Seminar Report
Moderator:
Christine Lagarde, Managing Director, International Monetary Fund
Panelists:
Melissa Dell, Professor of Economics, Harvard University
Emmanuel Farhi, Professor of Economics, Harvard University
Keyu Jin, Associate Professor of Economics, London School of Economics
Ricardo Reis, Professor of Economics, London School of Economics
In this session, panelists shared their views on the evolution of the global financial and monetary system, what challenges lie ahead, and the central role of the IMF in continuing to provide expertise to member states and as an avenue for further strengthening multilateral cooperation.
Key Points:
· Emmanuel Farhi. While the US dollar has preserved its role as the main global reserve currency, growing global demand for safe assets and interest rates at historically low levels, may lead to the reemergence of a “Triffin dilemma.” New currencies will likely enter the competition for reserve currency status. Higher competition would bring benefits – including a more stable system, resolving the shortage of safe assets, and reducing the significant benefits enjoyed by the US as the sole reserve currency issuer. Nevertheless, the path is likely to be disorderly with increased speculation and volatility. Farhi noted that there is scope for modernizing the role of the IMF, possibly by administering a new global reserve facility, acting as a central counterparty clearing platform for bilateral swap lines, or by offering its own short-term swap facility.
· Ricardo Reis. Following the global financial crisis there has been an increase in bilateral swap lines to ensure liquidity to domestic banking systems, in particular of dollar liquidity. Reis noted that the distinction between bilateral swap lines and IMF loans is becoming less clear and suggested that the IMF could act as an intermediary between the US Federal Reserve and central banks; the IMF would take on the risk exposure and set interest margins based on countries’ exchange rate risks. Reis also highlighted the unique position of the IMF to offer stress testing and asset quality reviews to its member states.
· Keyu Jin. The impact of China’s entry into the global economy has been significant. Jin argued that as China continues to integrate, “the financial history [of this century] will be written by China”; it will anchor global demand, provide liquidity in times of crisis, become a source of diversification for global portfolios, and potentially gain reserve currency status. However, a more liberal China may also imply increased global volatility. Therefore, the pace of liberalization needs to be carefully considered and it is important to maintain the approach of “selective opening up.” Fundamental change in China will take time. Going forward, the IMF could play an important role in enhancing cooperation and act as an intermediator to avoid confrontation among countries which would lead to additional market turbulence.
· Melissa Dell. There are long-lasting transitional costs from job disruption by trade and technological developments and it is imperative that these costs should not be underestimated. Dell gave the example of Mexico where violence and drug trafficking increased as jobs were lost due to increased competition from China. This is partly explained by economic conditions but also from a decline in the trust of institutions. Mounting evidence shows that these effects can last up to 30 years. Dell underscored the need to broaden the policy perspective and recognize that these challenges need to be confronted by thinking about the distributional consequences and the interlinkages between policies. She also urged drawing lessons of past experiences of economic transitions.
Quotes:
“The IMF is at the moment, yet again, at a point where we have to adjust, change and improve”. Christine Lagarde
Contributor: Marushia Li Gislén
In the aftermath of World War II, the IMF and the World Bank were created to establish a framework for economic cooperation and development that would lead to a more stable and prosperous global economy. Over the last 75 years, the world has indeed improved—incomes and living standards have risen. The benefits, however, remain unequally distributed within many countries, and prosperity is not assured for future generations in many parts of the globe. The seminar will bring together four of the best young academics in the world to discuss how they see the future of international cooperation—and how to further improve international cooperation to strengthen macroeconomic stability and prosperity.
Join the conversation: #BW75
Moderator
Christine Lagarde,
Managing Director, IMF
Chistine Lagarde is a French lawyer and politician who has been the Managing Director (MD) of the International Monetary Fund (IMF) since 5 July 2011. Previously, she held various, senior ministerial posts in the French government: she was Minister of Economic Affairs, Finance and Employment, Minister of Agriculture and Fishing and Minister of Trade in the government of Dominique de Villepin. An anti-trust and labour lawyer, Lagarde was the first female chair of major international law firm Baker & McKenzie, between 1999 and 2004.
Panelists
Melissa Dell,
Professor of Economics, Harvard University
Melissa Dell is a Professor of Economics at Harvard University and a Faculty Research Fellow at the National Bureau of Economic Research. In 2018, she was awarded the Elaine Bennett Research Prize by the American Economic Association, and The Economist named her one of “the decade’s eight best young economists.” Her research focuses on long-run economic development, primarily in Latin America and Asia. She has examined the impacts of weather on economic growth and is currently conducting research about the long-run effects of agrarian reform and agricultural technology investments in Mexico and East Asia. She received a Ph.D. in Economics from MIT, a master’s degree in Economics from Oxford, and a B.A. from Harvard College.
