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Your homework is this. First, find an English-language news article about Economics (n.b. IMF is a great resource). Then, create a post here on Padlet, linking the article that you found. After that, I want you to find THREE words/phrases/concepts from the article that you didn't know before you read it. Add them to your post with definitions, example sentences, and if possible etymology. Finally,  comment on three different classmates' posts, using one of their new words.

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Digital Technology: How It Could Transform the International Monetary System

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Digital Technology: How It Could Transform the International Monetary System

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Apart from research, there are a lot of interesting speeches that are published on IMF website. Personally, I find this one above quite catchy and up to date, but there are a lot of new words that I didn't know. Some of them:

1) "substantial"
"Substantial" is a word that is similar to "very important" or "essential".
Example: It's substantial to finish this project as soon as possible if we want our company to grow rapidly.
The word "substantial" comes from christian latin word "substantia" which means "being" or "essence"(according to "Oxford Languages" and Google's English dictionary).

2) "intermediaries"
Intermediary is a person who links sides in a deal or agreement.
Example: We will need an intermediary to continue the negotiation.
"Intermediary" was made out of two words in the 18th century: English "intermediate" and French " intermédiaire" (according to "Oxford Languages" and Google's English dictionary).
All this words have a common ancestor which is a late latin word "intermedius", that consists of a prefix "inter-" and "medius", meaning "middle". (https://www.thefreedictionary.com/intermedius#:~:text=me·di·ates-,1.,in%20Indo-European%20roots.%5D)

Bonus:
2.1) "disintermediation"
"Disintermediation" is a word that is used to describe a rejection in using "intermediaries" (check #2 above)

3) "circumvented" (past form)
"Circumvent" - a verb that is used to describe finding a way around smth (or overcoming an obstacle in a clever way)
Example: This technical issue seemed to be unfixable but our IT director found a way to circumvent it.
The origin of this word is latin "circumvenire", consisting of "circum"  (around) and "venire" (come). This word was then reduced to "circumvent" and included in late Middle English (according to "Oxford Languages" and Google's English dictionary).

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Digital Technology: How It Could Transform the International Monetary System

Good afternoon, ladies and gentlemen. It's a pleasure to join you here today - at the 29 th International Financial Congress, convened by the Bank of Russia - to explore how digital technologies could transform the international monetary system.

Indeed, a profound transformation is already under way. From private-sector-led innovations like cryptoassets and stablecoins - to public-sector-designed programs like the Bahamas' issuance of the "Sand Dollar" and China's experiment with the "digital yuan" - digitalization is changing our understanding of what a "currency" is and how it operates.

I'll focus most of my remarks today on Central Bank Digital Currencies ("CBDC"), which are now being explored by many of the larger economies among the Fund's 190 member countries. Approaches differ according to each country's particular circumstances - with some countries still cautiously analyzing the policy motive for issuance, while others are actively prototyping various options in safe "sandbox" environments or launching live pilot programs. Central bankers everywhere are closely following the experience in the Bahamas, trying to discern the lessons of the actual issuance of the "Sand Dollar."

We can already see that there are many potential benefits from CBDC - along with several likely risks. Let me describe the top three benefits - and the top three risks - and then suggest how those risks can be reduced.

Let's start with the benefits.

First: CBDC has the potential to make payment systems more cost-effective, competitive, and resilient.

Due to their digital nature, CBDC could reduce the cost of managing physical cash - which can be substantial, especially in countries with a vast land mass or many islands that are widely dispersed.

By offering a low-cost alternative, CBDC can help discipline payment markets, which are often highly concentrated.

CBDC could also improve the resilience of payment systems, through the establishment of an alternate decentralized platform.

Second: In countries that have large numbers of people who are "unbanked," CBDC could help enhance financial inclusion, especially if they are paired with digital identifications systems. Access to payments is often the first step toward greater participation in the financial system. Not only do the unbanked gain a safe place for their savings, the digital availability of micro-payment data offers a way to gain access to credit.

Third, CBDC can be leveraged to improve cross-border payments, which are now often slow, costly, and not easily accessible. Cross-border payments largely rely on multi-layered correspondent banking relationships, which create long payment chains.

CBDC could instead be traded more directly - by intermediaries or end-users - to the extent that they share common technical standards, and data and compliance requirements. They could thus benefit from a common platform.

The IMF is collaborating with the Bank for International Settlements, the Committee on Payments and Market Infrastructures, and the Financial Stability Board to establish relevant guidelines.

Now, let's turn to the risks.

First: potential banking-sector disintermediation. Deposits could be withdrawn, perhaps abruptly, from commercial banks, if people decide to hold CBDC in significant volume. Banks would then have to raise interest rates on deposits to retain customers, or they would have to offer better payment services. Banks could experience a compression of margins, or they could have to charge higher interest rates on loans.

Second: potential reputational risks for central banks. Offering CBDC requires central banks to be active along several steps of the payments value chain (including interfacing with customers, building front-end wallets, picking and maintaining technology, monitoring transactions, and being responsible for anti-money-laundering processes). The failure to satisfy any of these functions - whether it is due to technological glitches, cyber-attacks, or simply human error - could undermine public faith in the central bank's operations.

Third: the macro-financial risks that can occur with the cross-border use of CBDC. For the CBDC of reserve-currency countries, which are available across borders, there could be an increase in currency substitution (or "dollarization") in countries with high inflation and volatile exchange rates.

In most cases, the risks to CBDC can be restrained through appropriate design. For instance:

CBDC holdings could offer a lower rate of interest - if they provide any interest at all - than the policy rate. Or, holdings could be capped, with surplus funds swept into bank accounts every night.

Transaction limits could be imposed, helping reduce the risk of the disintermediation of banks.

CBDC could also be distributed through existing financial institutions, using the customer onboarding processes that are already in place.

In addition, countries whose central banks issue CBDC could restrain "currency substitution" by limiting the holdings by non-citizens.

Looking beyond CBDC specifically - and thinking of the broader realm of digital vehicles: As we explore the various factors - both positive and negative - that would accompany any shift into digital transactions, questions naturally arise about how cryptoassets and stablecoins are changing the global financial system. The IMF, along with the BIS and other research centers, is studying that matter closely, trying to foresee how the optimal monetary system of the future would operate.

Let's first examine some ways that cryptoassets and stablecoins are unlike CBDC.

Cryptoassets are digital representations of value; are privately issued (rather than issued by sovereign entities); are secured by cryptography; and are units of exchange that leverage "decentralized ledger technology," which allows for peer-to-peer transactions without an intermediary. Cryptoassets, like Bitcoin, are not backed by official government assets. Moreover - as we have seen in recent months - cryptoassets have very volatile prices.

Stablecoins, instead, are issued by a legal entity. They attempt to offer price stability by linking their value to a fixed asset - such as a fiat currency like the U.S. dollar or commodities like gold.

The share of cryptoassets and stablecoins in relation to the money supply (so-called "M1"), is currently small. Thus, their impact on the monetary and financial system is - at this point - limited.

However: The adoption and use of cryptoassets and stablecoins could increase rapidly. That's especially true because cryptoassets are increasingly becoming an attractive investment asset, including for institutional investors. Stablecoins issued by BigTech firms have the potential to become global, given their large existing user bases, which span across countries.

If wide adoption does indeed occur, cryptoassets and stablecoins could have significant implications for the international monetary system. That could introduce a wide range of serious concerns.

Widespread "currency substitution" would undermine governments' control of monetary policy and would have an impact on domestic financial conditions.

Capital Flow Measures (CFM), which are used by the majority of IMF member countries, could be more easily circumvented. Independent exchange-rate regimes could be harder to maintain.

Capital-flow volatility could increase, as could gross foreign-asset positions. Such factors could trigger the threat of balance-of-payments problems.

Global stablecoins in their own denomination raise significant new risks, including the lack of available safe assets and a credible safety net.

The risk of fragmentation - and of a global "digital divide" - is stark. There could also be opportunities for further integration of payment systems - but they would largely occur thanks to CBDC, rather than cryptoassets or stablecoins.

Amid the uncertainties introduced by cryptoassets and stablecoins, let's recall a few basic principles, which should remind us of some stabilizing factors.

The international monetary system will continue to rely on rules and conventions covering, for instance, monetary and exchange-rate arrangements; cross-border payments for capital-account transactions; and capital flows and related management measures. The system will continue to rely on mechanisms allowing for effective and timely balance-of-payments adjustments and a global safety net (including access to financing from the IMF). And the system will continue to rely on robust institutions that ensure that rules and mechanisms will be enforced.

Moreover: There is an unshakeable commitment that the international monetary system must remain stable and efficient. Digital money must be regulated, designed, and provided so that countries maintain control over monetary policy, financial conditions, capital-account openness, and foreign-exchange regimes. Payment systems must grow increasingly integrated - not fragmented - and must work for all countries, to avoid a "digital divide." Moreover, reserve-currency configurations and backstops must evolve smoothly.

That brings us to the question of how authorities - especially central banks - should approach cryptocurrencies and stablecoins. Inevitably - with the stakes so high for international financial stability - a great deal of patience, and a strong dose of skepticism, are called for.

Some might be tempted to ask: "What would central banks need to do, to develop a global monetary system based on CBDC? What would they need to do, to prevent the risks related to the rapid development of private digital cash substitutes?" In response, I'd start off by saying: Posing the question that way, might be getting the reasoning backwards. I do not think central banks should aim to develop an international monetary system based on CBDC. Instead, they should design CBDC so that they help support a stable and efficient international monetary system.

As they consider the rewards and risks of CBDC, central banks are surely keeping some fundamental factors in mind.

They should leverage CBDC to improve connections between countries' payment systems, while avoiding fragmentation in cross-border payments.

The cross-border use of CBDC can potentially solve many of the current "pain points" of cross-border payments.

Under some conditions, CBDC can also foster financial inclusion - helping bring cross-border payments to the unbanked, and helping reduce the cost of sending remittances.

The impact of CBDC could be direct, but it could also be indirect. The presence of cross-border CBDC will induce other payment providers to improve services and lower costs.

Cooperation among central banks will be pivotal in building CBDC with features that help contain spillovers and help facilitate backstops. For example:

To curb currency substitution, countries that decide to issue CBDC could explore the option of limiting CBDC transactions and holdings for foreigners. Or, they could allow foreign countries to introduce such limits on their own territory.

Capital-flow-management measures, which might involve restrictions on certain cross-border transactions, could be built directly into the CBDC specification.

The programmability of CBDC could also be used, in a positive way, to facilitate the regional pooling and sharing of reserves, and their disbursement.

As for "private digital cash substitutes": I also do not think that developing alluring CBDC to "crowd out" those substitutes is the answer. Instead, privately issued digital money will need to be regulated appropriately.

Let us remember that most of the money that we use today is issued by the private sector - in the form of commercial bank deposits. This form of money has been innovative, and it continues to serve users well. Moreover: It is safe, because issuers are very closely supervised; they benefit from government backstops; and they are required to adhere to clear legal and regulatory frameworks.

Those same factors must also hold firm for private issuers of digital money. Clear legal frameworks must be developed to determine whether they are (for example) deposits, securities or commodities. Clear regulations must be enacted so these forms of money fully address risks to financial stability, financial integrity, consumer protection, and market contestability.

Once those rules are clearly written, some providers will surely drop out of the market - but others will remain, and they will exist side-by-side with CBDC. We should not see the future as an either-or decision - between "either" CBDC "or" privately issued forms of money. The two will probably coexist, wherever CBDC eventually exists.

Consider, in addition, that private solutions can build functionality on top of CBDC, and potentially can even receive CBDC in exchange for a private payment token. The future is likely to see a continuum that includes various forms of money - just as we see today, within the confines of a clear legal and regulatory perimeter.

We're at an exciting moment in the evolution of currencies - and indeed, in the evolution of our very concept of what "money" is, and what benefits "money" should deliver. If we design digital currencies with caution and with precision - and if we frame their adoption within legal and regulatory systems that maximize their benefits and minimize their risks - we could be on the verge of an era that fulfills the promise of transformation.

It's a pleasure to join you here today to explore these exciting opportunities. Now, I'd be pleased to consider any questions you may have. Thank you very much.

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Digital Technology: How It Could Transform the International Monetary System

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Good afternoon, ladies and gentlemen. It's a pleasure to join you here today - at the 29 th International Financial Congress, convened by the Bank of Russia - to explore how digital technologies could transform the international monetary system. Indeed, a profound transformation is already under way.

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Published by the IMF in April 2021, the following article gives a brief description about the economic outlook for Europe, using specific vocabulary which I was not familiar with. Here are these collocations:

1) A halting recovery, meaning that this recovery has interruptions caused by the lack of confidence.

E.g. His constant confidence notwithstanding, his speech was rather halting than assured this time.

Origin according to Longman Dictionary of Contemporary English:

halting (1300-1400) halt “to walk with difficulty”, from Old English healtian.

2) To foster a recovery, meaning the same as to promote this recovery, to develop it over a period of time.

E.g. The sunny weather in the morning does not foster confidence in the fact that the evening will be sunny as well.

Origin according to Wiktionary:

from Old English fōstor (“food, sustenance”), from Proto-Germanic *fōstrą (“nourishment, food”).

3) To ramp up production, meaning the same as to increase this production.

E.g. The company has to attract external capitals in order to ramp up production.

The origin is absent.

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Europe

Regional Economic Outlook for Europe

Regional Economic Outlook | April 2021

With new waves of COVID-19 infections hitting Europe, the recovery remains halting. However, vaccinations are progressing and thus Europe's GDP growth is projected to rebound by 4.5 percent in 2021. The main priority is to quickly ramp up the production and administration of vaccines. At the same time, policymakers need to continue providing emergency support to households and firms. And they need to prepare measures to stimulate hiring and investment once the pandemic is under control. Such measures will foster a quicker and fuller recovery, by reducing scarring from unemployment, missed education and training, and low investment.

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Regional Economic Outlook for Europe | April 2021

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With new waves of COVID-19 infections hitting Europe, the recovery remains halting. However, vaccinations are progressing and thus Europe's GDP growth is projected to rebound by 4.5 percent in 2021. The main priority is to quickly ramp up the production and administration of vaccines.

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Regional Economic Outlook for Sub-Saharan Africa   by Mikhail Boldin.

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Regional Economic Outlook for Sub-Saharan Africa   by Mikhail Boldin.

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This interesting publication, written by IMF, contains lots of extraordinary words, such as:

1) "has jeopardized"
Jeopardize - a verb, which is synonymous to "endanger".  For example:
The eruption of a volcano jeopardized villages, living not far from it.
"Jeopardize" comes from the Old French  "jeu parti", which translates as "game gone" (https://www.vocabulary.com).

2) "livelihoods"
Livelihood - a word, which stands for "means of living". For example:
One of Chinese people's livelihoods is an agriculture.
"Livelihood" is a modern word for Old English "līflād", or
"way of life" ("Oxford languages").

3) "resiliense"
"Resiliense" - in passage's context this word is quite similar to "stability". However, itself the noun can have different meanings, such as a resistance or even an ability to adjust easily to some changes. For example:
The resilience of a company created a great demand of investors.
"Resilience" comes from Latin "resilient", that means ‘leaping back’ ("Oxford languages").

