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Articles by Edwin M. Truman
Imagine what would happen if America left the IMF
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Imagine what would happen if America left the IMF
The writer is research fellow at the Mossavar-Rahmani Center for Business and Government in the Harvard Kennedy School and former...
A US sovereign wealth fund? A confused solution to an undefined problem
The Trump administration has called for the establishment of a US sovereign wealth fund (SWF) (White House 2025) by early 2026. The president also suggested that TikTok would make an attractive investment target for such a fund. He directed the secretaries of the Treasury and Commerce Departments working with the director of the Office of Management and Budget to deliver a plan for a US SWF within 90 days.
Derechos especiales de giro: una nueva óptica
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Another stalemate on IMF quotas is not acceptable Original
The writer is resident fellow at the Mossavar-Rahmani Center for business and government in the Harvard Kennedy School and former...
The IMF should enhance the role of SDRs to strengthen the international monetary system
Body The special drawing right (SDR), issued by the International Monetary Fund (IMF), has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009, when $250 billion in SDRs was allocated to members of the IMF to help address the global financial crisis. In 2021 another $650 billion in SDRs was allocated to help address the coronavirus pandemic.
FOMC Raises Interest Rates
PIIE senior fellows Edwin M. Truman, Joseph E. Gagnon, and Angel Ubide discuss the economic ramifications and the reasoning behind the Federal Open Market Committee's decision to raise US interest rates.
Will industrial and agricultural subsidies ever be reformed?
March 2021 Photo Credit: REUTERS/Denis Balibouse One economic argument for government subsidies is that they are necessary to compensate firms and industries for benefits they provide to society at large but cannot capture in the prices they charge for goods or services. For example, subsidies to renewable energy are defended because renewable energy limits carbon emissions. When a major economy subsidizes extensively, however, its trading partners are drawn into the game, with losses all around.
Memo on strengthening the role of the International Monetary Fund to enhance global resilience to crises
Part of a special PIIE series Rebuilding the Global Economy outlining policy priorities and solutions heading into 2021. Background: The world rightly expected a series of crises to afflict the emerging-market and developing economies (EMDEs) as a result of the COVID-19 pandemic. This concern seemed inevitable, given the massive capital outflows at the beginning of the crisis. But that has not happened.
Sovereign debt relief in the global pandemic: Lessons from the 1980s
October 2020 Photo Credit: REUTERS/Amanda Perobelli The coronavirus pandemic and an unprecedented global recession have triggered fears of a debt crisis requiring massive intervention by international financial institutions as well as debt restructuring by private and official creditors. Truman draws two lessons for the current crisis, based on his ring-side experience during the debt crises of the 1980s.
Exchange rate regimes can give nations varying levels of autonomy over monetary policy
August 20, 2020 Revised August 24, 2020. This version corrects some errors in country classifications in the originally published chart. Nations with a fully autonomous monetary policy can steer their domestic economies through their central banks. By lowering domestic interest rates to encourage consumption and investment, a central bank can boost employment and raise the inflation rate.
Does regulating government procurement reduce corruption?
Governments everywhere purchase vast amounts of goods, services, and public works from private firms. From buying pencils for administrators to providing airport security to building hospitals, the world spent $11 trillion on public procurement in 2018, amounting to 12 percent of global GDP. Public procurement represents more than one-tenth of national output in high-income countries, including 24 percent of GDP in Switzerland, 21 percent in the Netherlands, and 18 percent in Singapore.
Sovereign debt restructuring: The centrality of the IMF's role
July 2020 Photo Credit: REUTERS/Yuri Gripas Over the past 40 years, the International Monetary Fund (IMF) has played a central role in the sovereign debt restructuring process. If the COVID-19 pandemic leads to a significant wave of sovereign debt distress, this role will be closely scrutinized. The paper analyzes how IMF policies have evolved to shape the incentives of sovereigns and their creditors at each stage of the sovereign debt restructuring process.
A possible IMF Pandemic Support Facility for emerging-market countries
Matthew Fisher (former International Monetary Fund) and Adnan Mazarei (PIIE) July 2020 Photo Credit: REUTERS/Amanda Perobelli As the International Monetary Fund (IMF) adapts its strategy to meet the challenges of the COVID-19 crisis, it should develop a new temporary lending instrument to assist emerging-market countries facing pandemic-related fiscal and balance of payments difficulties.
