Climate Change

What are the selected legal considerations for retail CBDC (rCBDC) and wholesale CBDC (wCBDC)? First, with respect to rCBDC, this chapter discusses the mechanisms through which rCBDC is sanctioned as a currency; the legal basis for its issuance and provision of a payment platform; and the central bank’s mandate to regulate rCBDC service providers. It examines the nature and impact of legal relationships in the rCBDC landscape, among others, aiming to help central banks better assess potential legal risks. The analysis also considers specific rCBDC design features, including holding and transaction limits, fee caps, interest accrual, programmability, and offline capabilities. Subsequently, this chapter addresses wCBDC-specific legal considerations such as the legal nature of wCBDC; the central bank’s mandate to issue wCBDC and to operate its platform (whether directly or through third parties); the legal relationship between the central bank and users; and settlement finality of wCBDC transactions.

Recognizing the increasing need for climate-responsive infrastructure investment, the IMF introduced the Climate-Public Investment Management Assessment (C-PIMA) in 2021 as an extension of the PIMA framework. The goal of the C-PIMA is to help governments identify potential improvements in public investment institutions and processes to build low-carbon and climate-resilient infrastructure. It has been conducted in more than 50 countries worldwide as of October 2024. The Climate-Public Investment Management Assessment Handbook (C-PIMA Handbook) outlines the importance of green resilient infrastructure investment for sustainable development and provides a detailed description of the C-PIMA framework, including discussions and explanations of all five institutions (and the 15 dimensions within them) with numerous examples from country practices. The handbook is aimed at anyone who is involved in a C-PIMA or has a practical interest in public investment management and climate change. It is intended to be useful to provide practical guidance to country authorities and development practitioners on how country systems are designed to incorporate climate considerations into public investment management and how they can be improved.

Tonga’s economy is expanding steadily, driven by stronger-than-expected grant inflows, elevated remittances, a rebound in tourism, and fiscal support for the reconstruction. Headline inflation has declined below the reference rate, driven by lower food and energy prices, but core inflation has picked up, reflecting stronger domestic demand. Risks in the banking sector remain contained but have increased and require continued vigilance. Meanwhile, Tonga continues to face significant structural challenges including geographic remoteness, a small and dispersed population, and high vulnerability to natural disasters. This persistent vulnerability discourages investment and incentivizes emigration, weighing on long-term growth prospects and requiring policies and reforms to enhance resilience and growth potential, particularly in a global environment marred by heightened policy uncertainty.

We present the ENV-FIBA macro-micro model framework that can be used to analyze the climate-macro-financial consequences of climate scenarios and related policy counterfactuals. The model consists of a multi-country Computable General Equilibrium (CGE) core and a connected micro simulation module for an economy’s individual nonfinancial firms and banks. The climate-macro-financial scenario simulations are anchored in future temperature and emission pathways, alongside policy assumptions regarding carbon taxation, fiscal revenue recycling and reinvestment, optional carbon border adjustment mechanisms, and others. We illustrate the use of the model for Japan. We emphasize, exemplify with the model, and recommend in general: (1) that physical and transition risk effects be modeled jointly to a maximal extent (given their intertwined nature); (2) that it is important to consider bank balance sheets that are dynamic (not static), to capture the differential growth of emmission intensive industries that may shrink, opposed to those that may flourish; and (3) related to the latter, that such dynamically evolving lending has primary impacts on bank solvency via interest income, along with quantitatively often smaller impacts through loan losses from borrower defaults.

This paper explores the macroeconomic implications of lowering the inflation target in an Emerging Market such as South Africa using the IMF’s Global Integrated Monetary and Fiscal model (GIMF). Model-based simulations indicate that lowering the inflation target from 4.5 to 3 percent, as recently announced by South Africa’s central bank, may entail moderate near-term output costs (measured by the so-called “sacrifice ratio”), while leading to medium-term output gains and lower borrowing costs. The near-term costs critically depend on the credibility of the central bank, which determines the speed with which agents adjust their inflation expectations. Specifically, output costs are lower when inflation expectations adjust more rapidly following the announcement of the new target by the central bank. Similarly, higher sensitivity of risk premia to the announcement of a lower inflation target can further reduce these costs. Concurrent fiscal consolidation can help support the disinflation process and lower the marginal sacrifice ratio.

We provide empirical evidence on the impact of the Bank of Japan’s unconventional monetary policies on domestic economic variables and their spillovers to international sovereign yields. Using high-frequency asset price surprises to Bank of Japan (BOJ) policy announcements, we identify shocks to forward guidance (FG) and large-scale asset purchase (LSAP) policies. We show that expansionary LSAP and FG shocks increase Japanese activity and stock prices, lower unemployment, and depreciate the yen. We find that FG and LSAP shocks produce spillovers to sovereign bond yields in other countries. Spillovers from BOJ LSAP shocks seem to transmit through term premia, and the strength of spillovers is strongest to those markets where Japanese investors have a larger participation.