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Sub-Saharan Africa

Regional Economic Outlook for Sub-Saharan Africa

A Difficult Road to Recovery

Sub-Saharan Africa is contending with an unprecedented health and economic crisis- one that, in just a few months, has jeopardized years of hard-won development gains and upended the lives and livelihoods of millions. The current outlook for 2020-21 is broadly unchanged from the June update, with activity in 2020 projected to contract by 3.0 percent, still the worst outcome on record. For 2021, regional growth should recover modestly to 3.1 percent. This outlook is subject to some key downside risks, particularly regarding the path of the COVID-19 pandemic and the resilience of the region's health systems. These risks are compounded by uncertainty on the availability of external financing, with associated needs estimated at about $900 billion over 2020-23, the sources of which between $130 billion and $410 billion are unidentified. Overall, the region's outlook will be shaped by the availability of additional financing and the transformative domestic reforms to promote resilience (including revenue mobilization, digitalization, and fostering better transparency and governance), lift medium-term growth, create opportunities for a wave of new job seekers, and progress toward the Sustainable Development Goals (SDGs).

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Regional Economic Outlook for Sub-Saharan Africa

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Sub-Saharan Africa is contending with an unprecedented health and economic crisis- one that, in just a few months, has jeopardized years of hard-won development gains and upended the lives and livelihoods of millions. The current outlook for 2020-21 is broadly unchanged from the June update, with activity in 2020 projected to contract by 3.0 percent, still the worst outcome on record.

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Regional Economic Outlook for Middle-East and South Asia by Gleb Smirnov

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Regional Economic Outlook for Middle-East and South Asia by Gleb Smirnov

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This research was published by IMF and provides analysis of Middle-East and South Asia economic situation.

Personally, I found many words that I didn’t know yet.

1.    “gross”(noun) - the entire amount of income before any deductions are made. Synonyms are receipts, revenue

“gross(verb) - earn before taxes, expenses, etc. Synonyms: bring in, clear, earn

2.    “resilience”(noun) - the physical property of a material that can return to its original shape or position after deformation that does not exceed its elastic limit. Synonyms: resiliency

3.    “to mitigate”(verb) - lessen or to try to lessen the seriousness or extent of. Synonyms: extenuate, palliate

All definitions were taken from vocabulary.com;
(1.https://www.vocabulary.com/dictionary/gross;
2.https://www.vocabulary.com/dictionary/resilience;
3.https://www.vocabulary.com/dictionary/mitigate)

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Middle East and Central Asia

Regional Economic Outlook: Arising from the Pandemic: Building Forward Better

A year into the coronavirus (COVID-19) pandemic, the race between vaccine and virus entered a new phase in the Middle East and Central Asia region, and the path to recovery in 2021 is expected to be long and divergent. The outlook will vary significantly across countries, depending on the pandemic's path, vaccine rollouts, underlying fragilities, exposure to tourism and contact-intensive sectors, and policy space and actions. Public gross financing needs in most emerging markets in the region are expected to remain elevated in 2021-22, with downside risks in the event of tighter global financial conditions and/or if fiscal consolidation is delayed due to weaker-than-expected recovery. 2021 will be the year of policies that continue saving lives and livelihoods and promote recovery, while balancing the need for debt sustainability and financial resilience. At the same time, policymakers must not lose sight of the transformational challenges to build forward better and accelerate the creation of more inclusive, resilient, sustainable, and green economies. Regional and international cooperation will be key complements to strong domestic policies.

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Regional Developments and Outlook

A year into the coronavirus (COVID-19) pandemic, the race between vaccine and virus entered a new phase in the Middle East and Central Asia, and the path to recovery in 2021 is expected to be long and divergent. The outlook will vary significantly across countries, depending on the pandemic's path, vaccine rollouts, underlying fragilities, exposure to tourism and contact-intensive sectors, and policy space and actions. 2021 will be the year of policies that continue saving lives and livelihoods and promote recovery, while balancing the need for debt sustainability and financial resilience. At the same time, policymakers must not lose sight of the transformational challenges to build forward better and accelerate the creation of more inclusive, resilient, sustainable, and green economies. Regional and international cooperation will be key complements to strong domestic policies.

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Government Debt and Financing Legacy Risks from the Pandemic

The coronavirus (COVID-19) crisis led to a surge in government debt and financing needs as many countries in the Middle East and Central Asia reacted swiftly to mitigate the pandemic's impact. Although several of these countries successfully accessed international financial markets, domestic banks covered a significant share of emerging markets' financing needs, further expanding their already significant exposure to the public sector. By contrast, most low-income countries (LICs) had a small response to the crisis because of financing and policy space constraints. Looking ahead, public gross financing needs in most emerging markets in the Middle East and Central Asia are expected to remain elevated in 2021-22, with downside risks in the event of tighter global financial conditions and/or if fiscal consolidation is delayed due to weaker-than-expected recovery. However, further reliance on domestic financing will reduce banks' ability to support the private sector's emergence from the crisis, thus prolonging the recovery. Credible medium-term fiscal and debt management strategies, together with policy actions to develop domestic capital markets and mitigate banks' overexposure to the sovereign would reduce financing risks, address the elevated debt burdens, and entrench financial stability.

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MENA, Afghanistan, and Pakistan: Selected Economic Indicators, 2000-22

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CCA Region: Selected Economic Indicators, 2000-22

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Stats

Stats Appendix | Excel

The following statistical appendix tables contain data for 32 MCD countries and territories. Data revisions reflect changes in methodology and/or revisions provided by country authorities.

A number of assumptions have been adopted for the projections presented in the April 2021 Regional Economic Outlook Update: Middle East and Central Asia. It has been assumed that established policies of national authorities will be maintained, that the price of oil1 will average US$52.64 a barrel in 2021 and US $50.07 a barrel in 2022, and that the six-month London interbank offered rate (LIBOR) on U.S.-dollar deposits will average 0.3 percent in 2021 and 0.4 percent in 2022. These are, of course, working hypotheses rather than forecasts, and the uncertainties surrounding them add to the margin of error that would in any event be involved in the projections. The 2021 and 2022 data in the tables are projections. These projections are based on statistical information available through late March 2021.

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Regional Economic Outlook: Arising from the Pandemic: Building Forward Better

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A year into the coronavirus (COVID-19) pandemic, the race between vaccine and virus entered a new phase in the Middle East and Central Asia region, and the path to recovery in 2021 is expected to be long and divergent.

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From the History Books: The Rethinking of the International Monetary System

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From the History Books: The Rethinking of the International Monetary System

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So here we go.

1) surplus - noun
In a simple language we can say that if there is a surplus of something, there is more than is needed.
"The company is selling off stock that is surplus to requeriments".

2) bedrock principle - idiom
In construction, bedrock is the solid rock beneath the soil layer that is best to build a foundation on. Skyscrapers are best built on pillars that rest on bedrock. So, by analogy, a bedrock principle is one that forms the basis for others.

3) adjustment - noun
A small change.
"The business plan is almost ready, i just need to make some adjustments".

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By Atish Rex Ghosh

Fifty years ago, the world changed. On August 15, 1971, US President Richard Nixon slammed shut the "gold window," suspending dollar convertibility. Although it was not Nixon's intention, this act effectively marked the end of the Bretton Woods system of fixed exchange rates. But, in truth, with the rise of private cross-border capital flows, a system based on fixed exchange rates for the major currencies was no longer viable and Nixon's decision-decried at the time as an abrogation of America's international responsibilities-paved the way for the modern international monetary system.
The collapse of Bretton Woods prompted a fundamental rethink about what would give stability to the international monetary system. The Bretton Woods era
When the Bretton Woods system was established in 1944, the prevailing narrative was that competitive devaluations, exchange restrictions, and trade barriers had worsened, if not caused, the Great Depression. Accordingly, IMF member countries would only be allowed to alter their exchange rate parity in cases of "fundamental disequilibrium"-the thinking being that stability of individual exchange rates (ruling out competitive devaluations) would result in stability of the overall system. Importantly, however, it was only the member country that could propose a change in the parity-the IMF's sole power was to approve or not approve the proposed change.

The system incorporated elements from the previous "gold standard" system, but now, instead of currencies being tied directly to gold, countries fixed their exchange rates relative to the US dollar. In turn, the United States promised to provide gold, on demand, in exchange for dollars accruing in foreign central banks at the official price of $35 per ounce. All currencies pegged to the dollar thereby had a fixed value in terms of gold.

In an extraordinary surrender of national sovereignty for the common good, member governments undertook to maintain a fixed parity for their exchange rate against the US dollar unless they faced a "fundamental disequilibrium" in their balance of payments. The IMF would lend reserves (usually dollars) to enable central banks to maintain the parity in the face of temporary shocks to their balance of payments without "resorting to measures destructive of national or international prosperity."

The system worked reasonably well for over two decades. However, cracks emerged. Governments of deficit countries with overvalued currencies often delayed necessary devaluations for fear of the political repercussions. Meanwhile, surplus countries, which were enjoying a trade competitiveness advantage, had no incentive to revalue their currencies.

Experience during the 1960s showed that this artificial stability of individual exchange rates could delay necessary adjustment, ultimately ending in traumatic balance-of-payments crises that resulted in instability of the system, especially if one of the major economies (for instance, the United Kingdom) was involved. The rise of private capital flows meant that any whiff of a possible devaluation would send billions of dollars out of a deficit country-thus precipitating the devaluation-and into surplus countries that would struggle to contain the inflationary consequences of the capital inflows.

In the early 1970s, the United States suffered such a balance-of-payments crisis, mainly due to its lax domestic monetary and fiscal policies as it sought to finance the costs of the Vietnam War and the "Great Society" programs, together with the reluctance of the major surplus countries (notably Germany and Japan) to revalue their currencies. As the United States hemorrhaged gold reserves, Nixon decided to close the gold window. Though intended as a ploy to force surplus countries to revalue their currencies, since the dollar was the lynch pin of the system, Nixon's action effectively brought down the system.
New system, new thinking
The collapse of Bretton Woods (and its short-lived successor, the Smithsonian Agreement) prompted a fundamental rethink about what would give stability to the international monetary system.

In devising the Bretton Woods system, the presumption had been that fixing individual currencies against gold or the dollar would make the system stable. However, in the aftermath American officials argued that simply fixing the exchange rate would bring rigidity, not stability. Attempts to maintain the peg (including through exchange restrictions or capital controls) when the exchange rate grew out of line with domestic policies only resulted in costly-and ultimately futile-delays in external adjustment.

The new thinking was the stability of the system would come less from the stability of individual exchange rates per se, and more from domestic policies being directed toward domestic stability (orderly growth with low inflation), which would result in stable but not excessively rigid exchange rates, thus allowing for timely external adjustment, and hence contributing to the stability of the overall international monetary system. While countries were no longer required to declare and maintain a fixed parity for their exchange rate, to prevent possible competitive devaluations/depreciations or other currency manipulation, the IMF was charged with exercising "firm surveillance" over its members' exchange rate policies.

Subsequent experience (especially the aftermath of the 2008 global financial crisis) showed that even such domestic stability may not suffice for stability of the system when it comes to systemically important countries. More recently, countries now regularly discuss with the IMF the external spillovers from their domestic policies. And though they would never be required to alter those policies provided they are promoting their own domestic stability, they may be encouraged to consider alternative policies if those better promote stability of the system as well.
What the future may hold
The collapse of the system of fixed exchange rates shook the world in 1971. But monetary systems exist to serve the needs of mankind, and as our societies evolve, so too must our societal systems. The world in 1971 was not what it was in 1944-just as our world today bears only some resemblance to the realities of 1971. Today, fundamental transformations are accelerating the development, deployment, and adoption of digital money. Could a digital transformation of the international monetary system soon be underway? Regardless of how the system evolves, the bedrock principle that its stability will depend on international monetary cooperation, will remain.

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From the History Books: The Rethinking of the International Monetary System

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By Atish Rex Ghosh Fifty years ago, the world changed. On August 15, 1971, US President Richard Nixon slammed shut the "gold window," suspending dollar convertibility. Although it was not Nixon's intention, this act effectively marked the end of the Bretton Woods system of fixed exchange rates.

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How European Banks Can Support the Recovery

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How European Banks Can Support the Recovery

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This article was published in IMF blog. It gives an overview of European Banks recovery. This article contains a few words that i do not know thus there are some of them:
1) caveat
Definition: a warning to think about something before doing it
Etymology: (source Oxford languages) mid 16th century: from Latin, literally ‘let a person beware’.
E.g  There was a caveat about a hurricane in this area.
2) insolvency
Definition:the condition of bankruptcy
Etymology: Latin solventem "paying" + "in", unable to pay
E.g This bank is on the verge of insolvency
3) to breach
Definition:to break a law or a promise
Etymology: from Old English "bryce"- "a fracture, act of breaking," (https://www.etymonline.com)
E.g That company breached an agreement and lost a project.

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By Mai Chi Dao, Andreas Jobst, Aiko Mineshima, and Srobona Mitra

A robust post-COVID-19 recovery will depend on banks having sufficient capital to provide credit. While most European banks entered the pandemic with strong capital levels, they are highly exposed to economic sectors hit hard by the pandemic.

A new IMF study assesses the impact of the pandemic on European banks' capital through its effect on profitability, asset quality, and risk exposures. The approach differs from other recent studies-by the European Central Bank and European Banking Authority-because it incorporates policy support provided to banks and borrowers. It also incorporates granular estimates of corporate sector distress, and examines a larger number of European countries and banks.
With the right policies, banks will be able to support the recovery with new lending.
The analysis finds that, while the pandemic will significantly deplete banks' capital, their buffers are sufficiently large to withstand the likely impact of the crisis. And with the right policies, banks will be able to support the recovery with new lending.

Using the IMF's January 2021 projectios as a baseline, euro area banks will remain broadly resilient to the deep recession in 2020 followed by the partial recovery in 2021. The aggregate capital ratio is projected to decline from 14.7 percent to 13.1 percent by the end of 2021 if policy support is maintained. Indeed no bank will breach the prudential minimum capital requirement of 4.5 percent, even without policy support.

But at least three important caveats are worth noting.
First, effective policies matter.
Supportive policies are extremely important in reducing both the extent and variability of banks' capital erosion. They substantially weaken the link between the macroeconomic shock and bank capital, and lower the chances that banks cut back lending to conserve capital. Aside from regulatory capital relief, these policies include a wide range of borrower support measures, such as debt moratoria, credit guarantees, and deferred insolvency proceedings. They also include grants, tax relief, and wage subsidies to firms.

Looking beyond the euro area, banks in Europe's emerging economies are likely to see a higher capital erosion of 2.4 percentage points. In many of these countries, tighter government budgets meant a lower level of support.
Second, market-based capital thresholds are the more relevant benchmarks.
For many larger banks, hybrid capital-which contains elements of both debt and equity-is likely to be an important source of funds at a time when the cost of capital remains high. But investors in hybrid capital typically rely on interest payments.

If policies are not effective, several banks might struggle to meet their so-called "maximum distributable amount" (MDA) capital thresholds, which are higher than their current regulatory minimum requirements. This would lead to restrictions on dividend distributions and interest payments to hybrid capital, possibly spooking investors. Larger banks, which hold about 25 percent of capital in such instruments, could come under funding pressure.
Third, the speed of the recovery is critical.
A protracted recovery could result in much larger credit losses and higher provisions for bad loans. If GDP growth in 2020-21 is 1.2 percentage points below the baseline forecast, the erosion of bank capital could become more pronounced. Over 5 percent of all banks would risk breaching their MDA thresholds, even with policies in place. And this share would double if policies do not work as projected (see above chart).
Policies to keep banks healthy
These results suggest a strategy that focuses on the following areas:

Continue pandemic support policies until the recovery is firmly established. A premature winding down of borrower support could create "cliff edge effects" and risk choking off credit supply just when it is needed most. As the recovery gains momentum, eligibility criteria should be tightened and be better targeted. Some direct equity support could also be considered for viable firms.

