Preliminary findings and proposals by Task Force 9 on International Finance
Global Financial Safety Net (GFSN) and post-pandemic challenges to financial stability
- To solve the systematic provision of foreign exchange liquidity during periods of crises, a Global Liquidity Insurance Mechanism (GLIM) could be created, in which the G20 should participate.
- To foster global financial stability and sustainable growth, the GFSN should be resetted. The dual IMF accounting (regular and SDR accounts) should be eliminated. The possibility of increasing the share of developing countries in the allocation should be discussed. The GFSN should also be aligned with the Sustainable Development Goals and the Paris Climate Agreement.
- Regional Financial Arrangements (RFAs) should further optimize their lending toolkits and funding policies so that they complement those of the IMF. RFAs should join hands with the IMF to form an integrated global economic surveillance framework to ensure global financial stability.
Governance and coordination of global financial institutions
- The IMF should develop a multilateral swap mechanism that scales up the capacity of swap networks that are already in operation across the global financial system.
- The IMF’s access limits and surcharge policy should be reformed, because they affect in particular middle-income countries and should be suspended/eliminated to support their recovery.
- The IMF should double two emergency credit facilities in 2021: the Rapid Credit Facility and the Rapid Financing Instrument.
- The IMF should pivot away from pro-cyclical policy advice and ensure that emergency liquidity is countercyclical.
External debt, financial sustainability, and debt relief of developing and low-income countries
- A new facility called Countercyclical Sovereign Financing Mechanism (CSFM) could be introduced to provide cheaper access to the international debt market and allow for automatic reduction of debt burden and servicing cost.
- A World Recovery Fund (WRF) could be created to allow emerging countries to swap existing debt for new debt and/or to issue new debt under improved market conditions, with an underlying project as collateral.
- The G20 should operationalise the Common Framework for Debt Treatments beyond the Debt Service Suspension Initiative and enhance liquidity to low-income countries through robust replenishments of the concessional windows and the IMF via a new allocation of Special Drawing Rights.
- G20 cooperation with African countries should include capacity building for internal resource mobilisation through the development of financial sectors that are deep, inclusive, and digitized.
- The G20 should support the reforming of rating agencies to minimize distortions.
Transparency and corruption in global capital flows
- As countries that are lagged in vaccine rollouts and still struggling with economic fallout are facing volatilities resulted also from capital outflow, it is necessary for G20 countries to explore potential areas of cooperation, based on an update of the IMF framework of capital flow management measures.
- A globally accepted definition of State-Owned Multinational Enterprises (SOMNEs) is needed given their role in global capital flows. A clear regulation for disclosures of information for all SOMNEs could help G20-led initiatives such as the Debt Service Suspension Initiative (DSSI). The Legal Entity Identifier mandated by the G20 and overseen by the Global Legal Entity Identifier Foundation can be made mandatory for all cross-border transactions undertaken by SOMNEs.
Digital Money and Finance
- G20 leaders should develop an agenda for a prudent transition towards the digital age. They should also impulse a Global Digital Governance Compact for a responsible and inclusive digital economy. They should continue the execution of the G20 Roadmap for Cross-Border Transactions and support the Global Partnership for Financial Inclusion and the G20 Financial Inclusion Action Plan.
- The G20 should setup a Digital Money & Finance Working Group (DMF-WG) to perform the analysis of new digital instruments and procedures, propose the framework(s) for their incorporation to improve the financial architecture and society’s welfare, and monitor of implementation.
- The G20 could create a Forum on Token Economy and Blockchain to meet the demand for a global regulatory approach and better knowledge of the token economy.
Public and private debt sustainability: global monitoring and coordinated adjustment strategies
- To involve the private sector and allow for an orderly restructuring in the event of a wave of sovereign debt crises, a central credit facility (CCF) could be created to implement a debt standstill which would free significant resources.
- A “legal air cover” should be introduced to temporarily protect countries against lawsuits, in the form of either a UN Security Council Immunity Shield, or an executive order by the US President and a similar legislative action by the UK parliament (most international debt is issued under either New York law or English law), or the doctrine of Necessity under Article 25 of the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts.
Evolution and coordination of central bank (CB) strategies and global financial cycle
- CBs should prepare regular reports describing the impacts of all decisions intended to operate extraterritorially. The G20 should request an international body such as the BIS or FSB to establish an independent office to review the global financial governance activities of central banks.
- The central banks in G20 countries should set regular schedule for communications to avoid sharp turn of market expectation caused by divergent policy moves.
Coping with new sources of financial instability: climate change, shadow banking, inequalities, AI
- The IMF needs to integrate climate risk analysis in its surveillance.
- The IMF needs a new financing window through which balance of payments and even fiscal support for climate efforts can also be channeled.
- Governments need to develop budgetary instruments to account for climate risk, and mainstream and integrate climate framework, policies, and laws into national and sectoral budgets.
- Insurers do not currently offer insurance against pandemics, which are a source of financial instability. Such an “uninsurable” risk could be insured through risk securitization. A scaled-back pilot project could be launched that provides limited pandemic-risk coverage to test of the risk-securitization concept.
Finance and ESG
- The scope and goals of ESG investing for the next ten years should be defined, along with the relevant E, S, and G policies at all levels. The G20 should ensure that developed and emerging markets are part of the strategy designing process and that closing the ESG gap becomes a strong focus.
- The assessment of the ESG policies requires standardized metrics, narratives, and benchmarks. Rating providers must be transparent about their methods with investors, firms, and other users.
Policy proposals to exit the COVID global recession
- Monetary policy should remain expansionary for an extended period. Banking supervisory and regulatory policies should contribute to avoiding an abrupt deleveraging process. Fiscal policies should remain stimulatory until GDP has reached its pre-pandemic growth path. The balanced budget rule should apply to current government spending and taxation, but bond issues should finance capital spending.