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Asia-Pacific Economies Face Challenges Amidst Growth Projections

2025-11-17 01:21:10 By Florence Atkins

The Asian Development Bank's July 2024 Asian Development Outlook report forecasts that developing economies in Asia and the Pacific are likely to experience growth through 2024 and 2025, with a slowdown in inflation. However, several factors could disrupt this positive outlook, including uncertainties surrounding the U.S. election, geopolitical tensions, vulnerabilities in China's property market, and extreme weather events.

Potential disruptions such as an escalation in the conflict in Ukraine and the Middle East could strain global supply chains and drive up oil prices. Other concerns include the fragility of China's property sector and the impact of adverse weather conditions. The unpredictability of the U.S. election results also adds to the uncertainty.

Conflict in the Red Sea, particularly affecting Europe-Asia shipping routes since late 2023, has led to increased shipping costs. These higher costs could contribute to inflationary pressures.

Despite longer shipping times, significant shortages have not yet occurred due to sufficient stock levels and low demand. However, this situation could change if conditions deteriorate.

In mid-April 2024, Middle East-related events caused oil price volatility. Although various factors have kept crude oil prices below $100 per barrel, any conflict escalation involving major oil producers could lead to a surge in energy prices.

Regarding U.S. monetary policy, the Federal Reserve is anticipated to lower interest rates in 2024, but there is still uncertainty. A surprising rise in U.S. inflation in March led to a prolonged period of higher interest rates, despite prices rising more slowly in later months.

ADB analysis suggests that if interest rates remain constant throughout 2024, it could result in a devaluation of Asian currencies, which have already seen depreciation in several regional economies.

While currency devaluation might lead to some imported inflation, it could also enhance export competitiveness and support growth. However, the effects of both are expected to be minimal.

For instance, inflation in high-income technology exporters and other developing Asian economies could increase by approximately 0.15 percentage points compared to the baseline for 2024 and 2025, with the impact diminishing by 2026. The effect on regional growth would be less pronounced than on inflation.

Another risk is the stress in China's property market. A more severe deterioration than anticipated could suppress consumer sentiment and domestic demand, negatively affecting industries like construction and real estate, and reducing overall economic activity.

Decreased consumption and investment could also reduce global trade, impacting export-dependent economies.

The fallout might be contained with appropriate government policy responses, primarily affecting China. However, if the property market downturn extends longer than expected, it could pose a threat to growth prospects, increasing global risk aversion, capital flight, and negatively impacting other Asia-Pacific economies as financial conditions tighten.

Worse-than-expected weather conditions are also a risk, potentially increasing commodity prices and endangering food security. However, La Niña, expected to begin later this year, may bring some relief with cooler temperatures and increased rainfall in areas like Southeast Asia, aiding crop production.

Policymakers must remain vigilant against these risks and foster resilience to external shocks, including through strengthening trade, cross-border investment, and commodity supply networks. This can help mitigate the effects of impaired global supply chains, which could result from heightened geopolitical tensions or worsening weather conditions.

Chinese policymakers have implemented various policies to stabilize the property market, including support for affordable housing, improved financial access, and continued accommodative monetary and fiscal policies. There is always scope for additional and more targeted measures.

Central banks in Asia and the Pacific should continue to exercise caution due to U.S. monetary policy uncertainty. Although interest rate hikes have ended in many regional economies, monetary policy remains tight as central banks address domestic price pressures. Governments must also maintain prudent fiscal management, especially considering constrained fiscal space and high interest rates.

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Currency

The Fed Has Cut Interest Rates: What Does This Mean for Asia and the Pacific?

