their decision-making, Gita Gopinath, the IMF’s first deputy managing director, said in a speech on Thursday. But Gopinath warned that the wrong policies could severely damage prosperity and actually weaken security. Speaking at a conference in Berlin, Gopinath said the European Union is highly open to trade, which makes it particularly vulnerable to trade disruptions. The EU is also more open in terms of foreign direct investment than other regions, Gopinath added, drawing on the findings of a recent paper by IMF staff. “In its external policies the EU should continue to be a strong advocate for openness and for the proper functioning of the [World Trade Organization],” Gopinath said. “This is not only for its own sake but also to ensure that emerging and developing countries beyond the EU have a firm foothold in the global trading system as a ladder to their own prosperity and economic resilience.” Read the research

RICHARD GOODE LECTURE History Holds Key To Economic Development (Credit: IMF Photo/James Mertz) The past decade has seen substantial advances in our understanding of the role that historical forces play in economic development, Harvard’s Melissa Dell said at the annual Richard Goode lecture on Monday. This year’s lecture focused on colonial institutions and their lasting effects on development paths. Dell examined the long-run impact of Peru’s mining mita, a forced labor system in effect between the 16th and 19th centuries, to illustrate how institutions can have a persistent effect on developing economies that can be difficult to break. Dell highlighted how deep-learning tools have opened up a whole new set of data sources to her and fellow economic researchers, allowing a much richer understanding of past cultures. In opening remarks, IMF Managing Director Kristalina Georgieva called Dell’s research “genuinely original, innovative, and grounded in meticulous data collection.” Want to learn more about Melissa Dell and her work? Read F&D magazine's profile: Going the Distance.

F&D MAGAZINE: NEW ISSUE Artificial Intelligence: What AI Means For Economics (Credit: Jun Cen) A year after ChatGPT’s release, what’s in store for AI and the economy? The December issue of F&D magazine—Artificial Intelligence: What AI means for economics—is an early attempt to understand AIs implication for growth, jobs, inequality and finance.  This issue brings together leading academics, policymakers and AI experts to discuss these considerations and help inform the debate. Authors include Gita Gopinath, Erik Brynjolfsson, Gabriel Unger, Daron Acemoglu, Simon Johnson, Ian Bremmer, Mustafa Suleyman, Daniel Björkegren, Joshua Blumenstock, Anton Korinek, Hélène Landemore, Nandan Nilekani, Tanuj Bhojwani, Andrew Berg, Chris Papageorgiou, Maryam Vaziri, Robert Horn, Jeremy Wagstaff, Kerry Dooley Young, Eswar Prasad, Anil Ari, Lev Ratnovski, Christopher Evans, Marika Santoro, Martin Stuermer, and many more. Read the editor's letter

FINTECH Central Bank Digital Currency Development Enters the Next Phase Central bank digital currencies can improve payment systems as well as financial inclusion—if they are appropriately designed. If not, they could pose risks, Tobias Adrian, the director of the IMF’s Monetary and Capital Markets Department, writes in a blog. While not all countries may see an immediate case to deploy a CBDC, many countries are exploring CBDCs so they will have the option to introduce one in the future if it becomes pertinent for them, Adrian and co-authors write. “Benefits are more likely to come in time, following the policies pursued by countries and the private sector’s response, as well as the evolution of technology.” The IMF recently launched a CBDC Virtual Handbook to collect and share knowledge with policymakers around the world, and to serve as a basis for the IMF’s engagement with country authorities. The chapters published so far cover process and policy topics: How Should Central Banks Explore Central Bank Digital Currency?  A Guide to Central Bank Digital Currency Product Development Implications of Central Bank Digital Currencies for Monetary Policy Transmission Implementing capital flow management measures with CBDC Central Bank Digital Currency's Role in Promoting Financial Inclusion Adrian spoke about the challenges of developing international standards for CBDCs at an Atlantic Council conference this week. Read his remarks.

MANAGING DIRECTOR AT FINTECH FESTIVAL Central banks should persevere with digital currencies

Countries should continue preparing to deploy central bank digital currencies and related payment platforms, IMF Managing Director Kristalina Georgieva said in a speech to the Singapore Fintech Festival in November.

Weekly Roundup MANAGING DIRECTOR INTERVIEW Climate "Business As Usual" Must End The “business as usual” approach to climate change must end as such a route is “not viable” if the world wants to manage global warming, Kristalina Georgieva told Reuters ahead of COP28. The IMF managing director also discussed money for vulnerable countries, carbon pricing and debt distress in the wide-ranging interview. CLIMATE CHANGE Corporate Polluters The most polluting companies emit six times more greenhouse gases per dollar of revenue than the cleanest companies within the same industry, according to a paper by IMF staff. Wider adoption of existing technologies could enhance efficiency and close this gap in environmental performance, the authors say. Knowledge transfers to emerging economies could increase access to innovative clean technology while carbon pricing would improve companies’ incentives. Subsidies can help too but are likely to be much more costly in the short run. EUROPE'S NEAR NEIGHBORS Impact of Carbon Border Tax The European Union’s near neighbors continue to subsidize fossil fuels and are falling behind in curbing carbon emissions. In a new paper, IMF staff assess the impact on eight countries in central and eastern Europe of the EU’s “carbon border adjustment mechanism”, a tax on carbon-intensive imports to be imposed from 2026. The authors say a carbon tax of $75 per ton would significantly lower emissions in these countries with only minimal consequences for economic growth and household welfare.

Thank you again very much for your interest in the Weekend Read! Be sure to let us know what issues and trends we should have on our radar.

Nick Owen Editor IMF Weekend Read nowen@IMF.org