Harry Johnson's "case for flexible exchange rates"-50 years later
July 2020 Photo Credit: REUTERS/Pilar Olivares Fifty years ago, Harry G. Johnson published "The Case for Flexible Exchange Rates, 1969," its title echoing Milton Friedman’s classic essay of 1953. Though somewhat overlooked today, Johnson’s reprise was an important element in the late 1960s debate over the future of the international monetary system.
Currency manipulation remained low in 2019
Currency manipulation, the practice of countries acting to weaken the values of their currencies in order to boost their trade surpluses, remains near its lowest level since 2002. In 2019, the latest year for which nearly complete data exist, only Iceland, Singapore, Switzerland, and Thailand met the criteria for manipulation put forth by C. Fred Bergsten and Joseph E. Gagnon in 2017.
The Fed's monetary stance is too tight given its economic forecast
June 11, 2020 12:15 PM Image credit: PIIE/Jeremey Tripp The Federal Open Market Committee (FOMC or Fed) made no changes to its monetary policy stance at its June 2020 meeting. But the first update to its forecast since December showed inflation and employment below their goals for at least 2 1/2 years. An outlook that bad for that long is a clear sign that policy is too tight. The Fed announced that the federal funds rate would remain near 0 this year and most likely through the end of 2022.
COVID-19's medical, economic and financial triple shock | East Asia Forum
26 May 2020 Author: Edwin M Truman, Peterson Institution for International Economics The COVID-19 pandemic combines three shocks: medical, economic and financial. Policymakers around the world must respond to these shocks not only to limit the extent of the immediate economic, health and social damage but also to demonstrate support for the institutions of international economic and financial cooperation in the future. Many people will be infected and a significant fraction will die.
Central bank lending logistics in the war on COVID-19: A primer
Logistics including the quick adaptation of supply chains are critical to a war effort such as the fight against COVID-19. For central banks the basic supply chain is moving money with lightning speed to the correct location. To meet the demands of the battle, central banks are quickly assigning collateral with clear legal rights to the central bank as security for new lending. Frequently pricing the collateral, and assessing its underlying lendable value, is a crucial part of the process.
The G20 missed an opportunity to expand financial resources for vulnerable countries
April 16, 2020 3:30 PM Image credit: REUTERS/Umit Bektas Despite the urgent need to help vulnerable countries cope with the COVID-19 pandemic, the G20 finance ministers and central bank governors issued a document on April 15, 2020, that contained many words and little new substance.
Exchange rate policy in the COVID-19 pandemic
Part of a series of proposals for the G20's* agenda on the COVID-19 pandemic. Exchange rate pressures in the COVID-19 pandemic are an important signal to global policymakers of underlying economic stress. Aggressive and coordinated policy responses within the G20 and the wider world can aid vulnerable economies and damp excessive currency swings. Key measures include central bank swap lines, increased resources for international financial institutions, and avoiding protectionist policies.
IMF's special drawing rights to the rescue
Part of a series of proposals for the G20's* agenda on the COVID-19 pandemic. The International Monetary Fund (IMF) has been the central institution of monetary cooperation for 75 years. It is again in the COVID-19 pandemic. However, its financial resources are limited to about $790 billion. Unlike a central bank, the Fund cannot expand its balance sheet with the click on a keyboard.
Enhancing central bank cooperation in the COVID-19 pandemic
Part of a series of proposals for the G20's* agenda on the COVID-19 pandemic. Authors’ note: We thank Olivier Blanchard, Louis Crandall, Maurice Obstfeld, and Steve Weisman for assistance and helpful comments. The G20 should support increased central bank cooperation in providing needed financial resources to countries suffering liquidity crises resulting from COVID-19.
The IMF will need more resources to fight the COVID-19 pandemic
Author's note: Olivier Blanchard, Simeon Djankov, Maurice Obstfeld, Simon Potter, Peter Sturm, Nicolas Véron, and Steve Weisman provided comments and advice on previous drafts. The blog posted on March 29 contained an error. The correct figure for the Fund’s current capacity for new lending is $787 billion, not $610 billion as previously stated.
The G-20 must wake up to the COVID-19 crisis
Olivier Blanchard, Joseph Gagnon, Maurice Obstfeld, Peter Sturm, Nicolas Véron, and Steve Weisman provided comments and advice on a previous draft. As nations across the globe scramble to combat the coronavirus pandemic, they have overlooked a major tool that would help greatly: international coordination of their economic policy responses to the crisis.