Clarify supervisory guidance on the availability and duration of capital relief. Supervisors should clarify the timetable for bank's capital buffers. Banks should be allowed to build back capital buffers gradually to preserve lending capacity. Restrictions on dividend payouts and share buybacks should be maintained until the recovery is well underway.

Support balance sheet repair by strengthening nonperforming loan management and the bank resolution framework. As policy measures expire, delayed loss recognition will likely trigger a wave of loan defaults. The EU authorities should use the current system-wide stress test, due in July 2021, to assess the need for precautionary recapitalizations. Insolvency regimes should be strengthened by addressing administrative constraints and establishing fast-track procedures to restructure debt.

Address structurally low bank profitability. Banks will take several years to build back capital organically through retained earnings unless their profitability improves. Banks should therefore enhance non-interest revenues and streamline operations to improve their cost structures, including through greater use of digital technologies. And consolidation could improve banks' efficiency, while facilitating a better allocation of capital and liquidity within banking groups.

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How European Banks Can Support the Recovery

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By Mai Chi Dao, Andreas Jobst, Aiko Mineshima, and Srobona Mitra Español, Français, Português A robust post-COVID-19 recovery will depend on banks having sufficient capital to provide credit. While most European banks entered the pandemic with strong capital levels, they are highly exposed to economic sectors hit hard by the pandemic.

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The Power of Text: How News Sentiment Influences Financial Markets

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The Power of Text: How News Sentiment Influences Financial Markets

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While I was reading this interesting article I found some words that I didn't know before.
Here you can see some of them:

1. Agenda-noun
Agenda has different meanings.
Firstly, "agenda" means a list of items to be discussed at a meeting.
Secondly, "agenda" can also refer to any matters that have to be dealt with.
Ex: A coronavirus problem was on the top of the agendas of many companies in 2020.

Origin according to google:
early 17th century (in the sense ‘things to be done): from Latin, neuter plural of agendum, gerundive of agere ‘do’.
2. Vulnerability-noun.
Vulnerability is the quality of being damaged, hurt, or influenced.
Ex: Our coach told us the vulnerabilities of the opponent team so we easily won that game.

Origin:
Vulnerable is ultimately derived from the Latin noun vulnus ("wound") (https://www.merriam-webster.com/dictionary/vulnerable)
3. Cutting-edge
=very modern, and with all the newest features.
Ex: Apple has cutting-edge technologies so it has advantages over its competitors on the market.

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By Damien Puy

How do investors react to news? This question has been at the core of the financial research agenda for several decades. Now, two forces make this question even more pressing.

First, innovations in information technologies have dramatically increased the reach of financial and economic news and the speed at which it travels. Real time newswires, such as Reuters and Bloomberg, generate and disseminate information almost instantaneously to an ever-increasing set of market participants.

Second, a growing number of countries, especially emerging markets, have opened their financial markets to the rest of the world. This makes it possible for foreign news to affect local market conditions much more directly.

For a long time, however, studying the impact of news on investors' behavior and asset prices remained a daunting task. What is news exactly? What does it talk about? And how can we identify, in a systematic way, good (or bad) news?

Fortunately, the last decade brought major advances in natural language processing-mining and analyzing large amounts of textual information to extract key features, such as topic or tone. Since then, successful examples of text mining in economics and finance-using both traditional news sources and social media content-have flourished.

Building on the most recent technologies, our IMF research project assessed the role of news on international asset prices using more than 4 million articles covering economic, financial, corporate, and political news published by Reuters worldwide between 1991 and 2015. The project assessed whether the tone of each article was bullish or bearish, using text-mining techniques to identify positive terms such as "gains," "recovery," or "confidence," and negative ones such as "crisis," "losses," or "decline." With this data, we constructed a daily news-based sentiment index for both advanced and emerging markets. We then asked whether optimism (or pessimism) in the news today could help predict future changes in asset prices.

We found that sudden changes in news sentiment had a significant impact on asset prices worldwide, confirming that media tone, in general, is a very good proxy for investor sentiment itself. It also highlights the role of foreign news (and foreign investors) rather than local news (and local investors) in driving local asset prices. (By foreign news, we mean news involving multiple countries and their interrelationships, as opposed to local news involving a single country.)

Although sudden optimism in global news sentiment generates a strong and permanent impact on asset prices around the world, the effect of optimism in local news was more muted and only temporary. From a technical perspective, the study offers another example of the power of text as an input to cutting-edge economic and financial research.

Importantly, the study also illustrates how new technologies-such as big data and text mining-can help institutions in their daily work. For instance, the mood captured in the news published around the world every day-the so-called "global news sentiment index"-mirrors other popular measures of global risk aversion, such as the CBOE Volatility Index, or VIX, which represents market expectations of volatility over the coming 30 days and is often called the "fear index." However, the news-based index is ultimately a better predictor of future movements in international asset prices than the VIX.

We are still in the process of understanding why news sentiment matters so much, and why it seems to capture much more information about investors' mood than other market-based indicators that are widely used. But the project already shows that monitoring news tone in real time is a very effective way to capture sudden changes in investor sentiment that would not be captured otherwise; which is key for financial surveillance.

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The Power of Text: How News Sentiment Influences Financial Markets

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By Damien Puy How do investors react to news? This question has been at the core of the financial research agenda for several decades. Now, two forces make this question even more pressing. First, innovations in information technologies have dramatically increased the reach of financial and economic news and the speed at which it travels.

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Short-term Shot and Long-term Healing for Latin America and the Caribbean 

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Short-term Shot and Long-term Healing for Latin America and the Caribbean 

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This exciting article was published by IMF in April 15 and contains lots of convoluted and extraordinary words that are new for me. To begin with, here are three of them:

1)   Cumulative(adj) – the meaning of this word is quite similar to word “total” or “aggregate”.  If something is cumulative, it is basically stacked together.
For example: The cumulative effect from inhaling different chemicals (smoking, vaping, working with chemicals without wearing special equipment that can somehow protect your lungs from destructive substances) can seriously harm you physical and mental health.
According to the Webster's Revised Unabridged Dictionary this word comes from Latin cumulatus and cumulative.

2)    Remittance(n) – the act or process of sending a sum of money to a person. The meaning of this word is close to “payment”.
For example: Nowadays every bank might control and monitor the remittances of its clients.
According to Oxford Languages “remittance” comes from remittere ‘send back’.

3)    Exacerbate(v) – simply means making something that is negative or bad even worse. This word is usually used synonymously with verbs “worsen” or “intensify”.
Here is an example of using this verb: A judge took into consideration a fact that a robber murdered three security guards during his bank robbery; That is why the final penalty was exacerbated in view of this horrible fact.
According to the Wiktionary and Oxford Languages that word came from Latin verb exacerbare ‘made harsh’.

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By Alejandro Werner, Takuji Komatsuzaki, and Carlo Pizzinelli

Growth in Latin America and the Caribbean recovered briskly in the second half of 2020, yet still more slowly than the global economy and other emerging markets. That's despite unprecedented policy support, strong performance of trading partners, soaring commodity prices and accommodative global financial conditions. The persistence of the health crisis in many countries casts a shadow on the near-term outlook. People and economies continue to require a short-term shot to exit from the COVID-19 crisis, while the aggravation of several underlying structural fragilities poses significant long-term challenges.
The region's contraction of 7 percent in 2020 was the sharpest in the world.
The region's contraction of 7 percent in 2020 was the sharpest in the world, by far exceeding the global slowdown of 3.3 percent. Growth for 2021 is projected at 4.6 percent, below the 5.8 percent estimated for emerging markets excluding China. Income per capita will not catch up with its pre-pandemic level until 2024, resulting in a 30 percent cumulative loss relative to the pre-pandemic trend.
Slow and divergent recovery
The outlook, however, is subject to an extraordinary degree of uncertainty as the race between vaccines and the virus continues. On the upside, faster control of the pandemic globally as well as stronger-than-anticipated domestic policy support would boost growth. Fast vaccination and significant policy support are giving Chile a short-term boost. The country is expected to bounce back already this year to its pre-pandemic GDP level.

On the downside, the recent resurgence of the virus in Brazil, Chile, Paraguay, Peru, and Uruguay, combined with slow vaccine rollouts (with the exception of a few countries e.g. Chile and Uruguay) cast a shadow on the near-term outlook-though new lockdowns are likely to be less damaging than at the start of the pandemic as economies have learned to adjust. Brazil is projected to recover by 2022 due to the withdrawal of fiscal and monetary policy support and slow vaccine rollout. Mexico will only return to its pre-pandemic GDP level by 2023, despite impulse from the large US fiscal policy plan, due to the absence of significant domestic fiscal support and anticipated continued weakness in investment. The American Rescue Plan will boost growth in some Central American countries through trade and remittances, helping these countries to rebound by 2022. Caribbean tourism-dependent economies will be the last to recover (only in 2024) due to the slow resumption in tourism.

The increase in US long-term yields so far has had a somewhat muted impact on asset prices and capital flows in the region. But a continued increase in long-term interest rates represents a risk.
Unequal effects
The recovery has also been heterogeneous within countries. Manufacturing has rebounded faster than contact-intensive services, aided by exports in some cases, particularly in Mexico. However, labor markets remain fragile-only two-thirds of those who lost jobs at the beginning of the pandemic in Brazil, Chile, Colombia, Mexico, and Peru were employed again by the end of last year. The informal sector, which suffered the largest losses initially, has driven the job recovery.

Average labor income fell since the beginning of the pandemic, with pronounced divergences in labor market outcomes across countries, sectors, and demographic groups. Countries that implemented employment retention schemes (for example, Brazil) had a less dramatic fall in employment but the recovery has also been slower. However, even in the case of a relatively quick recovery in Mexico, those who have been reemployed have had larger earning losses than those whose employment remained uninterrupted during the crisis. Women and low-educated workers have struggled the most. Low-skilled female workers in particular lost more jobs or had to cut back on working hours even when able to retain employment, suffering the largest income losses.
Long-lasting consequences
Poverty is estimated to have increased by 19 million people, and inequality, as measured by the Gini coefficient, increased by 5 percent compared to pre-crisis levels. The pandemic will also leave long-lasting damage to human capital from school closures, which were longer than in other regions.

While the precise learning losses are difficult to estimate, IMF staff analysis suggests that students aged 10 to 19 might expect a 4 percent lower income on average over their lifetimes if the lost days of schooling in 2020 are not compensated.

The income losses differ among countries, depending on how much the pandemic reduces the chance of completing secondary education and on the size of the skill premium for higher education. The losses will be greatest for students whose families are less able to support out-of-school learning, exacerbating already high income inequality and low levels of educational attainment.

The most urgent task continues to be controlling the pandemic, by ensuring that healthcare systems are adequately resourced, and everybody can be vaccinated. Fiscal and monetary policies should remain supportive in countries where there is sufficient policy space-a short-term shot for their economies-while countries with tight budgets should reprioritize spending towards healthcare and support for households, and work to create additional fiscal space. Given the continued heavy toll on low-income workers, targeted support to facilitate job creation and retraining may be warranted.

Healing longer-term scars will be more challenging and will require accelerating structural reforms, expanding access to high-quality education and health, broadening social safety nets, and improving the business climate. A deeper structural transformation that could be facilitated by a broad fiscal pact is needed to reverse years of slow growth.

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Short-term Shot and Long-term Healing for Latin America and the Caribbean

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By Alejandro Werner, Takuji Komatsuzaki, and Carlo Pizzinelli Español, Português Growth in Latin America and the Caribbean recovered briskly in the second half of 2020, yet still more slowly than the global economy and other emerging markets.

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Making The Digital Money Revolution Work for All

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Making The Digital Money Revolution Work for All

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To be honest, I can't remember the last time I used cash. To me, it is more convenient to use Apple Pay.
The digital money revolution has brought many new opportunities, but there is always the other side of the coin. In this article you can find out about challenges and tradeoffs that economists may face enacting new policies to maintain control over monetary and financial conditions.

To proliferate - increase rapidly in number or multiply.

From Latin proles "offspring" → French prolifère "producing offspring"(https://www.etymonline.com/word/proliferation)

"The number of people using their phone to pay has proliferated dramatically over the past decade."
"We need to prolifirate the sales"

To mitigate - make something bad less severe, serious, or painful.
From Latin miltis "mild" →  verb mitigate →  mitigat- "softened, alleviated"

"It is essential to mitigate this issue."
"By lowering the prise we will mitigate the loss."

Illicit - forbidden by law, rules, or custom.
from Latin illicitus "not allowed, unlawful, illegal" (https://www.etymonline.com/word/illicit)

"He did an illicit copy of this movie."
"You can buy almost everything on the illicit market."

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By Tobias Adrian and Tommaso Mancini-Griffoli

History moves in uneven steps. Just as the telegraph erased time and distance in the 19 th century, today's innovations in digital money may bring significant changes in the way we lead our lives. The shift to electronic payments and social interactions brought on by the pandemic may cause similarly rapid and widespread transformations.
The challenges are significant, and so is the potential reward. But policy action must begin immediately.
But we must look beyond the dazzle of technology and the alluring image of futuristic payment services. At the IMF, we must identify and help countries solve the deeper policy tradeoffs and challenges that are arising.

The rapid pace of change is a call to action-for countries to guide, and not be guided by, today's transformations. It is also important for the IMF to engage early with countries, and usher in reforms that will contribute to the stability of the international monetary system, and foster solutions that work for all countries. There is a window of opportunity to maintain control over monetary and financial conditions, and to enhance market integration, financial inclusion, economic efficiency, productivity, and financial integrity. But there are also risks of stepping back on each of these fronts. We must enact the right policies today to reap the gains tomorrow.

We emphasize this in two papers published today, one on the new policy challenges, and one on an operational strategy for the Fund to engage with countries on the digital money revolution.
Digital money developing rapidly
Digital forms of money are diverse and evolving swiftly. They include publicly issued central bank digital currencies (CBDC)-think of these as digital cash, though not necessarily offering the same anonymity to avoid illicit transfers. Private initiatives are also proliferating, such as eMoney (like Kenya's mobile money transfer service MPesa) and stablecoins (digital tokens backed by external assets, like USD-coin and the proposed Diem). These are digital representations of value that can be transferred at the click of a button, in some cases across national borders, as simply as sending an email. The stability of these means of payment, when measured in national currencies, varies significantly. The least stable of the lot, which hardly qualify as money, are cryptoassets (such as Bitcoin) that are unbacked and subject to the whims of market forces.

These innovations are already a reality, and growing rapidly. According to IMF data, CBDCs are being closely analyzed, piloted, or likely to be issued in at least 110 countries. Examples range from the Bahamas' Sand Dollar already in use, to the People's Bank of China's eCNY pilot project, to countries like the United States where the benefits and drawbacks of a digital dollar are still being studied. Stablecoins, still esoteric two years ago, tripled in value in the last six months (from $25 billion to $75 billion), while cryptoassets doubled (from $740 billion to $1.4 trillion). And adoption is global. eMoney accounts are not only growing much more rapidly in low- and middle-income countries than in the rich ones, but are now also more numerous. Africa, in particular, is leading the way.