2025-11-17 01:21:10

The recent interest rate cuts by the United States Federal Reserve present opportunities and challenges for central banks in Asia and the Pacific. Policymakers must adopt a balanced, country-specific approach to navigate potential inflationary pressures, exchange rate volatility, and capital inflow dynamics. The United States’ Federal Reserve (Fed) kicked off a long-anticipated monetary policy loosening cycle at its September Federal Open Market Committee meeting, cutting interest rates by 50 basis points. Committee members project another 50 basis points of cuts this year, and that Fed loosening will continue in 2025. This could have significant consequences for the global economy, including for developing economies in Asia and the Pacific. Inflationary pressures in have continued declining in the region this year, as commodity prices stabilized and the lagged effects of last year’s monetary tightening took hold. As a result, most of its central banks have paused their hiking cycle, with some switching to policy rate cuts. Others may now follow suit.  In shaping their policy stance, central banks in emerging economies need to take account of interest rate differentials with the US, which impact capital flows and exchange rates. The Fed rate cut opens up the opportunity for more of the region’s central banks to loosen policy to stimulate domestic demand and growth, without triggering capital outflows and exchange rate depreciations. Still, since the pace and length of the Fed loosening cycle remains uncertain, an appropriate policy response in Asia and the Pacific will require caution and a careful balancing act, for a number of reasons. One option for central banks is to cut rates in the wake of the Fed. This would support growth, but it may also revive price pressures and encourage excessive borrowing in economies where household and corporate debt levels are already high. Alternatively, central banks in the region could continue to maintain a relatively tight monetary stance—e.g., by cutting interest rates with a lag and/or less than proportionally with respect to the Fed. In such a case, the lower interest rates in the US could increase capital flows to Asia and the Pacific, as investors adjust their portfolios toward assets with more attractive yields. This could boost equity and bond markets across the region, providing some breathing space to more vulnerable economies. However, capital inflows could also present some challenges, as significant swings in short-term portfolio investment could increase financial market volatility.  Additionally, higher capital inflows may result in exchange rate appreciations vis-à-vis the US dollar in the region. This would benefit economies heavily dependent on oil and other commodity imports, reducing price pressures and improving trade balances. For economies with high US dollar-denominated debt, the depreciation of the US dollar would make it easier to sustain the debt burden. On the other hand, exchange rate appreciations would boost imports, with potentially negative effects on current accounts. In the medium term, stronger currencies could also hamper export growth, particularly for economies reliant on exports of traditional manufacturing goods, such as garments or textiles, which depend mainly on price competitiveness. This variety of potential effects and channels suggests that  policy responses to the Fed loosening cycle in Asia and the Pacific will need to be country-specific and nuanced, and include a combination of the following measures. As well as adjusting interest rates, monetary authorities in the region could rely on targeted measures, such as on banks’ reserve requirements, to affect financial and liquidity conditions. Forward guidance can also be an effective tool to anchor inflation expectations and reduce uncertainty and financial volatility, by clearly laying out the future path of monetary policy for market participants and economic agents. For economies receiving increasing capital inflows, well-developed financial markets are key to absorb the inflows and turn them into productive investment in the domestic economy. Policy action should focus on increasing competition, efficiency, and transparency in the financial sector, with the central bank or other overseeing independent authority providing adequate supervision.  To deal with the risks associated with rising capital inflows, capital flow management measures and macroprudential policies can be used, including measures aimed at mitigating exposure to currency mismatches.  Where capital inflows result in excessive currency appreciation, targeted intervention in foreign exchange markets could help reduce volatility, while also increasing foreign exchange reserves. Fiscal policy could be used the cushion the impact of falling exports. Depending on fiscal space, stimulus could be directed at several objectives, including boosting consumer spending; incentivizing activity in particular sectors with stronger multiplier effects on the rest of the economy; and infrastructure, energy-saving, climate-adaptation, and other projects aimed at addressing structural gaps, which would also boost the economy’s productive potential. The beginning of the Fed monetary loosening cycle brings challenges and opportunities for Asia and the Pacific. Lower interest rates in the US and a weaker dollar could lower import costs, boost financial markets, and spur larger capital flows toward the region. But these positive developments would not be without risks, including possible exchange rate volatility and renewed inflationary pressures. Policymakers will need to adopt a flexible approach, remaining vigilant and proactive in taking advantage of the opportunities and addressing the risks.