What the Fed should do now to get ready for the next recession
March 4, 2020 5:30 AM Image credit: REUTERS/Yuri Gripas The Federal Reserve’s ability to fight future recessions is under serious threat. The macroeconomic environment has changed in a way that could handcuff the Fed the next time the economy weakens. The clearest symptom of that change is that even though the labor market is very strong by historical standards, the interest rate that the Fed controls is just below 1.25 percent. That’s a big problem.
Designing an effective US policy response to coronavirus
The coronavirus disease 2019 (COVID-19) now seems highly likely to cause an economic slump, both in the United States and globally. Only a little more than 60 days after word of a mysterious and previously unknown illness first emerged from Wuhan, China, the Federal Reserve responded on March 3 by cutting its policy rate by an unusually large ½ percentage point. More unusual still, the Fed moved two weeks ahead of the next regularly scheduled meeting of its rate-setting committee.
How Jacques de Larosière and Paul Volcker contained the 1982-89 global debt crisis
The most serious global financial crisis in post–World War II history, up to that point, flared up over the summer of 1982. Mexico found it was unable to service its external debts and turned to the United States and the International Monetary Fund (IMF) for help.
Are Central Banks Out of Ammunition to Fight a Recession? Not Quite.
November 2019 Photo Credit: PIIE/William Melancon Central banks in the three largest advanced economies (the United States, Japan, and the eurozone) have only limited ammunition to fight a recession based on the tools used to date. The Federal Reserve has the most amount of tried and tested ammunition in this group.
Trump Says China Is Manipulating Its Currency. What Can He Do About It?
No stranger to empty threats, President Donald Trump designated China as a “currency manipulator” earlier this month and has complained about the strong US dollar despite having few tools to deal with it even if action were justified, which is not the case. Nevertheless, if the administration must act, the Treasury could sell dollars to try to drive down the dollar.
Lagarde's IMF Legacy: A Stronger but Still Vulnerable Fund
After eight years as managing director of the International Monetary Fund (IMF), Christine Lagarde will become the president of the European Central Bank on November 1. Her tenure at the Fund was not without mishap, but she served the institution and became a consummate diplomat, skillful communicator, and substantive innovator. Nevertheless, the IMF remains vulnerable to the centrifugal forces affecting the global economy and imperiling financial cooperation.
International Coordination of Economic Policies in the Global Financial Crisis: Successes, Failures, and Consequences
July 2019 Photo Credit: REUTERS/Stephen Jaffe-IMF/Handout (UNITED STATES) This paper evaluates international efforts to diagnose the global financial crisis and decide on appropriate responses, the treatments that were agreed and adopted, and the successes and failures as the crisis unfolded.
Opinion: U.S. Must Engage China on Rising Debts of Belt and Road Countries
A little-noticed but ominous new front has opened in the rivalry between the United States and China for dominance at the International Monetary Fund (IMF). On Aug.
The ECB is compromising the attractiveness of euro-area sovereign bonds
The ECB should refine its collateral framework in order to continue protecting its balance sheet without putting at risk the safe-asset status of sovereign bonds of the euro area. The decision of the ECB to revoke, upon the conclusion of Greece’s EU financial aid programme on August 20th, the waiver that allowed Greek bonds to be accepted as collateral in the ECB’s refinancing operations – despite the bonds’ low rating – is bringing the institution’s collateral framework back into the spotlight.
China, the United States, and Damage to the IMF
China, the United States, and Damage to the IMF A little-noticed but ominous new front has opened in the rivalry between the United States and China for dominance at the International Monetary Fund (IMF).
G-7 Economic Cooperation in the Trump Era
This paper examines how G-7 cooperation can be maintained in the Trump era. Its working assumption is that the US administration will remain open to international cooperation in principle and yet be constrained by Trump’s economic nationalism and specific campaign promises, such as reducing trade imbalances. The main finding is that useful areas for G-7 macroeconomic, trade, and financial cooperation continue to exist even after taking US constraints into account.
International Financial Cooperation Benefits the United States
The financial crisis of 2007–09 wreaked worldwide havoc because of the interconnectedness of many countries’ economies and financial systems. To contain and stabilize these interwoven global financial systems and avert future crises thus requires international cooperation, preferably with American leadership. The Trump administration’s policies on these matters are unclear.
Lagarde, Trump, and the IMF: Waning US Leadership Role in International Financial Institutions?
Lagarde, Trump, and the IMF: Waning US Leadership Role in International Financial Institutions? The conviction of Christine Lagarde by a French court on charges of negligence and misuse of public funds while she was finance minister of France has refocused attention on her current role as managing director of the International Monetary Fund (IMF).