Opportunities are immense. A local artisan can receive payments more cheaply, potentially from foreign customers, in an instant. A large financial conglomerate can settle asset purchases much more efficiently. Friends can split bills without carrying cash. People without bank accounts can save securely and build transaction histories to obtain micro-loans. Money can be programmed to serve only certain purposes, and be accessed seamlessly from financial and social media applications. Governments can tax and redistribute revenues more efficiently and transparently.
Policy implications-opportunities and challenges ahead
We may well reap these benefits, but we must be aware of risks, and-importantly-of the bigger policy implications and tradeoffs. The challenges to policymakers are stark, complex, and widespread.

The most far-reaching implications are to the stability of the international monetary system. Digital money must be designed, regulated, and provided so that governments maintain control over monetary policy to stabilize prices, and over capital flows to stabilize exchange rates. These policies require expert judgment and discretion and must be taken in the interest of the public. Payment systems must grow increasingly integrated among countries, not fragmented in regional blocs. And it is essential to avoid a digital divide between those who gain from digital money services and those left behind. Moreover, the stability and availability of cross-border payments can support international trade and investment.

There are also implications for domestic economic and financial stability. The public and private sectors should continue to work together to provide money to end-users, while ensuring stability and security without stifling innovation. Banks could come under pressure as specialized payment companies vie for customers and their deposits, but credit provision must be sustained even during the transition. And fair competition must be upheld-not an easy task given the large technology companies entering the world of payments. Moreover, governments should leverage digital money to facilitate the transfer of welfare benefits or the payment of taxes. Scope even exists to bolster financial inclusion by decreasing costs to access payment and savings services.

Finally, new forms of money must remain trustworthy. They must protect consumers' wealth, be safe and anchored in sound legal frameworks, and avoid illicit transactions.

The challenges are significant, and so is the potential reward. But policy action must begin immediately. This is the time to establish a common vision for the future of the international monetary system, to strengthen international collaboration, and to enact policies and establish legal and regulatory frameworks that will drive innovation for the benefit of all countries while mitigating risks.

Choosing the right path now is critical. Regulation, market structure, product features, and the role of the public sector can quickly ossify around less desirable outcomes. Backtracking later can be very costly.

The IMF has a mandate to help ensure that widespread adoption of digital money fosters domestic economic and financial stability, and the stability of the international monetary system. We plan to engage regularly with country authorities to evaluate country-specific policies, provide capacity development to avoid a digital divide, and develop analytical foundations to identify policy options and tradeoffs.

To do so, the IMF must deepen its expertise, widen its skillset, ramp up resources, and leverage its near universal membership. Still, we cannot do this alone. The challenges are so complex and multifaceted, that collaborating closely with other stakeholders is necessary. The World Bank, the Bank for International Settlements along with its Innovation Hub, international working groups and standard-setting bodies, as well as national authorities, are all complementary partners, each with its specific mandate and skillset. By joining hands, we will help households and firms leverage the benefits and avoid the pitfalls of the digital money revolution.

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Making The Digital Money Revolution Work for All

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By Tobias Adrian and Tommaso Mancini-Griffoli History moves in uneven steps. Just as the telegraph erased time and distance in the 19th century, today's innovations in digital money may bring significant changes in the way we lead our lives.

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Good economics demands that we manage Nature better

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Good economics demands that we manage Nature better

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This article tells us about the main reasons of today's biodiversity crisis and suggests   3 main steps connected with economics to fix the problem. I found new interesting words and phrases there:

1) "Ecological footprint" - a measure of a population’s demand for the ecosystems’ supply of resources and services
Example: The Ecological footprint for many countries around the world is being calculated by the Global Footprint Network.

2) Biodiversity - the variety of life on our planet
Example: Humans get many sources from biodiversity such as food, fuel and medicine.
Etymology: Biodiversity = bio + diversity, the world "diversity" came from "dis-" and "vertere" in Latin.

3) "Tragedy of the commons" - a situation in which people who have access to a common resource use to much of it and as the result totally deplete it
Example: The tragedy of the commons shows individual's tendency to make best decisions for themselves, ignoring the negative impact they have on others.

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Download PDF Good economics demands that we manage Nature better
The past 70 years are a success story on many counts. We are healthier, live longer, and enjoy higher income, on average, than our predecessors. The proportion of the world's population in absolute poverty has fallen dramatically. As we benefit from advances in technology, modern science, and food production, we may be excused for thinking that humanity never had it so good. Global GDP has risen enormously since the 1950s (see chart), and world economic output is 15 times higher.

These achievements conceal a simple truth, however, which has profound consequences not only for how we think about and practice economics, but also for the way we live our lives. All the prosperity we have enjoyed relies on the Nature that surrounds us and of which we are a part-from the food we eat, to the air we breathe, to the decomposition of our waste, to opportunities for recreation and spiritual fulfilment. Yet the biosphere has diminished during that same time. Current extinction rates are about 100 to 1,000 times higher than the background rate-the normal process of species loss-over the past several million years. And they are accelerating. The chart shows the Living Planet Index, which tracks the abundance of mammals, birds, fish, reptiles, and amphibians. Between 1970 and 2016, the population of species fell globally by 68 percent on average. A recent report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services showed that 14 of the 18 global ecosystem services assessed were in decline.

We have been drawing down Nature's assets through extraction of natural resources, depleting the nutrient supply in soils, driving down fish stocks, and so on-and using Nature as a sink for our waste-burning fossil fuels, for example. As a result, the biosphere has been severely degraded; some ecosystems, such as coral reefs, are at the point of collapse.

Certain events can cause us to reflect for a moment. The COVID-19 pandemic has prompted many to question the sustainability of our relationship with Nature, since illegal wildlife trade, land-use change, and habitat loss are key drivers of emerging infectious diseases.

Supply and demand

Earlier this year, The Economics of Biodiversity: The Dasgupta Review, commissioned by the UK Treasury, was published. In this study, I sought to show how economics has overlooked Nature. Combining what we know about the biosphere from earth sciences and ecology, the Review sets out a framework for including Nature in our economic thinking and provides a guide for change through three broad, interconnected transitions.

The first is to ensure that our demands on Nature do not exceed its supply. What we demand of Nature (what some term our "ecological footprint") has for some decades far exceeded Nature's ability to meet those demands on a sustainable basis, with the result that the biosphere is being degraded at an alarming rate.

This persistent demand overshoot is endangering the prosperity of current and future generations, fueling significant risk for our economies and well-being. Technological innovations-for example, those geared toward sustainable food production-have an important role to play in ensuring that our demands on Nature do not exceed its supply.

But if we are to avoid exceeding the limits of what Nature can provide while meeting the needs of the human population, consumption and production patterns must be fundamentally restructured as well. Policies that change prices and behavioral norms-for example, by aligning environmental objectives along entire supply chains and enforcing standards for reuse, recycling, and sharing-can accelerate efforts to break the links between damaging forms of consumption and production and the natural environment.

Human population growth has significant implications for our demands on Nature, including for future patterns of global consumption. Support for community-based family planning can shift preferences and behavior and accelerate demographic transition, as can improving women's access to finance, information, and education.

Inclusive wealth

The second transition involves changing our measure of economic success. Reshaping the tools used in economic measurement is a necessary step on that journey. GDP remains a critical measure of economic activity when it comes to short-term macroeconomic analysis. But it is not an appropriate measure of long-term economic performance. This is because it does not tell us how an economy's assets, particularly its natural assets, are being enhanced or diminished by the decisions we make.

We should instead be using a measure that accounts for the value of all capital stocks-produced capital (roads, buildings, ports, machines), human capital (skills, knowledge), and natural capital. We may call that measure "inclusive wealth." Comprising all three types of capital, inclusive wealth shows the benefits from investing in natural assets and the trade-offs and interactions between investments in different assets. Only with this more complete picture is it possible to understand whether a country is experiencing economic prosperity. New Zealand's "wellbeing budget" and the use of "gross ecosystem product" in China are examples explored in the Review of steps being taken to establish that more complete picture.

To illustrate, the export revenues of natural resources (for example, primary products in the tropics) do not reflect the social costs of their removal from the environment; in other words, the trade of these goods does not account for how the extraction process will affect the ecosystem from which they are drawn or the long-term consequences faced by those communities as a result. There is thus a transfer of wealth from countries that export primary products to importing countries. The implication is more than ironic: it is possible that the expansion of international trade has contributed to a massive transfer of wealth from poor countries to rich countries, without its being recorded in official statistics.

Of course, it is not sufficient to account only for natural assets. We need to invest in Nature. That requires a financial system that channels financial investments-public and private-toward economic activities that enhance our stock of natural assets and encourage sustainable consumption and production. Investment can also mean simply waiting; when left alone, Nature grows and regenerates.

Institutional failure

That brings us to the third transition: transforming our institutions to enable change. At the heart of our unsustainable engagement with Nature lies profound institutional failure. Nature's worth to society-the value of the various goods and services it provides-is not reflected in market prices. The open seas and the atmosphere are open-access resources and have fallen prey to the so-called tragedy of the commons. Such pricing distortions have led us to invest relatively more in other assets, such as produced capital, and underinvest in our natural assets. And since many constituents of Nature are mobile, invisible, or silent, the effects of a number of our actions on ourselves and others-including our descendants-are hard to trace and go unaccounted for, giving rise to widespread externalities.

To exacerbate these distortions, governments almost everywhere pay people more to exploit Nature than to protect it. A conservative estimate of the total global cost of subsidies that damage Nature is about $4 to $6 trillion a year.

A thriving natural environment, underpinned by abundant biodiversity, is our ultimate safety net. Just as diversity within a portfolio of financial assets reduces risk and uncertainty, diversity within a portfolio of natural assets-biodiversity-directly and indirectly increases Nature's resilience to shocks, reducing risks to the services on which we rely.

A thriving natural environment, underpinned by abundant biodiversity, is our ultimate safety net.

Far more global support is needed to raise financial institutions' understanding and awareness of Nature-related financial risks. Central banks and financial supervisors can do this by assessing the systemic extent of these risks. The IMF, at the center of the global financial safety net, can also play an essential role in both assessing and managing these Nature-related risks in its surveillance and its financial and technical assistance.

The next steps

With heightened awareness of the place of Nature in our lives, a message brought home to us by the pandemic, this year is critical in reimagining our economics and our economic and financial decision-making. World leaders will gather for two conferences-the UN Convention on Biological Diversity (COP15) and the UN Climate Change Conference (COP26)-to discuss the intrinsically linked issues of climate change and biodiversity loss.

The only way to combat this biodiversity crisis is through transformative change, which demands sustained commitment from actors at all levels-from citizens all the way to international financial institutions such as the IMF. The Economics of Biodiversity Review highlights success stories from around the world, demonstrating that the type of change necessary is possible. We must redeploy the ingenuity that allowed humanity's demands on Nature to grow so large, to bring about the transformation necessary to reimagine our relationship with Nature. We and our descendants deserve nothing less.

PARTHA DASGUPTA is the Frank Ramsey Professor Emeritus of Economics at the University of Cambridge.

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Partha Dasgupta: Economics and Nature - IMF F&D

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Download PDF Good economics demands that we manage Nature better The past 70 years are a success story on many counts. We are healthier, live longer, and enjoy higher income, on average, than our predecessors. The proportion of the world's population in absolute poverty has fallen dramatically.

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This is my article. It is about economical growth in Asia.

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This is my article. It is about economical growth in Asia.

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1)extrapolation- forecasting which you make relying on trends which you discover during researchers.

For example: Extrapolation shows that in next 10 years all people will use electric cars.

This word was made by combining English words «extra» and «interpolate».
2)depreciation- decrease in value of money or other assets.

For example :Inflation is a depreciation of money.

Etymology:  «depreciation” comes from Latin word depretiare “de” means “down” and “pretiare” means “price”.
3) Fertility  rate - it is an amount of children for one woman. This rate is necessary to understand how populatin will change.

Fertility rate in Russia is 1,5.

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ECONOMIC
ISSUES
NO. 1

Other Titles in this Series

©1997 International Monetary Fund Growth in East Asia
What We Can and What We Cannot Infer
Michael Sarel
September 1996 PDF File (230k) also available. Use the free Adobe Acrobat Reader to view pdf files.

[ Preface] [ What We Can and What We Cannot Infer] [ The Nature of Growth]
[ The Role of Public Policy] [ Investment and Exports] [ Initial Conditions]
[ Concluding Remarks] [ References] [ Author Information]

Preface

The Economic Issues series was inaugurated in September 1996. Its aim is to make accessible to a broad readership of nonspecialists some of the economic research being produced in the International Monetary Fund on topical issues. The raw material of the series is drawn mainly from IMF Working Papers, technical papers produced by Fund staff members and visiting scholars, as well as from policy-related research papers. This material is refined for the general readership by editing and partial redrafting.

The following paper draws on material originally contained in IMF Working Paper 95/98, "Growth in East Asia: What We Can and What We Cannot Infer From It," by Michael Sarel, an Economist in the Fund's Southeast Asia and Pacific Department. It has been prepared by David D. Driscoll of the Fund's External Relations Department. Readers interested in the original Working Paper may purchase a copy from IMF Publication Services.

Growth in East Asia
What We Can and What We Cannot Infer

The spectacular growth of many economies in East Asia over the past 30 years has amazed the economics profession and has evoked a torrent of books and articles attempting to explain the phenomenon. Articles on why the most successful economies of the region Hong Kong, Korea, Singapore, and Taiwan Province of China have grown, to say the least, robustly invariably refer to the phenomenon as "miraculous." When practitioners of the Dismal Science have recourse to a Higher Power, the reader knows that he is in trouble. Confusion is compounded when he discovers that ideological debate has multiplied even further the analyses of this phenomenon. Rather than swelling the torrent of interpretations, this paper sets for itself the modest agenda of reviewing the weightiest arguments in the literature that attempt to identify the reasons for the extraordinary economic growth in East Asia and trying to decide which arguments make sense. The exercise has value because finding the right explanation might suggest how to replicate this success elsewhere and, as a bonus, might also satisfy the reader's urge to solve an engaging intellectual puzzle. It is best if we start with the facts.

Since 1960 Asia, the largest and most populous of the continents, has become richer faster than any other region of the world. Of course, this growth has not occurred at the same pace all over the continent. The western part of Asia grew during this period at about the same rate as the rest of the world, but, as a whole, the eastern half (ten countries: China, Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan Province of China, and Thailand) turned in a superior performance, although variations in achievement can be observed here too. The worst performer was the Philippines, which grew at about 2 percent a year (in per capita terms), about equal to the average of non-Asian countries. China, Indonesia, Japan, Malaysia, and Thailand did better, achieving growth rates of 3-5 percent. This impressive achievement is, however, still modest compared with the phenomenal growth of Hong Kong, Korea, Singapore, and Taiwan Province of China, known as the "Four Tigers" because of their powerful and intimidating economic performance. The Tigers have had annual growth rates of output per person well in excess of 6 percent. These growth rates, sustained over a 30-year period, are simply amazing. While the average resident of a non-Asian country in 1990 was 72 percent richer than his parents were in 1960, the corresponding figure for the average Korean is no less than 638 percent.