Currency

Comprehensive Guide: Selecting the Right Cryptocurrency Mining Pool

2025-11-17 01:21:10

In the rapidly evolving world of cryptocurrencies, mining remains a fundamental activity for validating transactions and securing the network. However, not all cryptocurrencies are equally profitable to mine, and the choice of mining pool can significantly impact your returns. This guide delves into the essential considerations for selecting an optimal mining pool, ensuring you maximize your mining efficiency and profitability. Evaluating the Profitability of Cryptocurrencies Before choosing a mining pool, it's crucial to evaluate which cryptocurrencies are most profitable to mine. Profitability can vary based on factors such as market value, difficulty level, and network hash rate. Tools like What to Mine can assist in comparing the potential earnings from different cryptocurrencies based on your mining hardware and electricity costs. Researching Mining Pools Once you've identified a profitable cryptocurrency, the next step is to research available mining pools. Start by conducting a thorough online search and reading reviews from other miners to gauge the reputation and reliability of various pools. The following sections outline key factors to consider when selecting a mining pool. Pool Size and Reputation The size and reputation of a mining pool are critical indicators of its reliability and performance. Larger pools typically have higher hash rates and more interconnected miners, leading to more consistent payouts. Smaller pools, while potentially less reliable, may offer lower fees or other incentives to attract miners. Payment Models Understanding the payment model of a mining pool is essential, as it determines the distribution of rewards and who bears the risk. Common payment models include Pay-Per-Share (PPS), Proportional, and Pay-Per-Last-N-Shares (PPLNS): Pay-Per-Share (PPS): Miners receive a fixed reward for each share submitted, regardless of whether a block is found. This model provides consistent payouts but usually comes with higher fees. Proportional: Rewards are distributed based on the number of shares a miner contributes relative to the total shares in the pool. This model can result in variable payouts, depending on the pool's success in finding blocks. Pay-Per-Last-N-Shares (PPLNS): Similar to the proportional model but only considers shares from the most recent N rounds. This model rewards long-term participation and can reduce the impact of pool hopping. Fees Mining pool fees typically range from 0% to 4%, with the industry standard around 1%. It's essential to compare the features and benefits offered by pools with different fee structures. Zero-fee pools are rare and often indicate new or promotional pools seeking to attract miners. Always monitor such pools for any changes in fee policies. Latency Latency, or the time it takes for data to travel between your mining rig and the pool, can affect mining efficiency. High latency can result in "stale" shares, which are less valuable than accepted shares. To minimize latency, select pools with servers geographically close to your location and use tools like Sonar to check server distances. Services like Stratum MS can also help by routing traffic through optimized connections. Difficulty Settings The difficulty setting within a pool determines the minimum hash rate required for a share to be considered valid. Smaller miners may struggle with high difficulty settings, while large miners could overwhelm the network with low difficulty. Adjusting these settings appropriately ensures efficient mining operations and accurate recognition of mining contributions. Additional Considerations Transparency and Security: Ensure the pool operates transparently, providing regular updates and secure transactions. Support and Community: A strong support system and active community can offer valuable insights and assistance. Stability and Uptime: Reliable pools maintain high uptime, ensuring continuous mining without interruptions. Conclusion Choosing the right cryptocurrency mining pool involves a careful balance of several factors, including pool size, payment model, fees, latency, and difficulty settings. Transparent operations, fair work distribution, and efficient payout structures are crucial for maximizing profitability. By thoroughly researching and selecting a well-managed mining pool, you can enhance your mining experience and financial returns.

