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CGD’s work in this area focuses on strengthening financial systems in development countries through innovation and regulation.
Greater access for the poor to the formal financial system—including payments, savings, credit, and insurance—can greatly improve household stability and development prospects. CGD examines how to strengthen, broaden, and deepen financial systems in developing countries through innovation and regulation. We also study the effects of financial crises, to avoid and mitigate future shocks, and how developing countries can improve their business climates to spur inward investment.
Hey international community, so you’re feeling helpless as you watch the debt limit crisis unfold in Washington? Here’s something you can do about it.
With the world’s economic policymakers in Washington this week for the annual meetings of the World Bank and IMF, there is no shortage of commentary from foreign officials about the dire impact of a US government debt default (see here, here, and here), including the harm already done in the form of spikes in borrowing costs for their governments.
Social capital can help reduce adverse shocks by facilitating access to transfers and remittances.This study examines how various measures of social capital are associated with disaster recovery after the 2008 Sichuan earthquake.
For almost half a decade, the aggressive expansion of liquidity by advanced economies’ central banks aimed at reigniting growth has fueled a surge of capital inflows into Latin America. Under the influence of dizzying terms of trade and extremely low world interest rates, the region’s central banks tried to prevent excessive domestic credit expansion by increasing intervention in foreign exchange markets, raising reserve requirements and, in some cases, imposing capital controls. The role of fiscal policy remained extremely limited.
But, as key commodity prices appear to have peaked and growth in Europe remains non-existent is the current policy stance in the region appropriate? The CLAAF members will deal with this issue by addressing, among others, the following questions:
Should Latin American countries continue with the current policy mix in the expectation that increasing global liquidity will eventually deliver growth in advanced economies, which will in turn support the region’s economic activity? What are the risks for the region’s financial stability if it continues down this path?
If, alternatively, policymakers reduce barriers to capital inflows to boost economic activity, will they compromise the strength of the financial system?
By implicitly pursuing multiple goals, do central banks run the risk of jeopardizing their credibility?
If the advanced economies recover and global liquidity is drastically reduced, can Latin America deal with such reversal? What should be the priorities to assuage the effects of a sudden stop of inflows?
Are low international interest rates inducing a mispricing of risk in Latin America?
A number of Andean countries stand out in their successful use of macroprudential financial regulations. This paper focuses on three: countercyclical capital requirements, countercyclical loan-loss provisioning requirements, and liquidity requirements.
In December, members of the Latin American Shadow Financial Regulatory Committee (CLAAF) convened at CGD to discuss global financial and monetary developments affecting Latin America. The CLAAF, which meets here twice a year, usually offers policy and regulatory recommendations for finance ministers. central bankers and financial regulators in the region. This time the committee proposed something quite different: the five-page statement CLAAF issued after two days of deliberation recommended the creation of a new regional financial institution—a Latin American Liquidity Fund, to supplement the efforts of the International Monetary Fund (IMF) when the next global financial crisis hits.