This paper begins by looking at the long-running debate over the nature of growth. Is growth the result for the most part of an accumulation of manpower and machinery, or is it the result of employing the latest technology? The paper then looks at the growth record of the four countries from three other angles: the influence of government intervention, the extent to which investments and exports can be considered the main engines of growth, and the significance for sustained growth of the economic conditions prevailing at the very beginning of the countries' period of extended growth. The paper concludes with a few minimalist observations on possible areas for future study.

The Nature of Growth:
Factor Accumulation or Technological Progress

Everyone agrees that the economies of East Asia, and particularly the Four Tigers, have grown spectacularly over the past generation, but nobody seems to agree on why. The debate over why they have grown so well in the past raises difficult questions about regional growth in the future and about the aspiration of countries elsewhere to replicate the East Asian success. The arguments at the center of the debate are based on theoretical notions of growth accounting.

This accounting method deals with three elements that contribute to the production of goods and services: labor, capital, and technology. Labor and capital, known collectively as the "factors of production," refer in this context to the workforce and to the capital goods (buildings, machines, vehicles) that the workforce uses in manufacturing some product or providing some service. Technology refers to all the methods employed by labor and capital to produce a good and depends on the development or acquisition of practical skills to get the job done more quickly and more efficiently. No one denies that all three elements must be present to some degree if an economy is to grow. What is subject to debate is the contribution of the factors of production relative to that of technology. Some believe that increased use of labor and capital explain all growth; others are persuaded that the answer to growth lies in the use of more efficient technology.

Within the growth accounting framework it is possible to describe mathematically, using a simple equation, the contributions of these three elements to the overall production of an economy. By dividing the equation by the number of people in the workforce, one can derive a dynamic equation that shows how output per person increases over time. Such an equation mathematically describes the contribution to higher output of the growth rate of labor participation, of capital employed per person, and of technology (the latter also known as the growth of "total factor productivity"). If applied empirically to specific economies this equation can give a good idea of what proportion of increased output is a result of higher labor participation and better use of capital and what proportion is the result of technological progress.

The traditional formulation of this equation suggests that a significant and sustained rate of technological progress is the only possible way, over the long run, for an economy to achieve a sustained rate of growth in output per person. Why? The labor participation rate can be increased for a while and will increase production, but obviously it cannot increase indefinitely (everybody will ultimately be employed). And more growth in capital than in labor ultimately leads to diminishing returns to capital, resulting in a fall in the growth of output even if capital continues to grow at a constant rate. Therefore, in order to achieve permanent growth, an economy must continuously improve its technology. This kind of growth is called "intensive growth." In contrast to intensive growth, increasing output by increasing inputs of labor and capital (extensive growth) can work only for a limited period, but it cannot last too long.

In a famous study, Solow (1956) conducted a growth accounting exercise such as the one described above. He found that accumulation of capital and an increase in the labor participation rate had a relatively minor effect, while technological progress accounted for most of the growth in output per person. Further studies have reconfirmed the validity of these conclusions. Accordingly, the standard view about the success of the East Asian countries emphasizes the role of technology in their high growth rates and focuses on the fast technological catch-up in these economies. In this view, these economies have succeeded because they learned to use technology faster and more efficiently than their competitors did.
A Contrarian View
The collapse of the Soviet Union in about 1990, after years of apparent economic success, caught most people by surprise. This collapse seemed to lend credence to the "extensive growth hypothesis," which argues that the Soviet Union, after many decades of extensive growth, ran into the inevitable diminishing returns effect, just as predicted in the growth accounting framework, because it had relied for its economic growth on a massive accumulation of capital and labor and had been slow to accept innovative technology. These developments in the economy of the Soviet Union served to raise concerns about other economies, including some East Asian countries, that have invested primarily in labor and capital rather than in technology over the past few decades. Krugman (1994) makes the comparison specific:

The newly industrializing countries of Asia, like the Soviet Union of the 1950s, have achieved rapid growth in large part through an astonishing mobilization of resources. Once one accounts for the role of rapidly growing inputs in these countries' growth, one finds little left to explain. Asian growth, like that of the Soviet Union in its high-growth era, seems to be driven by extraordinary growth in inputs like labor and capital rather than by gains in efficiency.

Likewise, in explaining the extraordinary postwar growth of the Four Tigers, Young (1994b) concludes that

one arrives at total factor productivity growth rates, both for the nonagricultural economy and for manufacturing in particular, which are well within the bounds of those experienced by the OECD and Latin American economies over equally long periods of time. While the growth of output and manufacturing exports in the newly industrializing countries of East Asia is virtually unprecedented, the growth of total factor productivity in these countries is not.

In the same vein, Kim and Lau (1994), comparing the sources of economic growth in these countries with those of Germany, France, Japan, the United Kingdom, and the United States, found that

by far the most important source of economic growth in these countries [the Four Tigers] is capital accumulation, accounting for between 48 and 72 percent of their economic growth, in contrast to the case of the Group of Five industrialized countries, in which technical progress has played the most important role, accounting for between 46 and 71 percent of their economic growth.

The results of these studies are not only strikingly different from the view presented earlier of the primacy of technological progress, but they also convey a very pessimistic message. First, economic growth in the Four Tigers is hardly miraculous: it is just the expected outcome of a massive accumulation of labor and capital. Second, the progress of these economies along this growth path for the past 30 years cannot continue. Sooner or later they will experience a dramatic decrease in growth. Third, the societies in these countries made enormous sacrifices of consumption and leisure to achieve these growth rates. Therefore, even if their so-called success can be replicated in other countries, it is probably not wise to do so.

But how conclusive are these results? In fact, conclusions based on these studies are not very robust in that they are sensitive to the specific assumptions of each study.

The main reason for this sensitivity is the difficulty of estimating the rate of growth of capital stock in the East Asian countries during the period under study. Especially in the case of the Four Tigers, for which there are no good data before 1960, it is extremely difficult to estimate the capital stock at that time. To estimate how much capital was available in 1960, dubious assumptions have to be made about the depreciation rate of capital stock and about how much investment flowed in during the years of explosive growth beginning in 1960. What, for example, are the depreciation rates of different types of capital (buildings, industrial machinery, computers)? Are they equal for all countries and for all industries, or are they higher in faster-growing economies? What method is being used to estimate investment flows in the past?

Additional interpretational problems come from trying to estimate the share of national income attributable to capital and the share attributable to labor. Does the same amount of capital produce equal income in all countries and in all industries? Can statistics about the labor participation rate be trusted? Is the amount of effective work proportional to the hours that people work, or does working extra hours lead to diminishing returns? Should different types of labor (factory, office) be summed together? How should human capital be treated?

Because of these unanswered and perhaps unanswerable questions, the results of studies that emphasize the contribution to growth of capital and labor and depreciate that of technology should not be regarded as definitive. They should be viewed as interesting, but only suggestive.
Some Counter-Contrarian Evidence
Using conventional parameters and a conventional method of extrapolation, we have conducted a growth accounting exercise for the Four Tigers during 1960-90 along the lines suggested by Young (1994a). The capital stock in these economies is assumed to be 0 in 1900 and subsequently to increase by investment flows less depreciation. The intention of this exercise is to demonstrate the general fragility of conclusions about the nature of the growth process in East Asia.

Figures 1-4 describe the results of this growth accounting exercise. Figure 1 compares the growth rates of output per person of the Four Tigers with those of the rest of the world during 1960-75 and 1975-90. The first four bars in this figure describe the growth rates of the individual Tigers. The fifth bar describes the simple average growth rate of 100 countries, representing the rest of the world (row). The sixth bar represents the mean of the growth rate of the rest of the world plus a 1.96 standard deviation (row + 1.96sd). Growth rates can be regarded as "high" if they are above the row but below row + 1.96sd, "very high" if they are around row + 1.96sd, and "outstanding" if they exceed this value. Figure 1 shows that in this comparison the growth rates of output per person of Hong Kong, Korea, and Taiwan Province of China were very high in the 1960-75 period and outstanding in 1975-90, while the growth rate of Singapore was outstanding during the first period and very high during the second.

Figure 2 describes, in the same manner, the growth rate of labor participation, which was generally high for the Four Tigers and outstanding in the case of Singapore during 1960-75. The first panel in Figure 3 describes the growth rate of capital per person during 1975-90. The rate of capital accumulation was high in Hong Kong, very high in Singapore and Taiwan Province of China, and outstanding in Korea. The second panel of Figure 3 describes the estimated rate of productivity growth during 1975-90: outstanding for Hong Kong, very high for Taiwan Province of China, somewhere between high and very high for Korea, and high for Singapore.

Finally, Figure 4 compares the rates of technological progress (total factor productivity) in the Four Tigers during 1975-90 with those achieved by Japan and the United States during the same period. The first panel of Figure 4 shows that the growth in productivity in all Four Tigers exceeded by far productivity growth in the United States. Three of the four (except Singapore) also exceeded productivity growth in Japan. The second panel of Figure 4 describes the proportion of growth of output per person that is explained by productivity growth. It demonstrates that in the case of the Four Tigers this proportion was not systematically different from those of Japan and the United States: for Hong Kong and Taiwan Province of China it was slightly higher, while in the case of Korea and Singapore it was slightly lower.

What conclusion emerges from this exercise? Although the Four Tigers accumulated capital and increased labor participation at a much faster rate than other economies, the increase in these two factors far from fully explains their exceptional growth rates; growth in productivity attributable to innovative technology also accounts for a significant fraction. In the case of Hong Kong, Korea, and Taiwan Province of China, their growth rates of total factor productivity are as outstanding as their output growth rates. Productivity growth in Singapore is less spectacular, but is still much above the world average. As a percentage of the growth rates of output per person, the productivity growth rates in these four economies are roughly similar to those in Japan and the United States.

A final note on the debate. Just when one seems to have arrived at the above unambiguous and intellectually satisfying conclusions, a nagging doubt recommends checking on how sensitive these findings are to changes in the main parameters of the growth accounting exercise, such as the a parameter (usually at 0.3333) indicating the relative contribution of labor and capital, the depreciation rate, the reference period for extrapolation, the chosen estimation period, and the date for the beginning of capital accumulation. A sensitivity analysis shows that most parameters do not affect the results in any significant way, but that the a parameter and the choice of a specific estimation period are all-important. Small, simultaneous changes in both a and the estimation period give results opposite to the neat conclusions presented above. The findings reported by Young (1994a) regarding the low productivity growth in the Four Tigers were obtained by using a relatively high value for a (0.45) and a specific estimation period (1970-85). These choices, though only slightly different from those in the baseline calculation, together yield an estimate of productivity growth significantly lower than the baseline result. In other words, the debate over the relative contribution to economic growth of factor accumulation versus more efficient technology is still very much alive. Stay tuned.

Role of Public Policy

As the foregoing consideration suggests, the labor and capital accumulation versus total factor productivity debate remains inconclusive. Can other factors shed light on the mystery of growth? One suggestion is to look at the role of government.

Lucas (1988) asked, "Is there some action a government of India could take that would lead the Indian economy to grow like Indonesia's or Egypt's? If so, what, exactly?" The importance of this question can hardly be exaggerated. A usable answer would be the academic equivalent of alchemy, turning the dross of everyday economics into pure gold. Accordingly, the highest ambition of economists who examine the East Asian success is to identify a set of public policies that has promoted economic growth there and gives promise of doing so elsewhere.

It should come as no surprise that opinions vary considerably about the effect of public policy and selective government interventions on stimulating economic growth. Exponents of these opinions fall into three schools. The first emphasizes the primacy of free markets. This school requires only that the government "get the basics right" and opposes any other kind of government intervention. (Getting the basics right means creating an environment in which the economy will thrive by, for example, making sure that the exchange rate reflects the economic fundamentals, that interest rates yield a positive return, that inflation is kept under control, and that taxes are not so burdensome as to discourage economic activity.) The second also embraces the view that the government get the basics right, but in addition advocates selective interventionist policies, particularly in developing countries. The third, somewhat agnostic, school denies the possibility of coming to any conclusion about the effects of public policy or of selective interventions on economic growth. The whole debate, according to this school, gets you nowhere.
Free Markets
The first school, basing its views on what is known as the neoclassical approach to economics in general and to economic growth in particular, espouses an underlying belief in classical liberalism. The production possibilities of any economy at any time are determined, according to this view, by the availability of physical resources and of innovative technology. The rate of economic growth in the long run is determined by the rate of technological progress, which is itself a natural outcome of fierce competition in the laissez-faire economic system. Since it regards markets as efficient, this school maintains that government should confine itself to providing public goods (roads and bridges, police protection) and to getting the basics right and should abstain from any further intervention in the market.

This school wishes to restrict the role of government in the economy, but it is not anarchistic. It would assign to government both a microeconomic and a macroeconomic function. In its microeconomic aspect, government should ensure property rights, law and order, and adequate provision of public goods. It should avoid high tax rates, price controls, and other distortions of relative prices. On the macroeconomic side, government should ensure stable and low inflation, avoid excessive budget deficits, promote the integrity of the financial and banking system, provide for open markets, and strive for stable and realistic exchange rates.

Advocates of this view see the success of East Asia as the natural outcome of these cautious policies.
Selective Intervention
The revisionist view does not share the neoclassical belief in the efficiency of markets. It asserts that, especially in the poorer countries, markets work imperfectly. In poor countries, production creates externalities (unintended undesirable effects, such as pollution), credit is limited, and the market is a melée in which foreign and domestic firms savage one another and the public through unfair trade practices. Accordingly, the revisionists recommend an activist government that will moderate the excesses of the market and assist the orderly development of the economy by acquiring technology and by allocating funds for useful projects that promise a good rate of return. De Long and Summers (1991) sum up this view: "The government should jump-start the industrialization process by transforming economic structure faster than private entrepreneurs would." Advocates of this view see the success of East Asia as confirming their conviction.

The revisionist view recognizes that the government must often choose firm-specific, highly complex, and nonuniform interventions. In extreme contradiction to the neoclassical doctrine, it allows, and even recommends, the active use of tax policy to manipulate relative prices in the economy. Even the World Bank (1993) report, after emphasizing the necessity of neoclassical "getting the basics right" policies in East Asia, concedes that

these fundamental policies do not tell the entire story. In each of these economies the government also intervened to foster development, often systematically and through multiple channels. Policy interventions took many forms: targeted and subsidized credit to selected industries, low deposit rates and ceilings on borrowing rates to increase profits and retained earnings, protection of domestic import substitutes, subsidies to declining industries, the establishment and financial support of government banks, public investment in applied research, firm- and industry-specific export targets, development of export marketing institutions, and wide sharing of information between public and private sectors.
Agnosticism
A third school, rejecting the claims of both the neoclassicists and the revisionists, claims that we can say nothing meaningful about selective interventions because we cannot properly identify how such policies spur economic growth. There are four reasons for this skepticism.

First, in analyzing "successful" policies, there is clear selection bias. Success has a thousand fathers; failure is an orphan. We know from the outset that the East Asian economies have been successful and that therefore government intervention did not inhibit growth. Consequently interventions in these economies are widely studied. On the other hand, since economists find unsuccessful economies much less attractive to study, they rarely look at government intervention in economies of this type. The selection of interventions to be analyzed is therefore skewed and is not scientifically neutral.