Uneven Progress on Sovereign Wealth Fund Transparency and Accountability
Sovereign wealth funds (SWFs)—government-controlled funds invested in whole or in part outside their home country—have grown in size, attracting political and financial attention focused on their lack of transparency. Suspicions have also grown about the motives behind their investments and their potential to disrupt countries economically, financially and politically.
Hard Brexit, Soft Patch?
Jacob Funk Kirkegaard and Jeromin Zettlemeyer discuss the implications of the UK government’s apparent push for a hard break with the European Union, a path they say will weaken the British economy further barring unlikely political shifts that restrain or undo Brexit.
EU Looks for Bite of Apple's Irish Taxes
Video of EU Looks for Bite of Apple’s Irish Taxes EU Looks for Bite of Apple's Irish Taxes The European Commission has ordered Apple to pay up to $14.5 billion in taxes. Gary Clyde Hufbauer and Jacob Funk Kirkegaard debate whether the accusation that Ireland gave the firm illegal and preferential state aid stands up to broader scrutiny.
China's New Economic Frontier: Overcoming Obstacles to Continued Growth
China's economy is at a pivotal moment, as it faces both imminent and long-term challenges that may significantly hamper the robust growth it has enjoyed in recent decades. Income inequality, increased debt, an aging population, shrinking labor force, and a slow transition from manufacturing to services risk threatening the country's social and economic stability.
Brexit Is an Existential Threat to the European Union
Brexit Is an Existential Threat to the European Union The importance of the Brexit vote is not about the future of the United Kingdom; the vote consigned that once great nation to increasing irrelevance on the world stage. The importance of Brexit vote is existential for Europe and the future of the European project that began with the European Coal and Steel Community 65 years ago.
IMF Governance Reform: Better Late than Never
At last the road blocks to reform of the International Monetary Fund (IMF) are about to be removed. Embedded in the Consolidated Appropriations Act of 2016 now before the US House of Representatives and the Senate are provisions that will allow the IMF to implement quota and governance reforms agreed in Seoul in 2010. All indications are that the legislation is likely to pass and to be signed by President Barack Obama.
Christine Lagarde and the SDR Basket
International Monetary Fund (IMF) managing director Christine Lagarde has thrown her personal support behind China’s long-time campaign for the inclusion of its currency, the yuan or renminbi, among the small basket of currencies that are used to value the IMF’s special drawing rights (SDR).1 On November 13, the IMF issued a statement in which Lagarde endorsed the IMF staff findings that the renminbi had met the criteria for inclusion in the basket.
Christine Lagarde and the SDR Basket
International Monetary Fund (IMF) managing director Christine Lagarde has thrown her personal support behind China’s long-time campaign for the inclusion of its currency, the yuan or renminbi, among the small basket of currencies that are used to value the IMF’s special drawing rights (SDR).[1] On November 13, the IMF issued a statement in which Lagarde endorsed the IMF staff findings that the renminbi had met the criteria for inclusion in the basket.
China Economic Watch
by Joseph E. Gagnon | September 14th, 2015 | 02:15 pm After building the largest stockpile of foreign exchange reserves in global history, China is now spending them at a rapid pace to keep its currency from depreciating. Is it plausible that China could be forced to devalue the renminbi because it runs out (or fears it may run out) of reserves?
China’s Faustian Bargain
China’s impressive record of economic reform over the past four decades has been implemented slowly and deliberately. Key to the Chinese strategy also has been to absorb lessons from the experience of other countries. It is widely agreed that reform of the financial system has lagged behind reforms in the rest of the economy. The reasons have been a mix of ideology and complexity. In recent years, the pace of financial reform has picked up.
The Chinese Renminbi Is Not a Freely Usable Currency Yet
Is the Chinese renminbi (RMB) a freely usable currency? Most participants in international financial markets would say no, for several reasons. The government of China exercises tight limits and substantial oversight over the extent to which foreign investors can buy RMB and purchase claims on China. Chinese investors face similar restrictions on the extent to which they can use their RMB and invest abroad.
IMF Exceptional Access and Reform Legislation: Do Not Link the Two Issues
In “The Lessons Greece’s Lenders Forgot” (Wall Street Journal, July 10), John Taylor argued that the United States and the International Monetary Fund (IMF) erred in May 2010 by not abiding by the IMF’s 2003 framework for exceptional (large scale) access to its financial support. I argued in a letter to the Wall Street Journal that Taylor did not have all of his facts right about the Greek case and about the IMF’s framework for exceptional access.
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