NEWS Release - Strengthening the International Monetary System - IMF Deputy Managing Director Mitsuhiro Furusawa - Remarks to a Conference on the Future of International Monetary System for Asia - Organized by Hitotsubashi University and the IMF Regional Office for Asia and the Pacific
Tokyo - March 8, 2017
Good Morning. I would like to express my appreciation to Professor Ariyoshi for his warm welcome and introduction. - Hitotsubashi University and the IMF have been organizing this annual conference for several years. It has become a setting for thoughtful discussion on issues of macroeconomic and financial importance. With this year’s theme of “The Future of the International Monetary System for Asia”, I am sure that our tradition of insightful presentations and exchanges will continue.
In the time I have this morning, I would like to provide an overview to some of the key issues related to the International Monetary System that we will examine. I will focus on three in particular—all of which are of central importance to Asian policymakers:
- the reduction of global imbalances;
- the strengthening of the global financial safety net; and
- the internationalization of currencies.
Let’s begin with some basic facts. A well-functioning international monetary system is a public good that is essential for economic and financial stability. The IMS has helped support unprecedented economic growth and trade expansion over the past few decades. But the global economy is evolving rapidly, and the IMS needs to adapt to the new reality.
There are two key shifts taking place that have implications for global financial stability.
First, the center of global economic “gravity” continues to shift. This reflects the core role of emerging markets and the ongoing integration of developing economies. The numbers clearly highlight the trend: since 2000, the share of emerging and developing economies in global GDP has increased more than two thirds. It reached almost 40 percent in 2015. This transformation has had a direct impact on the IMF—in terms of both policy and governance. The shift toward the emerging markets under the 2010 quota reforms was one direct result.
Second, we are witnessing the rapid rise of financial interconnectedness. Global capital flows and external liabilities have risen sharply over the past three to four decades as countries have opened their capital accounts, and financial markets have deepened. Here, too, the numbers tell the story: gross external liabilities stood above 160 percent of world GDP in 2015; up from 30 percent of world GDP in 1980.
We all understand the strain that these shifts are putting on the international monetary system. Our world is becoming more and more multipolar. While greater interconnectedness allows economies to benefit from a globalized economy, it also presents new weaknesses. We face the risk of new sources of spillovers and spillbacks, as we saw in 2015 with China’s financial market difficulties. All of this complicates macroeconomic management.
Global imbalances are an important part of this picture. We have witnessed sustained periods of imbalances. While they have narrowed since the crisis, they remain above desirable levels. In the absence of formal adjustment mechanisms, adjustment has largely achieved through demand compression in deficit countries.
The concentration of imbalances among a few large countries presents a risk to the global economy. It increases vulnerabilities—and even raises the risk of market disruptions.
To address imbalances will require cooperation among deficit and surplus countries. To facilitate this process, the IMF has overhauled its surveillance process and strengthened its analytical tools. This includes the introduction of the External Sector Report, which assesses the largest economies’ external positions and analyzes potential spillovers in a multilateral context. These analyses then become an integral part of our bilateral surveillance, where we discuss implications of policies with the relevant authorities.
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