Second, in most cases it is impossible to offer a realistic counterfactual scenario. Would the Hawaiians have invented innovative igloos if it snowed a lot in Honolulu? Would the U.S. economy have grown faster if, like the Soviet Union, its government had turned Communist in 1917? In other words, in analyzing specific interventions, we cannot address the most (and perhaps the only) relevant question, "How fast would these economies have grown if these policies had not been in place?"

Third, public policy in the successful East Asian economies is far from homogeneous. Variation is large in the specific sectors and industries targeted for selective intervention in different countries. The more one examines the policies individual East Asian economies have pursued, the more evident it becomes how different, and indeed contradictory, these policies have been. Rodrik (1994), for example, remarks that the East Asian model encompasses highly interventionist strategies (Japan and Korea), as well as noninterventionist ones (Hong Kong and Thailand); explicitly redistributive policies (Malaysia), as well as distributionally neutral ones (most of the rest); clientelism (Indonesia and Thailand), as well as strong, autonomous states (Japan, Korea, Singapore); emphasis on large conglomerates (Korea), as well as on small, entrepreneurial firms (Taiwan). This range of strategies, all followed more or less successfully, suggests that the search for a simple explanation of the East Asian miracle may well be futile.

Fourth, determining the correct direction of causality is tricky. For instance, in successful economies one usually finds policies that encourage low fiscal deficits and good educational systems. Are these policies responsible for the success of the economy, or is the success of the economy responsible for the policies? Observing that a specific variable is present along with growth does not necessarily constitute proof that the policy generates growth. It might be the other way around. For example, it is much easier for a government to maintain a healthy fiscal position when the economy is growing and tax revenues are on the increase than when the economy is stagnant and demand is strong for deficit-creating social expenditures, such as unemployment compensation. Is a small deficit a result or is it a cause of economic growth? Conventional wisdom relates education to wealth. But which causes which? When an economy is booming, a government can afford generous subsidies for education. Moreover, the demand for education increases when an economy is growing and the population is becoming richer (it is unnecessary for children to start working at age 12). Furthermore, when an economy experiences rapid technological change, the advantage of educated over uneducated workers will be greater than when the economy is stagnant. Therefore there will be an increase in the demand for education by individuals who want a better job in the dynamic economy. In this case, by the way, further education constitutes an advantage for the specific individual relative to other individuals but does not necessarily improve the macroeconomic prospects of the economy.

These examples are presented not to prove that government policies are unimportant, but to make the modest point that we still understand very little about the relationship between public policy and the extraordinary growth rates of the East Asian economies. Other countries should be careful in trying to imitate the East Asian policies. Not understanding the causality between growth and industrialization, in particular, has proved to be a costly mistake for many poor countries that pushed for rapid industrialization in a futile effort to boost economic growth.

Investment and Exports: The Engines of Growth?

Among the many reasons suggested to account for the East Asian success, the investment rate and the export orientation of these economies enjoy enthusiastic support. These are often called "engines of growth" because their strength seems to be pulling the whole economy forward. Moreover, they appear to generate beneficial spillover effects for the rest of the economy. The policy implication of this view is obvious. If the hypothesis is valid, the government should jump start the engines of growth, and if certain sectors continue to contribute to economic progress, while others do not, then government should assist the economy's forward motion by promoting the "good" sectors. Therefore, it should encourage investments and exports, using such policy instruments as direct subsidies or preferential allocation of credit to promote these activities.
Main Arguments
The view that investments and exports are engines of growth is based on one empirical and one theoretical argument. The empirical argument is that most East Asian countries that experience phenomenal growth rates also enjoy impressive rates of investment and are successful exporters. The theoretical argument as regards investment is that a high investment rate increases the capital stock (things used to create wealth) and that this can permanently increase the growth rate through economies of scale (e.g., bigger, more efficient factories, larger markets) and other beneficial side effects. In the case of exports, the theoretical argument is that export orientation increases the openness of the economy and, by exposing it to foreign technology and foreign competition, provokes a rapid rate of technological progress.
What Is the Direction of Causality?
As stated above, a positive correlation between two variables (where one is found, the other is found) does not prove that one causes the other. In all the East Asian economies one can find export orientation and rapid technological progress. How are export orientation and technological progress related? The theoretical argument suggests that because a country is oriented to exporting, it becomes exposed to foreign technology: export orientation is the cause of technological advance. But the opposite might also be true, that technological advances cause export orientation. Suppose that some industries improve their technology and others do not. It is natural that industries with more advanced technology can compete in international markets and increase the quantity of their exports. In this case, the data will reveal a strong correlation between export performance and the rate of technological progress across industries. Likewise, developing countries that are better in learning and applying advanced foreign technology will enjoy an advantage in world markets and be able to sell their products abroad.

Investment rates (or equivalently, saving rates) appear to have a causal relationship to growth rates (i.e., saving causes growth). Nevertheless, a strong argument of reversed causality can be made even in this case. A study by Carroll and Weil (1994), examining data on savings and investment within households in various countries, found, in fact, that growth causes saving, but saving does not cause growth. Using these data, they discovered that households whose income is on the rise save more than households that experience little or no growth in income, a finding that represents a powerful reinterpretation of the growth-saving relationship. The study also offers from its findings a theoretical explanation that recognizes savers as creatures of habit. Although their incomes may be growing, households will respond slowly to their expanding wealth and will increase their consumption only gradually, with the effect that they save more. In this case, increased saving rates are caused by increased growth rates, and not vice versa.

Initial Conditions

The main empirical argument that a high rate of investment and a concentration on exporting have caused economic growth is the strong positive correlation between these two variables and the rates of growth found in the East Asian economies. In particular, the Four Tigers, the best performing economies in the region, display exceptional investment rates and an extremely high degree of openness (that is, they have a lot of exports and imports relative to the size of the economy). The section above stressed the problem of possible reverse causality between growth and these variables. A further problem is that of averages. Most studies observe a correlation between investment and exporting that are averaged over a period and a rate of growth that is averaged over the same period. Using averages over a period obscures the relation between the variables. A simple partial solution to disentangling the skein of causality is to observe the values of the explanatory variables at the beginning of the period rather than to take their average values over the period. Finding, for example, that economies with high growth rates during the 1960-90 period had very high investment rates or a significant export orientation around 1960 would go a long way toward solving the problem of reverse causality.

An examination of the dynamics of the investment rate and the openness of the economies of Hong Kong, Korea, Singapore, and Taiwan Province of China that compares the 1960 levels of these variables in the Four Tigers with those in other countries does not offer much support for the view that export orientation and investment have been engines of growth. The comparison of the 1960 investment rates of the four economies with the investment rates of 100 other economies clearly rejects the view that investment rates were high in the Four Tigers in 1960. Not only were the investment rates in these economies low in absolute values, but they were very modest even when compared with rates in other countries with a comparable level of income.

The same comparative exercise can be performed to test for openness (imports and exports as a percentage of GDP), taking into consideration such factors as the geographical size of the country, an important variable in determining the degree of openness of an economy. Small countries need to trade more than large countries with big internal markets. Reflecting this, Hong Kong and Singapore show a high degree of openness both during 1960-90 and at the beginning of the same period. On the other hand, Korea and Taiwan Province of China, which are geographically much larger, were not particularly open in 1960, either in absolute terms or relative to other countries of comparable size.

This analysis demonstrates that high investment rates and a large degree of openness were certainly not a general feature of the Four Tigers in 1960. The high investment rates (Korea, Singapore, and Taiwan Province of China) and the high degree of openness (Korea and Taiwan Province of China) were economic features that evolved in these economies only gradually, accompanying rather than preceding the process of economic growth. The conclusion is that the view of these activities as engines of growth does not find much support in the data.
Some Positive Evidence Regarding Initial Conditions
Were there other variables that characterized the initial conditions in the East Asian countries and, if so, what contribution might they have made to the subsequent growth of these economies? A study by Rodrik in 1994 examined precisely this question. It was inspired by the view that "In searching for the secrets of the East Asian miracle, the obvious place to look is the set of initial conditions that precede economic take-off." Examining the initial conditions, the study finds that, in certain important respects, they were very different from what one would expect, given the income level of these economies.

Tracing average growth of income per person in 41 countries during 1960-85 back to initial conditions in 1960, Rodrik shows that countries that were poorer, but that had good primary education systems and less inequality of income and land distribution around 1960, grew faster than the others during the following period. The study compares actual data on education and demographics (fertility rate and mortality rate) in eight East Asian countries with the predicted values we would expect, given their initial income, and compared inequality of income and land ownership around 1960 with the same characteristics of other developing countries at a comparable income level. The results show strong evidence that in terms of initial conditions (equality of land and income, school enrollment, high life expectancy and low fertility rates), the eight East Asian countries were significantly better off than countries with similar levels of income. These findings raise the possibility (but do not prove) that these initial conditions may help explain the phenomenal growth rates we observed in East Asia after 1960.

The empirical evidence presented by Rodrik regarding the possible influence of initial conditions in explaining the East Asian miracle is impressive but should be accepted with caution because of the small number of observations. Data on initial conditions in 1960, especially for developing countries, are rare and are of questionable quality. While Rodrik's results suggest a possible explanation for the East Asian success, they are not robust enough to rule out other possibilities. Furthermore, it is not clear what the normative implications of these findings are. For example, suppose that land equality is indeed beneficial for economic growth. Does that mean that land redistribution is a good policy to promote growth? Not necessarily. The redistribution may be extremely damaging by weakening property rights or disrupting political stability, which are obviously essential to growth. Likewise, lowering fertility rates by government decree may be bad for growth, even if low fertility rates are found to be good for growth.

Concluding Remarks

The recent literature on the East Asian growth experience has sparked an intense intellectual debate. This study has attempted to review critically the main arguments in this debate, covering some of its most important dimensions. Inevitably, other important dimensions did not receive fair representation, such as theories about nonmonotonic dynamics of growth (in which middle-income countries can take off and grow faster than either rich or poor countries) and about the importance of the geographical concentration of growth successes (why is East Asia the habitat of all Four Tigers?).

The study does not offer clear and conclusive results nor does it make clear policy recommendations. Its main judgment is that, from a positive point of view, a promising avenue for the explanation of growth performance is the examination of initial conditions. Nevertheless, from a normative point of view, it is far from clear what specific policies governments should pursue, beyond the standard set of policies aimed at getting the basics right.

References

Carroll, Christopher D., and David N. Weil, "Saving and Growth: A Reinterpretation," Carnegie-Rochester Conference Series on Public Policy, Vol. 40 (1994), pp. 133-92.

De Long, J. Bradford, and Lawrence H. Summers , "Equipment Investment and Economic Growth," Quarterly Journal of Economics, No. 106 (May 1991), pp. 445-502.

Kim, Jong-Il, and Lawrence J. Lau, "The Sources of Economic Growth of the East Asian Newly Industrialized Countries," Journal of the Japanese and International Economies, Vol. 8 (1994), pp. 235-71.

Krugman, Paul, "The Myth of Asia's Miracle," Foreign Affairs, Vol. 73 (November-December, 1994), pp. 62-78.

Lucas, Robert E., Jr., "On the Mechanics of Economic Development," Journal of Monetary Economics, No. 22 (July, 1988), pp. 3-42.

Rodrik, Dani, "King Kong Meets Godzilla: The World Bank and the East Asian Miracle," Chapter 1 in Miracle or Design? Lessons From the East Experience, ed. by Albert Fishlow and others (Washington: Overseas Development Council, 1994).

Solow, Robert M., "A Contribution to the Theory of Economic Growth," Quarterly Journal of Economics, No. 70 (1956), pp. 65-94.

World Bank, The East Asian Miracle: Economic Growth and Public Policy, Summary (New York: Oxford University Press, 1993).

Young, Alwyn, "Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore," NBER Economics Annual, (1992) pp. 13-54.

------ "Lessons From the East Asian NICs: A Contrarian View," European Economic Review, No. 38 (April, 1994a), pp. 964-73.

------ "Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience," NBER Working Paper, No. 4680 (March, 1994b).

Author Information

Michael Sarel is an economist in Southeast Asia and Pacific Department of the International Monetary Fund. He graduated from the Hebrew University of Jerusalem and received a Ph.D from Harvard University.

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Economic Issues 1 -- Growth in East Asia

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The spectacular growth of many economies in East Asia over the past 30 years has amazed the economics profession, which inevitably refers to the success of the so-called Four Tigers of the region (Hong Kong, Korea, Singapore, and Taiwan Province of China) as miraculous. This paper critically reviews the reasons alleged for this extraordinary growth.

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In this exciting article about global warming I found a few interesting words that I have never seen and used before:

1. Perilous - it is an adjective which describes something dangerous, something that can hurt you. The synonyms to this word are: "dangerous", "hazardous".
Example: Last year I went on a perilous journey across the mountains
Origin according to Oxford Languages:
This word comes from Old French perillous, from Latin periculosus.

2. Impediment- it is a noun which describes an obstacle that a person have to face in certain circumstances.
Synonyms to this word are: "hindrance", "barrier"
Example: There are a lot of impediments to economic development in our country.
Origin according to Merriam-Webster:
Impediment comes from a Latin verb that meant "to interfere with" or "to get in the way of progress".

3. To usher - to accompany, conduct somebody to a certain place.
Example: I ushered him to the main entrance.
Synonyms: direct, guide, lead
Unfortunately I did not find origin of this verb.

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Download PDF The COP26 meeting in Glasgow may usher in a new era of sustainable development
The COVID-19 pandemic showed us that human existence is fragile and perilous. However, if we do not take action now against climate change, the damage could be even greater and more lasting than the effects of the pandemic. Decisions made now are crucial in shaping the future of people and the planet. We must not go back to the old normal; it's imperative to build back better through sustainable, inclusive, and resilient growth.

The 2018 Intergovernmental Panel on Climate Change (IPCC) special report Global Warming of 1.5°C highlighted the grave risks of global warming beyond 1.5°C, the already evident impact of climate change, and the limited time to arrest it. Projections show that more rapid and severe climate change will inflict greater harm on the environment, lives, and livelihoods. For example, warming of 2°C instead of 1.5°C would essentially wipe out all coral reefs on the planet, instead of 70 to 90 percent, and expose 37 percent of the population, instead of 14 percent, to extreme heat at least once every five years. Warming that exceeds 2°C significantly increases the risk of larger, likely irreversible environmental changes. The IPCC's 2021 report documents the rapid acceleration of climate change, dramatically narrowing the window for limiting global warming from 2°C to 1.5°C and underscoring the imperative to reach net zero emissions by 2050.

There is a growing realization that the risks and economic costs of climate change have been underestimated. If unchecked, climate change could displace hundreds of millions of people, mostly in the developing world, increasing the potential for conflict. Likewise, carbon-intensive economies depend on jobs that may be eliminated in the future to reduce pollution and avert catastrophic climate change. Jobs and incomes will be lost, driving many into poverty, and the longer decarbonization is delayed, the more disorderly future shocks will be.

Thanks to technological advances, the cost of renewable energy is declining, making it increasingly competitive with fossil fuels. Moreover, there is mounting evidence that decarbonization does not hamper growth, development, and jobs but instead offers a path to more inclusive, resilient, and sustainable growth; indeed it can "unlock the inclusive growth story of the 21st century."

Investment and innovation

Increased spending on sustainable infrastructure has strong multiplier effects. In the short term, it can help the world economy recover from the effects of the COVID-19 pandemic by creating jobs and investment opportunities. In the medium term, it can spur innovation, create new sources of growth, and reduce poverty and inequality while delivering cleaner air and water. Over the long term, stabilizing climate change is the only path to a viable future.

