Numbers & Statistics
IMF – Some Key Challenges Going into the Next Decade
IMF – Some Key Challenges Going into the Next Decade
Speech by IMF Deputy Managing Director Tao Zhang
June 13, 2019
[As prepared for delivery]
Today I’d like to touch on a few topics that I feel will be important for
the Fund and its membership to engage in over the medium and longer run.
Among such challenges, I would like to focus on Fintech and climate change.
In many respects these issues are fundamentally different, one involving
the Earth’s complex climatic system and its interactions with the economy,
while the other concerns technical innovations shaping the structure of the
financial system. But they have some similarities, most importantly in the
fundamental need for close cooperation within the global community.
Financial technologies, or “Fintech,” are advancing rapidly, and have
already significantly altered the way that many people and companies make
payments, borrow money, manage their savings and investments, insure their
risks, and receive financial advice. Fintech builds on the foundations of
mobile communications especially smartphones, cryptography, and on the
interlinked rise of Big Data and data science including AI.
Sweden has been on the cutting edge of these developments, as seen in the
rapid rise in digital payments via Swish, a company that I enjoyed visiting
earlier today! It is also seen in the efficiency of Swedish banks measured
by their relatively low cost-to-revenue ratios.
On top of reducing financial service costs, Fintech holds promise for
financial inclusion. This has already been evident in low income countries
where mobile phones have bought payment and credit services with profound
impacts on economic opportunities. In Kenya, for example, about 90 percent
of the population over 14 years of age pays with M-Pesa.
So there are good reasons for countries to be open to the development and
use of Fintech. But, we need to be aware that new technology can also lead
to very rapid change. One scenario is that “Big Tech” companies enter the
payments and credit markets, and quickly become major players in financial
services given their large user base. Another scenario is that some banks
adapt more quickly to Fintech than others, leading to sizable movements in
market shares over time.
Change is part of the process of benefitting from Fintech. But very rapid
and deep changes in financial systems can entail stability risks. Recall
the financial liberalizations of the 1980s, when the transition from credit
controls and other regulation to reliance on market forces led to an easing
in credit standards, asset price booms especially in commercial real
estate, culminating in serious banking crises including in the Nordic
Countries around the world therefore face a shared challenge of finding a
balanced framework that promotes financial innovation while preserving
stability. As the Nordic‑Baltic region is now aware, financial integrity is
also essential to a sound and stable financial system, so the framework for
Fintech must also address money laundering and other threats to integrity
along with consumer protection.
The IMF is an institution charged with a mandate for economic and financial
stability, including by supporting inclusive growth, so we must find ways
to support countries in developing such frameworks.
How are we doing our job? In October 2018, we launched the “Bali Fintech
Agenda” which is a framework of 12 high-level issues for consideration by
countries, that is organized around four objectives:
– Building an enabling environment for fintech innovation;
– Ensuring an adequate financial sector policy framework;
– Addressing risks and resilience; and
– Encouraging international collaboration.
In terms of an enabling environment for Fintech, it is clear that small
start-up companies are not ready to deal with multiple financial
regulators, or to properly manage the type of off‑site and on-site
supervision expected of an established intermediary. So the authorities in
some countries are using regulatory “sandboxes” and other tools to
But new entrants should not gain competitive advantage from lighter
regulatory standards, nor should consumer protection, financial integrity,
or macroprudential goals, be compromised. Supervisors around the world need
to keep a close eye on market developments, and act quickly to ensure the
playing field remains level.
Sweden’s FSA set a sound example in this respect by applying consistent
consumer protection and macroprudential requirements to nonbanks entering
into the mortgage market. This approach, of applying financial sector
policies to activities rather than entities, will be critically important
to managing stability and integrity risks from Fintech.
Central banks and supervisors have well developed tools for monitoring and
reporting on financial sector risks. This work will increasingly need
address how technology is reshaping the system and its risks. Ensuring that
the data used covers financial activities wherever they occur is key.
