IMF Author of 100 Papers Warns a Third of the World Will Be in Recession

Sofia born IMF Managing Director Kristalina Georgieva said 2023 will be "tougher" than last year with slowdown in the US, EU and China expected. Inflation, interest rates and Covid in China are all playing a part. She has written more than 100 academic papers and was former CEO of the World Bank from 2017 to 2019.

World Bank Puts Global Growth from 2019 onwards at 2.9% per year

The World Bank revises its estimate down from 3% in its latest report on global growth. The risk of trade disputes escalating has been one explicit concern. As the Fed raises interest rates, the era of easy money is also at risk. Jim Yong Kim recently resigned as President and a successor search is under way.

World Bank Buffers Up On Batteries in $5bn Power Play

The World Bank has announced at the UN General Assembly that it is creating a $1bn buffer of loan money to dish out for battery financing in the developing world. It is also seeking partners to provide an additional $4bn of financing ($3bn from public and private sector and $1bn from channels such as the Clean Technology Fund - whose biggest donors are the UK, US and Japan).

The KPI is to finance 17.5 GWh of battery storage capacity by 2025. This will be expanding the current capacity in developing countries today of 4.5 GWh.

Jim Yong Kim, president of the World Bank, stated "Batteries are critical to decarbonizing the world's power systems". They allow storage of renewable energy and reduce dependence on power from the grid. Banks of batteries can allow the creation of mini-grids supporting remote communities, something the World Bank is already financing.

The International Finance Corporation, part of the World Bank, predicts 40% growth in energy storage over the next nine or ten years.

How 3Rs Impact the Global Currency Markets

Statutory versus Voluntary Reserve Ratios

Some countries have Required Reserve Ratios (RRRs) that are statutorily enforced whilst other countries have voluntary reserve ratios.

Required reserves apply to commercial banks and usually take the form of cash or deposits made with a central bank. If a bank holds more than the required reserve, it is said to hold excess reserves.

Variation by Country

The Bank of England used to have a reserve ratio but abandoned it in the early 1980s. Canada also has no reserve ratio requirement. The US Federal Reserve has a reserve ratio that operates in tranches.

Relationship between Reserve Ratio and Inflation

The greater the reserve ratio (and correspondingly the greater the reserves held at the central bank) the less money there is for individual banks to loan, leading to lower money creation and potentially higher purchasing power of the money in circulation.

All things being equal, there is an inverse relationship between the Reserve Ratio and Inflation.

Bigger RR -> potentially lower inflation
Lower RR -> potentially higher inflation

Reserve Ratios for Inflation Control

The People's Bank of China (PBC or PBOC) alters the reserve ratio in order to control inflation. Standard Chartered anticipates a RRR cut due to "easing headline inflation" and recommends USDCNH puts. The Reserve Bank of India also controls the Cash Reserve Ratio (CRR) to control the money supply and therefore inflation.

Central Bank Slang: Near Money or Quasi Money

Reading central banking websites you will come across many unusual economic terms, such as near money or quasi-money - which refers to stuff that's not cash, but very close to cash,

They mean one and the same thing, namely highly liquid assets that can be easily converted into cash.

The IMF and World Bank do surveys of money and quasi-money in the world financial system.

Examples of quasi money would be savings accounts, money market accounts, bonds near their redemption date, government T-bills, foreign currencies (especially widely traded ones like USD, JPY and EUR).

What is the precise role of the IMF in the credit crisis? What's the precise role of the World Bank?

Dominique Strauss-Kahn, head of the IMF, has said the IMF was willing to lend to countries in dire need of capital.

To understand what role the IMF should play in this saga, we must know the history of the IMF. The IMF and World Bank were both established in July 1944 at a conference in Bretton Woods, NH during the closing phases of WW2. The main debate was between the US and British delegation, debate revolving around liberal and conservative visions of what a global economic institution such as the IMF should provide. In a nutshell, should the IMF operate as a fund (the liberal view) or more like a bank (the conservative view)?

Keynes, who led the British delegation, imagined the IMF as a co-operative fund which member states should draw upon during periodic crises, to maintain economic activity and employment. The US view was an institution like a bank to ensure borrowing states could pay their debts, less concerned about preventing recession and unemployment. The tougher, US conservative view prevailed.

Since WW2, IMF has loaned funds to governments facing economic crises. These loans, which have engendered controversy, have been termed structural adjustment loans as their purpose is to help borrowing governments adjust the structure of economic activity.

The World Bank has pledged aid to developing countries over the weekend to help stem the crisis. WB President Robert Zoellick declared the financial crisis a "manmade catastrophe" and added that despite the crisis "aid flows must be maintained".