To enable the shift away from carbon, governments must work with stakeholders to encourage clean energy and transportation systems, smart development, sustainable land use, wise water management, and a circular industrial economy. Major investment is needed to replace aging and polluting infrastructure, address infrastructure deficits and structural change in emerging market and developing economies, and protect and restore natural capital. In a report prepared for the Group of Seven (G7), we asserted that the world must increase annual investment by 2 percent of pre-pandemic gross domestic product for this decade and beyond.

An even greater boost is needed for emerging market and developing economies (other than China) given their recent sharp declines in investment and need for financing to support growth, development goals, and structural change, including rapid urbanization. The coming two decades will be a crucial period of transition for emerging market and developing economies, requiring greater investment in all forms of capital-physical, human, natural, and social.

In developed and developing economies, investment offers significant potential to accelerate the transition to net zero through lower- and zero-carbon solutions, from sustainable aviation fuels to electric vehicles. The 2020 "Paris Effect" report finds that by 2030, low-carbon solutions could be competitive in sectors accounting for 70 percent of emissions, up from 25 percent today and none five years ago.

Greater support by governments and stronger international cooperation can help accelerate the pace of innovation, further drive down costs, and ensure the widespread availability of low-carbon technologies, including in developing economies. Developed and developing economies need greater investment and fiscal stimulus now to counter the effects of the pandemic while responsibly managing debt and deficits over the medium term. Fiscal policy, on both the revenue and expenditure sides, can promote the transition to low-carbon, inclusive growth, including through green budgeting.

Policies to accelerate change

Policymakers must set expectations and provide a clear sense of direction on how to achieve the net zero emissions target. To that end, the IMF, the World Bank, and a growing number of academic, public, and private sector voices have called for elimination of fossil fuel subsidies and putting a price on carbon. A credible carbon price would send a critical signal to direct investment and innovation toward clean technologies and encourage energy efficiency. The IMF managing director said that "without it we simply cannot reach the goals of the Paris Agreement" and that "this price signal needs to get predictably stronger-by 2030, we need an average global price of $75 per ton of CO ₂, way up from today's $3 per ton," to be effective.

A credible carbon price would send a critical signal to direct investment and innovation toward clean technologies and encourage energy efficiency.

Along with carbon pricing, the transition to climate-resilient growth will require many different and mutually supportive policies given major market failures, the availability of other powerful and effective policy instruments, and political economy impediments. As outlined in a recent paper, governments and the private sector must

Reinforce carbon pricing with sector-specific policies-regulations, energy efficiency standards, feebates-and phase out coal.

Boost public investment in sustainable and resilient infrastructure, including nature-based solutions-restoration of degraded lands and conservation of existing ecosystems-while mitigating the impact on the poor.

Promote sustainable use of natural resources with policy measures such as payments for ecosystem services, regulations, reform of agricultural and water subsidies, and incentives for a circular economy to decouple economic growth from use of material resources.

Deploy industrial and other policies to spur climate-friendly innovation, including in digitalization, new materials, life sciences, and production processes, with a focus on the coordination of policy areas and on long-term policies and policy planning.

Provide information and promote public discussion on social norms and behavior to reduce energy demand and carbon intensity of consumption and business activity; educate the public about climate change risks and on early warning systems and evacuation plans in case of natural disasters.

Align finance with climate objectives-manage financial stability risks posed by climate change; align social and private returns with green investment; mobilize resources for investment, including a major boost to international climate finance; and make monetary and supervisory policies consistent with net-zero-emissions objectives.

Develop insurance instruments and social safety nets to mitigate the immediate impact of climate shocks.

Foster a just transition with investment in and support for the shift to a low-carbon economy for affected workers, businesses, and regions-rapid change will involve dislocation in both production and consumption.

Integrate sustainability considerations into public financial management and corporate governance; use better models and look beyond gross domestic product when deciding policy priorities and measuring well-being and sustainability.

By acting together on climate change, countries will benefit from stronger demand expansion and investment recovery, economies of scale, and lower costs for new technologies. The returns to collaboration and innovation are uniquely powerful at present given the high unemployment following the pandemic; the need for global access to COVID-19 vaccines; and the mounting threat of climate change, biodiversity loss, and environmental degradation. Failure to act on any of these threatens human health, economic prosperity, and the very future of the planet.

Mobilizing climate finance

Progress on global climate action will require commensurate ambition on climate finance. There are abundant pools of long-term savings, and interest rates are exceptionally low worldwide, but many emerging markets and most developing economies find it difficult to access long-term financing on the necessary scale, and the cost of capital is a major impediment to sustainable investment.

Developed economies' commitment to provide $100 billion in climate finance by 2020 is not just symbolic but foundational to climate action. Credible progress on the $100 billion commitment is a make-or-break issue for the success of the coming conference and for climate action in the developing world.

Rich countries need to build on the G7's commitment by boosting climate finance in 2021-22 and doubling it to $60 billion by 2025. There is an urgent need to improve the quality of climate finance, by boosting grants from their present low level, immediately doubling finance for adaptation, and ensuring that at least half of concessional climate finance supports adaptation and resilience objectives.

Because of their mandates, instruments, and financial structure, multilateral development banks are the most effective source of support for climate action in developing economies and for the mobilization and leveraging of climate finance. These institutions must use all their powers and instruments at this moment of crisis, agreeing to triple financing by 2025 from 2018 levels. This will require an accelerated replenishment this year of IDA (the World Bank's fund for assistance to the poorest countries), more effective use of development banks' balance sheets, enhanced private sector finance mobilization, accelerated alignment with the Paris Agreement, and proactive capital increases.

Establishing the Resilience and Sustainability Trust within the IMF could also help bolster efforts, and proposals from the United Nations Economic Commission for Africa and the Bezos Earth Fund offer other ways to leverage concessional climate finance. The use of country platforms, which the Group of Twenty (G20) has promoted but has yet to effectively apply, is another option to increase coordination.

Efforts to align the financial system with climate risk and opportunities are underway through the COP26 private finance agenda and in conjunction with initiatives such as the Financial Stability Board's Task Force on Climate-Related Financial Disclosures, the Network for Greening the Financial System, the Coalition of Finance Ministers for Climate Action, the European Union sustainable finance expert group, and, most recently, the Group of Twenty working group on sustainable finance.

COP26 goals

For nearly three decades the United Nations has been assembling almost every country on earth for global climate summits. Under the UK presidency, this year's summit will take place in Glasgow. The 26th Conference of the Parties on Climate Change (COP26), postponed for a year because of the COVID-19 pandemic, will bring together world leaders, scientists, businesses, public and private finance officials, climate activists, journalists, and other observers.

These are the key objectives for the Glasgow conference:

Broad-based targets and a roadmap to secure net zero by mid-century and keep 1.5o C within reach, with ambitious action on carbon pricing, sector policies, phaseout of coal, and support for innovation;

Support for adaptation and resilience, especially in poor and vulnerable countries, and for protection and rebuilding of natural capital;

Mobilization of private businesses and climate finance to support these objectives and channeling of finance to emerging market and developing economies;

Collective action to deliver these goals by finalizing the Paris Rulebook and accelerating collaboration.

From pledges to action

US Special Presidential Envoy for Climate John Kerry has described the coming conference, scheduled to begin in Glasgow on October 31, as the "last, best opportunity to get real" on the threat of climate change. The UK COP26 presidency, under the leadership of Alok Sharma, has set out priorities for the Glasgow conference: commitment to the net-zero-emissions target, stepping up action on adaptation and resilience, delivering on the $100 billion climate finance commitment, bolstering and transforming private finance, and increasing collaboration on all these objectives.

There has been encouraging progress already. At its June Carbis Bay meeting, the G7 committed to net zero emissions by 2050, halving collective emissions over 2010-30, increasing and improving climate finance by 2025, and conservation or protection of at least 30 percent of the land and oceans by 2030. And, for the first time, the G20 has signaled the need for action on carbon pricing. In the private sector, a growing number of businesses across all sectors have committed to net zero targets, and major financial institutions have set deadlines to take portfolios to net zero.

This decade will be decisive. What happens at national and international levels will determine whether the post-COVID recovery is strong and inclusive and whether we will embark on a new path of sustainable growth. If we get it right, we can usher in a new era of sustainable development with expanded opportunities for people across the world. Get it wrong and we will not only have a lost decade for development, but the people of the planet will be in great danger in the coming decades. We need to choose now, and we must choose wisely.

AMAR BHATTACHARYA is a senior fellow in the Center for Sustainable Development at the Brookings Institution.

NICHOLAS STERN is the IG Patel Chair of Economics and Government and chair of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.

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Our Last, Best Chance to Tackle Climate Change - IMF F&D

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Download PDF The COP26 meeting in Glasgow may usher in a new era of sustainable development The COVID-19 pandemic showed us that human existence is fragile and perilous. However, if we do not take action now against climate change, the damage could be even greater and more lasting than the effects of the pandemic.

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IMF Executive Board Concludes the 2021 Article IV Consultation with Italy - Diba Alkhazova’s Homework

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IMF Executive Board Concludes the 2021 Article IV Consultation with Italy - Diba Alkhazova’s Homework

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This article describes the economic situation in Italy as of June 2021 and what measures the country is taking to repair at least a small part of the damage caused by the pandemic.

To be honest, I came across a lot of words I didn’t know yet. But here are three of them that I wound most interesting:

1) Prompt (adj.) - done without delay; immediate (e.g. If we don’t take prompt measures right now, there will be no point to do it in the foreseeable future). Etymology: based on Old French prompt or Latin promptus ‘brought to light’, also ‘prepared, ready’, past participle of promere ‘to produce’, from pro- ‘out, forth’ + emere ‘take’.

2) Moratorium (noun) - a temporary prohibition of an activity (e.g.  Some of the moratoria (plural) on nuclear testing don’t sound safe). Etymology: modern Latin, neuter (used as a noun) of late Latin moratorius ‘delaying’, from Latin morat- ‘delayed’, from the verb morari, from mora ‘delay’.

3) Fiscal (adj.) - relating to government revenue, especially taxes (e.g. The government’s faced some serious fiscal challenges). Etymology (taken from merriam-webster.com): from the Latin noun fiscus, meaning "basket" or "treasury."

All definitions and etymology, except the etymology of “fiscal”, was taken from Oxford Languages.

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IMF Executive Board Concludes the 2021 Article IV Consultation with Italy

Washington, DC: On May 26, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Italy.

The COVID-19 pandemic has dealt a severe blow to the Italian people and their economy. GDP fell by nearly 9 percent in 2020, with much larger drops for contact-intensive services. Prompt and decisive policy responses by the Italian authorities, together with coordinated fiscal and monetary responses at the European level, were introduced to cushion the economic impact. A large fiscal expansion delivered income lifelines to households and firms, while extensive liquidity support was also provided, including through debt service moratoria and government guaranteed credits. A ban on layoffs was introduced. These measures helped to preserve the structure of the economy but may be concealing the extent of underlying weakness in firms' financial health, labor market slack and loan quality.

The pandemic interrupted the slow and still incomplete recovery from the double-dip recession that followed the global financial and euro area debt crises. During the past decade, productivity continued to stagnate, the public debt ratio drifted up to high levels and regional income disparities widened. Although considerable progress had been achieved in reducing banks' nonperforming loans, NPL ratios remained above the euro area average. Moreover, Italian banks' exposure to the domestic sovereign remains high.

The economic outlook depends on the path of the pandemic, the extent of structural change it will usher in, as well as the effectiveness of economic and public health policies. The recovery will be supported by the ongoing vaccination campaign and substantial investment spending under the government's multi-year National Recovery and Resilience Plan (NRRP), mainly financed by Next Generation EU resources, to increase physical and social infrastructure and support structural reforms. GDP is expected to rebound by about 4¼ percent in 2021, while increased investment spending would keep growth well-above the previous trend for the next several years. Nonetheless, long-run economic scarring could be sizable. Risks relate in the near term to the speed at which the virus is defeated and the extent of savings drawdown, and over the longer term, to preserving favorable financial conditions, adequacy of NRRP implementation and maintaining the political momentum for structural reforms. A materialization of these longer-term risks could exacerbate the already high public debt vulnerabilities.

Executive Directors commended the Italian and European authorities for their strong and decisive policies that cushioned the social and economic impact of the pandemic. They noted that a robust recovery is expected in 2021 supported by ongoing vaccinations, although large uncertainty remains. Continued policy support will be necessary until the recovery takes hold. Prompt and effective implementation of structural reforms will also be critical to support investment under the National Recovery and Resilience Plan to boost potential growth and foster a green, digital, and more inclusive economy.

Directors recommended that fiscal policy continue to cushion the economic effects of the pandemic through temporary and targeted measures, coupled with a credible plan to significantly reduce public debt ratios over the medium term. They noted that the authorities' plan to strengthen the economy and public finances through a large investment program would capitalize on the temporary window of favorable post pandemic growth and financing conditions. They encouraged the swift adoption of growth enhancing reforms, while also raising the efficiency and equity of government spending and tax systems.

Directors stressed the need to support the financial health of viable firms. State resources could help mobilize private investment, with a prominent role for the private sector in determining viability. Faster procedures for debt restructuring and liquidation of nonviable firms will also be important.

Directors noted that the financial sector has been resilient but warrants close monitoring. They recommended continuing to support bank lending but with improved targeting. Incentives for prudent lending and updating borrower checks for any extension of loan moratoria are also important. Directors highlighted the need for a better understanding of loan quality and the proactive classification, provisioning, and expeditious resolution of problem loans.

Directors noted that labor market turnover should resume once the health crisis recedes and the firing ban is phased out. Comprehensive upskilling programs together with labor market reforms and enhanced social safety nets will be critical for raising productivity and helping to transition workers into expanding sectors and bringing more women and youth into the workforce.

Directors welcomed the opportunity provided by Next Generation EU resources to support a greener and more equitable economy. They emphasized that public investment should be accompanied by prompt modernization of public administration and the judiciary, efficient public procurement, enhanced public investment governance, and reduced barriers to competition.

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IMF Executive Board Concludes the 2021 Article IV Consultation with Italy

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Washington, DC: On May 26, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Italy. The COVID-19 pandemic has dealt a severe blow to the Italian people and their economy. GDP fell by nearly 9 percent in 2020, with much larger drops for contact-intensive services.

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I turned my attention to the article dedicated to the link between caring for the environment and the growth of places in the labor market. At the moment, the economy spends more money on non-ecological areas, which will have a bad impact in the future.

1)Likelihood-denotes the fact of something probable (probability)

«Today's events indicate the likelihood of continuing ethnic regional conflicts».

It consists of two English words "like" and "hood".

hood-word-forming element meaning "state or condition of being," from Old English -had "condition, quality, position" (as in cildhad "childhood," preosthad "priesthood," werhad "manhood"), cognate with German -heit/-keit, Dutch -heid, Old Frisian and Old Saxon -hed.

Originally a free-standing word, in Modern English it survives only in this suffix.

2)debt-financed-This is borrowed money that you return taking into account the agreed interest rate. The most common forms are bank and mortgage loans.