Currency

Asia's Developing Economies Face Potential Growth Challenges

2025-11-17 01:21:10

The Asian Development Bank's (ADB) July 2024 Asian Development Outlook forecasts sustained growth for Asia-Pacific's developing economies through 2024 and 2025, with inflation expected to ease. However, several factors could disrupt this positive trajectory, including uncertainties surrounding the US election, geopolitical conflicts, vulnerabilities in China's property market, and extreme weather events. Prolonged conflicts, such as Russia's war in Ukraine and the Middle East, might disrupt supply chains and cause oil prices to surge. Other threats include the fragility of China's property sector and weather-related adversities. The US election outcome's unpredictability further complicates the economic outlook. Since the end of 2023, attacks on commercial vessels in the Red Sea, particularly on Europe-Asia routes, have increased shipping costs, potentially exacerbating inflation. Despite longer shipping times, shortages have been averted due to sufficient stockpiles and low demand, but this could change if conditions deteriorate. In April 2024, Middle East conflicts led to oil price volatility. While crude oil prices have remained below $100/barrel, any escalation involving major oil producers could lead to a significant increase in energy costs. Regarding US monetary policy, the Federal Reserve is anticipated to reduce interest rates in 2024, but there is still considerable uncertainty. A surprise rise in US inflation in March led to higher interest rates being maintained for an extended period, despite slower price increases in later months. ADB analysis suggests that if interest rates remain constant throughout 2024, Asian currencies could depreciate, which has already occurred in several regional economies. While currency depreciation might lead to increased imported inflation, it could also enhance export competitiveness and support growth, albeit to a limited extent. For instance, inflation in high-income technology exporters and other developing Asian economies could rise by approximately 0.15 percentage points in 2024 and 2025 compared to the baseline, with the effect diminishing by 2026. The impact on regional growth would be less pronounced than on inflation. China's property market stress poses another risk, as a more severe downturn could undermine consumer confidence and domestic demand, affecting construction and real estate industries and reducing overall economic activity. Decreased consumption and investment could also impact global trade, harming export-dependent economies. However, with appropriate government policy responses, these effects could be localized. A prolonged property market slump could increase global risk aversion and capital flight, negatively affecting other Asia-Pacific economies as financial conditions tighten. Unexpected weather conditions are also a concern, potentially driving up commodity prices and threatening food security. However, the anticipated onset of La Niña could bring cooler temperatures and increased rainfall to arid regions like Southeast Asia, benefiting crop production. Policymakers must remain vigilant against these risks and foster resilience to external shocks by strengthening trade, cross-border investment, and commodity supply networks. This can help counteract the effects of disrupted global supply chains due to heightened geopolitical tensions or adverse weather conditions. Chinese policymakers have implemented policies to stabilize the property market, including affordable housing support, financial access easing, and continued accommodative monetary and fiscal policies. There is room for additional and more targeted measures. Central banks in Asia and the Pacific should continue to exercise caution due to US monetary policy uncertainty. Although interest rate hikes have ceased in many regional economies, monetary policies remain tight as central banks address domestic price pressures. Governments must also maintain prudent fiscal management, especially considering constrained fiscal space and high interest rates.

Currency

Strengthening Economic Resilience in ASEAN through Trade, Tourism, and Digitalization