Sweden’s Financial Stability Council, and their equivalents elsewhere, have
an essential role in avoiding supervisory gaps related to Fintech.
International collaboration is more important than might first appear. By
the nature of the internet and telecommunications, Fintech is global in
reach, and payments and other financial services can cross borders at
little cost seeking arbitrage opportunities. Fintech innovations can also
spread rapidly across countries. In many respects, this mobility is
welcome, but it also calls on countries to keep an eye on trends beyond
We at the IMF need to help countries by providing visibility on emerging
Fintech developments, and also on practices that could help countries enjoy
the benefits of Fintech and manage stability and integrity risks. But I
should caution that the effects of technological change can be difficult to
anticipate, so we are all in a “learning by doing” process.
It is therefore very encouraging that Sweden, as a leader in thinking
through the implications of many Fintech issues, is also active in sharing
its experiences with other countries.
I will now turn to the second topic of relevance to the Fund and its
membership in the medium and long term. Indeed, it is a topic that deserves
our full attention, given its potential to affect the entire world in the
years ahead. The process of climate change is set to have a significant
economic impact on many countries, with a large number of lower-income
countries being particularly at risk.
Climate change matters to the IMF because it may have profound implications
for economic and financial stability, which we are charged to protect under
the IMF’s Articles of Agreement. The world will need to learn to live with
climate change over the medium and longer term, and this adaptation will
have macroeconomic and fiscal implications. But with concerted action, the
world can also do more to mitigate climate change.
Given our fiscal policy expertise and universal membership, the Fund is
uniquely positioned to help countries formulate their climate strategies.
Our climate-related work at the Fund encompasses carbon taxation, climate
mitigation and adaptation; resilience to natural disasters, and energy
subsidy reforms. For example, a recent Executive Board paper develops, for
135 countries, a tool for assessing the emissions, fiscal, and economic
welfare impacts of carbon pricing and a range of other mitigation
instruments to help policymakers understand tradeoffs.
Finance ministries around the world remain poised to play a pivotal role. A
key challenge for you is how best to use your expertise and experience with
macroeconomic and fiscal policy, public financial management, and financial
regulation to respond to the climate crisis. Your actions will be critical,
whether this be in administering charges on the carbon content of fuels and
ensuring the revenues are put to good use, or by providing other incentives
to reduce energy consumption, use cleaner fuels, and mobilize private
At the Fund, our work has found that carbon taxation is a practical way to
price carbon. It raises revenue that permits tax reductions in other areas
and creates incentives to shift to cleaner forms of energy. In many cases,
carbon taxes are a straightforward extension of existing motor fuel
excises, which are well established in many countries and among the easiest
of taxes to administer. Countries need only build a carbon charge into the
existing tax scheme and apply similar charges to other fossil fuel
Of course, some countries may prefer other ways of pricing carbon, for
example, through emissions trading systems. The point is to establish, one
way or another, a price on CO2 emissions and thereby incentivize the entire
economy to shift to cleaner energy sources and conserve on the use of
electricity and fuels. Our own message here at the Fund continues to be
“price it right, do it smart, and do it now.”
Support for concerted action is growing, as is the commitment among
policymakers to act. At the grassroots level, the younger generation—people
like Greta Thunberg—are increasingly urging that stronger action be taken
now. Likewise, at the international level, encouraging steps are underway.
At the IMF-World Bank Spring Meetings last April, a group of finance
ministers committed to respond to the threat posed by climate change by
implementing the Helsinki Principles that will help strengthen
nuts-and-bolts policymaking. The principles are designed to support finance
ministers to share best practices and experiences on macro, fiscal, and
public financial management policies for low-carbon, climate-resilient
For its part, the IMF is committed to strengthening the international
community’s ability to address climate change through the policy advice and
capacity development that we offer to governments, with our research
capabilities, and by providing programs and financing tailored to
I look forward to hearing your views on the Fund’s climate-related work
during today’s discussion.
IMF Communications Department
PRESS OFFICER: Gediminas Vilkas
Phone: +1 202 623-7100Email: MEDIA@IMF.org