«The growth of inequality is clearly associated with over-debt-financed consumption and investment patterns, which in turn contributed to the financial and economic crises».

debt-from Old French dete, from Latin debitum "thing owed,"

financed-from Old French finance "end, ending; pardon, remission; payment, expense; settlement of a debt", noun of action from finer "to end, settle a dispute or debt.

2)jump-start -To do something extremely useful or profitable in order to activate any sphere of activity or life.

«International support is still required in order to jump-start the development of the economies of the third world countries”.

Sources:
Etymology: https://www.etymonline.com/
Some of the examples were taken and redone from here: https://context.reverso.net/перевод/

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By Kristalina Georgieva and Rajiv J. Shah

Climate change and the COVID-19 crisis have a great deal in common. Both are human tragedies and economic catastrophes: The pandemic has taken more than a million lives, thrown hundreds of millions out of work, and is projected to wipe out $28 trillion in output over the next five years; climate change's effects, meanwhile, are upending lives and livelihoods. Both crises are most devastating for vulnerable people and communities around the world. And both punish nations for under-preparation and shortsightedness.

The two crises share something else in common: A strong, coordinated, green public investment push can help address both.
The world is in the middle of massive efforts to restart economies and get people back to work.
The world is in the middle of massive efforts to restart economies and get people back to work. World leaders gathered at the Paris Peace Forum some weeks ago to discuss next steps; that conversation continued some days ago at the G20 summit. We have an opportunity to make smart, coordinated decisions-ones that can catalyze green investments to jump-start the recovery and decrease the likelihood and impact of climate catastrophe.

In response to the pandemic's economic devastation, the world's largest economies have already committed over $12 trillion in fiscal spending for coronavirus recovery, and many have the capacity to do far more. As they make new investments, the importance of synchronization is clear. Strong evidence, including from the financial crisis of a decade ago, suggests that if G20 countries acted alone rather than acting together, it would take about two-thirds more spending to achieve the same outcomes.

Rather than invest in fossil-fueled technology like coal-fired plants that will accelerate climate change, we can choose a greener, better way. Job-rich projects include planting forests and mangroves, engaging in soil conservation, and retrofitting buildings to make them more energy efficient. Building climate-resilient infrastructure and expanding green public transportation, renewable energy, and smart electricity grids are also essential. And investing in off-grid renewables creates growth by connecting some of the 3.5 billion people who currently lack access to sufficient electricity.

The world must take advantage of the latest technological innovations, and we are already seeing action at scale. The European Union has pledged to spend more than $640 billion (€550 billion) on green projects over the next several years. Emerging market countries like Indonesia and Egypt are issuing green bonds. But every large economy, every international institution, every philanthropy, and every private investor can do more. Indeed, as the Organization for Economic Cooperation and Development has observed, the balance between green and non-green spending so far tilts too much toward the latter, risking further environmental degradation.

During the 2008 financial crisis, G20 leaders came together behind a coordinated recovery program. A similar move in the weeks and months ahead could mobilize new sources of capital for countries that need it, including low-income countries where much of the climate adaptation work must be done. The G20 would thus build on the actions it already took to help low-income countries during the pandemic: to suspend their debt service payments and to set forth a common framework for resolving unsustainable debt on a case-by-case basis.

Governments could also design policies that could unlock capital and ingenuity from the private sector. Right now, the returns on green investments are growing as costs drop. Still, an accelerated private sector shift to cleaner energy and greater energy efficiency requires a steadily increasing carbon price or equivalent measures. Some of the revenue can be used to ensure a "just transition" that protects people in poverty from higher energy prices and assists displaced workers. A debt-financed green investment plan combined with carbon pricing could actually boost economic growth for many years, creating around 12 million net new jobs through 2027.

If we take sustained action, starting now, history will remember one more commonality between the COVID-19 and climate crises: that we came out of them stronger and more resilient.

This article originally appeared on Fortune.com.

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How Governments Can Create a Green, Job-rich Global Recovery

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By Kristalina Georgieva and Rajiv J. Shah عربي, 中文, Español, Français, 日本語, Português, Русский Climate change and the COVID-19 crisis have a great deal in common. Both are human tragedies and economic catastrophes: The pandemic has taken more than a million lives, thrown hundreds

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This article is shorter than other ones published here. However, it is still highly informative, as it contains possible explanations for the occurrence of this boom.

While reading I found certain amount of words I'm not familiar with. Here is the list of them:

1) Ubiquitous (adj)

Meaning:
This adjective is used when it is needed to say that something is found everywhere.

Example:
His ubiquitous minions watched my every move, so I could only move around the narrow streets.

Etymology:
Word ubiquitous appeared in 19th century. It came from Latin word ubiquitas, which came from ubique (meaning - everywhere), which came from ubi (meaning - where)

2) Overseas (adj/adv)

Meaning:
Overseas is used to mention that something is somehow connected with a foreign country (most likely located over the sea)

Example:
Jack has to go on an overseas trip to teach lessons offline.

Etymology:
Came from word Old English word oversea which was used to say about something connected with traveling by sea. (https://www.etymonline.com/word/overseas)

3) Illicit (adj)

Meaning:
Means illegal, unlawful, banned by special documents (law, school rules, etc)

Example:
Athletes are time to time accused of using illicit drugs which boost their stamina.

Etymology:

Came from Latin word illicitus or French word illicite. Both of these words mean the same thing as illicit.

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A curious thing has happened in US currency: the $100 bill recently overtook the ubiquitous $1 bill in circulation volume, for the first time in history. In other words, the most valuable banknote in the United States became the most widely circulated.

As we show in our chart of the week, based on an article in the IMF's Finance & Development magazine, there are more $100 bills circulating now than ever before, roughly doubling in volume since the global financial crisis.

So what explains this boom in Benjamins, as the bills are known, especially when cashless options are increasing by the day? In this age of digital everything, are Americans suddenly growing nostalgic for greenbacks in high denominations?

Not exactly. While overall demand for US currency is indeed on the rise, most $100 bills are held abroad. According to the Federal Reserve Bank of Chicago, nearly 80 percent of $100 bills-and more than 60 percent of all US bills-are overseas, up from roughly 30 percent in 1980.
The most valuable banknote in the United States became the most widely circulated.
Geopolitical instability could be one reason behind the surge in $100 bills, according to Fed economist Ruth Judson. "Overseas demand for US dollars is likely driven by its status as a safe asset," Judson told the Richmond Fed's in 2018.

According to a 2017 paper by Judson, international demand for US dollars increased over the 1990s and into the early 2000s, and then stabilized or declined after the 2002 debut of the cash euro. This decline in demand continued until late 2008, when the global financial crisis triggered renewed demand for US banknotes.

Harvard University's Kenneth Rogoff says big banknotes and illicit activity are closely linked. "Worldwide, high-value currency notes are mainly used to avoid taxes and regulation, and for illegal activity," he observes. "Apartments and houses in major cities all over the world are paid for with suitcases of cash every day, and it is not because the buyers are afraid of bank failures."

Another factor may be at play, Rogoff says. "Underground demand for paper currency has been surely rising in part because interest rates and inflation are exceptionally low."

But why the dollar? Its role as the dominant international reserve currency may be the key, according to Rogoff.

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By IMFBlog Português A curious thing has happened in US currency: the $100 bill recently overtook the ubiquitous $1 bill in circulation volume, for the first time in history. In other words, the most valuable banknote in the United States became the most widely circulated.

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This article contains information on central bank’s negative interest rates.There are some words, which I found useful to learn. Here they are:

1) To undermine
Definition: to make someone less confident or make something weaker.
The Old English verb was underdelfan. Related: Undermined; undermining.
For example:
1. A series of scandals have undermined people’s confidence in the government.
2. In some scenarios, going below this lower bound could undermine financial system liquidity and stability.

2) Underpinning
Definition: support, strength or the basic structure of something. ‘Underpinning’ actually comes from architecture. In business English it is something that provides support for something, or that is the starting point from which something can develop.
For example:
1. He has the capacity to understand the theoretical underpinnings of linear algebra.
2. This was a case that had no legal or factual underpinnings.

3) Interest rate (neutral rate of interest)
Definition: the percent that a bank or other financial company charges you when you borrow money, or the percent it pays you when you keep money in an account.
For example:
1) The bank has plans to cut/raise interest rates.
2) A guidepost for central bankers in setting the policy rate is the concept of the neutral rate interest: the long-term interest rate that is consistent with stable inflation. (From the published article)

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Finance & Development, March 2020, Vol. 57, No. 1 PDF version

Back to Basics

How Can Interest Rates Be Negative?

Central banks are starting to experiment with negative interest rates to stimulate their countries' economies
Vikram Haksar and Emanuel Kopp
Money has been around for a long time. And we have always paid for using someone else's money or savings. The charge for doing this is known by many different words, from prayog in ancient Sanskrit to interest in modern English. The oldest known example of an institutionalized, legal interest rate is found in the Laws of Eshnunna, an ancient Babylonian text dating back to about 2000 BC.

For most of history, nominal interest rates-stated rates that borrowers pay on a loan-have been positive, that is, greater than zero. However, consider what happens when the rate of inflation exceeds the return on savings or loans. When inflation is 3 percent, and the interest rate on a loan is 2 percent, the lender's return after inflation is less than zero. In such a situation, we say the real interest rate-the nominal rate minus the rate of inflation-is negative.

In modern times, central banks have charged a positive nominal interest rate when lending out short-term funds to regulate the business cycle. However, in recent years, an increasing number of central banks have resorted to low-rate policies. Several, including the European Central Bank and the central banks of Denmark, Japan, Sweden, and Switzerland, have started experimenting with negative interest rates -essentially making banks pay to park their excess cash at the central bank. The aim is to encourage banks to lend out those funds instead, thereby countering the weak growth that persisted after the 2008 global financial crisis. For many, the world was turned upside down: Savers would now earn a negative return, while borrowers get paid to borrow money? It is not that simple.

Simply put, interest is the cost of credit or the cost of money. It is the amount a borrower agrees to pay to compensate a lender for using her money and to account for the associated risks. Economic theories underpinning interest rates vary, some pointing to interactions between the supply of savings and the demand for investment and others to the balance between money supply and demand. According to these theories, interest rates must be positive to motivate saving, and investors demand progressively higher interest rates the longer money is borrowed to compensate for the heightened risk involved in tying up their money longer. Hence, under normal circumstances, interest rates would be positive, and the longer the term, the higher the interest rate would have to be. Moreover, to know what an investment effectively yields or what a loan costs, it important to account for inflation, the rate at which money loses value. Expectations of inflation are therefore a key driver of longer-term interest rates.

While there are many different interest rates in financial markets, the policy interest rate set by a country's central bank provides the key benchmark for borrowing costs in the country's economy. Central banks vary the policy rate in response to changes in the economic cycle and to steer the country's economy by influencing many different (mainly short-term) interest rates. Higher policy rates provide incentives for saving, while lower rates motivate consumption and reduce the cost of business investment. A guidepost for central bankers in setting the policy rate is the concept of the neutral rate of interest : the long-term interest rate that is consistent with stable inflation. The neutral interest rate neither stimulates nor restrains economic growth. When interest rates are lower than the neutral rate, monetary policy is expansionary, and when they are higher, it is contractionary.

Today, there is broad agreement that, in many countries, this neutral interest rate has been on a clear downward trend for decades and is probably lower than previously assumed. But the drivers of this decline are not well understood. Some have emphasized the role of factors like long-term demographic trends (especially the aging societies in advanced economies), weak productivity growth, and the shortage of safe assets. Separately, persistently low inflation in advanced economies, often significantly below their targets or long-term averages, appears to have lowered markets' long-term inflation expectations. The combination of these factors likely explains the striking situation in today's bond markets: not only have long-term interest rates fallen, but in many countries, they are now negative.

Returning to monetary policy, following the global financial crisis, central banks cut nominal interest rates aggressively, in many cases to zero or close to zero. We call this the zero lower bound, a point below which some believed that interest rates could not go. But monetary policy affects an economy through similar mechanics both above and below zero. Indeed, negative interest rates also give consumers and businesses an incentive to spend or invest money rather than leave it in their bank accounts, where the value would be eroded by inflation. Overall, these aggressively low interest rates have probably helped somewhat, where implemented, in stimulating economic activity, though there remain uncertainties about side effects and risks.

A first concern with negative rates is their potential impact on bank profitability. Banks perform a key function by matching savings to useful projects that generate a high rate of return. In turn, they earn a spread, the difference between what they pay savers (depositors) and what they charge on the loans they make. When central banks lower their policy rates, the general tendency is for this spread to be reduced, as overall lending and longer-term interest rates tend to fall. When rates go below zero, banks may be reluctant to pass on the negative interest rates to their depositors by charging fees on their savings for fear that they will withdraw their deposits. If banks refrain from negative rates on deposits, this could in principle turn the lending spread negative, because the return on a loan would not cover the cost of holding deposits. This could in turn lower bank profitability and undermine financial system stability.

A second concern with negative interest rates on bank deposits is that they would give savers an incentive to switch out of deposits into holding cash. After all, it is not possible to reduce cash's face value (though some have proposed getting rid of cash altogether to make deeply negative rates feasible when needed). Hence there has been a concern that negative rates could reach a tipping point beyond which savers would flood out of banks and park their money in cash outside the banking system. We don't know for sure where such an effective lower bound on interest rates is. In some scenarios, going below this lower bound could undermine financial system liquidity and stability.

In practice, banks can charge other fees to recoup costs, and rates have not gotten negative enough for banks to try to pass on negative rates to small depositors (larger depositors have accepted some negative rates for the convenience of holding money in banks). But the concern remains about the limits to negative interest rate policies so long as cash exists as an alternative.

Overall, a low neutral rate implies that short-term interest rates could more frequently hit the zero lower bound and remain there for extended periods of time. As this occurs, central banks may increasingly need to resort to what were previously thought of as unconventional policies, including negative policy interest rates.

ART: ISTOCK / RASTUDIO
Opinions expressed in articles and other materials are those of the authors; they do not necessarily reflect IMF policy.

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Back to Basics: What Are Negative Interest Rates? - IMF F&D

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Finance & Development, March 2020, Vol. 57, No. 1 PDF version Central banks are starting to experiment with negative interest rates to stimulate their countries' economies Vikram Haksar and Emanuel Kopp Money has been around for a long time. And we have always paid for using someone else's money or savings.

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An incredibly relevent topic, which is discussed all around the world, was brought up in this article by Davide Furceri, Michael Ganslmeier, and Jonathan D. Ostry. Having gone through it, I picked three words i was unfamiliare with before. Here they are in the alphabetic order:

1. Legislation ( from late Latin legis latio - "proposing of a law" ). Legislation is a law or a set of laws ( according to the Cambridge Dictionary ).

If i were to use this wird in a sentence, i would come up with something like : Current president of the Russian Federation is going to introduce a new legislation before the upcoming presidential elections.

2. Negligible ( from obsolete ( extinct )  French négliger - "to neglect" ). Negligible is used to talk about something small and not imortant ( according to the Cambridge Dictionary ).

Let's compose a sentence using this word: The difference between the prices of these two tablets is negligible, so choosing which one to buy is a matter of preference.

3. Mitigation ( from Latin mitigare -> mitigatio - "alleviate, make less severe" ). It means to make something less harmfull , unpleasant or bad ( once again, according to the Cambridge Dictionary ).

Using this word in a sentence will make help us  fully understand its meaning: Mitigation of risks is a primary concern of most successful businesses.

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