The IMF in the global economy

The economic news is marked by cyclical upheavals that have called into question the equilibrium of the last decade (emergency of the pandemic, gradual recovery of economic activity, increase in inflation, etc.) but also and above all by a great uncertainty linked to the war in Ukraine, the development or outcome of which no one can foresee. Consequently, the forecasts and forward-looking analyzes made by the IMF and Pierre-Olivier Gourinchas are very illuminating.

Faced with the war in Ukraine and galloping inflation, how is the globalized economic system being recomposed and how is the IMF positioned?

According to Pierre-Olivier GourinchasThere is a risk of a global recession, we are witnessing a slowdown in three major world economies. The United States with the monetary tightening, even if the American economy is doing quite well with regard to some indicators such as the labor market; the Chinese economy that is facing confinements, a zero Covid policy and a real estate bubble and a very strong slowdown and then of course the European Union where we clearly see the impact of sanctions and the related energy crisis on the war in Ukraine. As a result, many emerging countries will see their exports slow down. Furthermore, we are also witnessing a tightening of monetary and financial conditions, with a strong appreciation of the dollar impacting emerging countries.“.

We are therefore witnessing a recomposition of the world economy that tends towards an increasingly fragmented world. According to Pierre-Olivier GourinchasThe temptation to withdraw economies is a medium-term threat, it could lead to a reversal of the results achieved in terms of growth and prosperity and limit the gains that globalization can bring in the future. If we were to witness the re-emergence of blocs, groups of countries trading with each other, we would have a much smaller planet. And we do not see how in this world large international institutions like the IMF could engage in the great projects of the future such as the climate transition.“.

The international monetary system: from dollar domination to currency competition?

Four decades after the collapse of the Bretton Woods system (the dollar was no longer convertible into gold on 18 December 1971), the US dollar continues to play a disproportionate role in the international monetary system. It is by far the main currency used to settle business transactions, denominate loans, conduct cross-border banking, accumulate foreign exchange reserves, or serve as an anchor for other currencies. According to Pierre-Olivier GourinchasThe dollar is central to the current system. The United States, through its financial development, makes it possible to offer the rest of the world a safe form of investment, it is the American Treasury bills that play an essential role in the global financial architecture.“.

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