Emmanuel Farhi,
Professor of Economics, Harvard University
Emmanuel Farhi is a Professor of Economics at Harvard University. His research focuses on macroeconomics, finance, and international economics. His papers have been published in leading Economics journals. He is an affiliate of the NBER and CEP. He is a member of the Commission Économique de la Nation and a former member of the Conseil d'Analyse Économique. He was awarded the 2009 Bernácer Prize for the best European economist under the age of 40 by the Observatorio del Banco Central Europeo, the 2011 Mallinvaud Prize by the French Economic Association, the 2013 Best Young Economist Prize by Le Monde and the Cercles des Économistes, and the 2013 Banque de France and Toulouse School of Economics Prize in Macroeconomics and Finance. He grew up in France, where he attended the École Normale Supérieure and the Corps des Mines. He was awarded his Ph.D. by MIT in 2006.
Keyu Jin,
Associate Professor of Economics, London School of Economics and Political Science
Dr. Keyu Jin is an Associate Professor of Economics (with tenure) at the London School of Economics, where she researches on topics of globalization and the Chinese economy. She is from Beijing, China, and holds a B.A., M.A., and PhD from Harvard University. Multiple academic works on international macroeconomic and China have been published in the top journal in Economics, such as the American Economic Review. Between 2009-2017, she was on the editorial board of Review of Economic Studies. She writes widely about the Chinese economy, and writes for the Project Syndicate, Financial Times, and Caixin magazine in China. She has had prior experience in the World Bank, the IMF, and the New York Fed.
Ricardo Reis,
Professor of Economics, London School of Economics and Political Science
Ricardo Reis is the A.W. Phillips Professor of Economics at the London School of Economics. Recent honors include the 2017 BdF/TSE and the 2016 Bernácer Prize for best European researcher in macroeconomics under the age of 40 by the Observatorio del Banco Central Europeo. He has published widely on macroeconomic topics, including the study of inattention and disagreement, the dynamics of inflation, QE and central bank solvency, fiscal stabilizers, and the European periphery's slump and crisis. His public service includes writing a weekly newspaper column in his native Portugal and developing European Safe Bonds (ESBies). He has also served as a frequent advisor and consultant to central banks around the world.
Media Partners
Moderator:
Christine Lagarde, Managing Director, International Monetary Fund
Panelists:
Melissa Dell, Professor of Economics, Harvard University
Emmanuel Farhi, Professor of Economics, Harvard University
Keyu Jin, Associate Professor of Economics, London School of Economics
Ricardo Reis, Professor of Economics, London School of Economics
In this session, panelists shared their views on the evolution of the global financial and monetary system, what challenges lie ahead, and the central role of the IMF in continuing to provide expertise to member states and as an avenue for further strengthening multilateral cooperation.
Key Points:
· Emmanuel Farhi. While the US dollar has preserved its role as the main global reserve currency, growing global demand for safe assets and interest rates at historically low levels, may lead to the reemergence of a “Triffin dilemma.” New currencies will likely enter the competition for reserve currency status. Higher competition would bring benefits – including a more stable system, resolving the shortage of safe assets, and reducing the significant benefits enjoyed by the US as the sole reserve currency issuer. Nevertheless, the path is likely to be disorderly with increased speculation and volatility. Farhi noted that there is scope for modernizing the role of the IMF, possibly by administering a new global reserve facility, acting as a central counterparty clearing platform for bilateral swap lines, or by offering its own short-term swap facility.
· Ricardo Reis. Following the global financial crisis there has been an increase in bilateral swap lines to ensure liquidity to domestic banking systems, in particular of dollar liquidity. Reis noted that the distinction between bilateral swap lines and IMF loans is becoming less clear and suggested that the IMF could act as an intermediary between the US Federal Reserve and central banks; the IMF would take on the risk exposure and set interest margins based on countries’ exchange rate risks. Reis also highlighted the unique position of the IMF to offer stress testing and asset quality reviews to its member states.
· Keyu Jin. The impact of China’s entry into the global economy has been significant. Jin argued that as China continues to integrate, “the financial history [of this century] will be written by China”; it will anchor global demand, provide liquidity in times of crisis, become a source of diversification for global portfolios, and potentially gain reserve currency status. However, a more liberal China may also imply increased global volatility. Therefore, the pace of liberalization needs to be carefully considered and it is important to maintain the approach of “selective opening up.” Fundamental change in China will take time. Going forward, the IMF could play an important role in enhancing cooperation and act as an intermediator to avoid confrontation among countries which would lead to additional market turbulence.
· Melissa Dell. There are long-lasting transitional costs from job disruption by trade and technological developments and it is imperative that these costs should not be underestimated. Dell gave the example of Mexico where violence and drug trafficking increased as jobs were lost due to increased competition from China. This is partly explained by economic conditions but also from a decline in the trust of institutions. Mounting evidence shows that these effects can last up to 30 years. Dell underscored the need to broaden the policy perspective and recognize that these challenges need to be confronted by thinking about the distributional consequences and the interlinkages between policies. She also urged drawing lessons of past experiences of economic transitions.
Quotes:
“The IMF is at the moment, yet again, at a point where we have to adjust, change and improve”. Christine Lagarde
Contributor: Marushia Li Gislén