2025-11-17 01:21:10

The Association of Southeast Asian Nations (ASEAN), a collective of 10 member countries, is well-positioned to navigate the evolving global economic dynamics by leveraging trade, tourism, and digital advancements for sustainable growth. In today's competitive international market, countries are reassessing their supply chains to reduce vulnerabilities and are increasingly adopting protectionist policies to support local industries. Moreover, issues like climate change and the race for advanced technologies such as AI and big data are now integral to national security considerations. Within this context, ASEAN nations must work in concert to ensure economic prosperity and protect national interests, with a focus on trade, digitalization, and enhanced connectivity. Trade, particularly in services, is set to be a key driver for ASEAN's economies, which include sectors like finance, telecommunications, tourism, transportation, and professional services. These areas are vital for job creation and economic growth. Despite a slowdown in goods trade post-pandemic, service trade has shown an upward trajectory, positioning ASEAN as a net exporter of services. Tourism offers significant potential for ASEAN, emphasizing the region's attractiveness as a travel destination. To enhance competitiveness, ASEAN countries are expected to collaborate on infrastructure, skill development, marketing, and innovation to increase intra-regional travel, which represents over 40% of ASEAN's international tourism, thus bolstering regional economic resilience. The digital economy in the region, encompassing e-commerce and digital health, is expected to grow from $300 billion to nearly $1 trillion by 2030. With robust digital connectivity policies and regional cooperation, this growth could be even more substantial. The Digital Economy Framework Agreement is pivotal to this collaborative effort, covering areas such as digital standards, data flows, cybersecurity, digital trade, and the mobility of digital talent, which are all critical components of digital public infrastructure. Enhanced digital cooperation is also projected to bring about additional benefits, including positive environmental outcomes, social cost savings in the range of $12-30 billion, increased resilience, job creation, and improved access to education and healthcare services. Furthermore, both physical and institutional connectivity are crucial for ASEAN's economic competitiveness, facilitating engagement with larger Asian and global economies. There is a growing focus on sustainable infrastructure, including renewable energy, low-carbon transport, and urban energy efficiency. By integrating this with improved digital cooperation and streamlined cross-border logistics and supply chains, the movement of goods, services, and people across borders will be more efficient, environmentally friendly, and regionally resilient. The collective approach to sustainable infrastructure aligns with ASEAN members' commitment to the Paris Agreement, with Nationally Determined Contributions aiming for net-zero CO2 emissions by 2050 and net-zero greenhouse gas emissions by 2065, to limit global temperature increases to 1.5°C. It is a strategic moment for ASEAN policymakers to reconsider collaboration. Amidst global economic fragmentation, there are areas that require cross-border cooperation. Economic self-reliance is growing in the region, and with pressing issues such as digitalization and climate change, mismanaged interdependence could lead to significant costs and economic challenges. Therefore, for the upcoming term of ASEAN regional cooperation until 2045, member countries should consider their collective efforts as a regional public good, where the benefits of enhanced trade, tourism, digitalization, and connectivity will contribute to sustainable and resilient outcomes for the region's population.

Currency

Strengthening Financial Stability in Developing Economies

2025-11-17 01:21:10

Sudden increases in debt can hinder economic development and cause inflation in developing economies. Key strategies such as fiscal structures, strategic debt management, and policy alignment are essential for tackling these challenges and bolstering economic strength. The 2007-2008 global financial crisis resulted in a considerable surge in debt in emerging economies due to reduced global interest rates, which lowered the cost of sovereign debt. This pattern persisted as the need for fiscal stimulus in response to COVID-19 further escalated debt levels. In 2022 and 2023, elevated inflation post-pandemic led to a contraction in global monetary policy, raising concerns about the sustainability of debt due to elevated debt levels and increased servicing costs. Although inflationary pressures have been diminishing throughout 2024, partly due to the delayed impact of tight monetary policy and a reduction in global commodity prices, the US Federal Reserve's 50 basis point rate reduction in September offered some relief for emerging economies considering the start of their monetary policy easing cycles. However, the robust US labor market and stronger economic activity suggest that the Fed's easing pace might be slower in the future. This is further complicated by the potential inflationary effects of policies proposed by US President-elect Donald Trump on trade, immigration, and tax. Fed rate futures indicate a diminished expectation of cuts, forecasting only 75 basis points by October 2025, down from 125 basis points prior to the election on 5 November. While some interest rate reduction is expected, which could alleviate the burden of debt servicing in emerging markets, rates are anticipated to remain higher than in the 2010s. A recent ADB Economics Working Paper and journal article analyze the impact of unexpected increases in debt on output and inflation in 34 emerging market economies from 2000 to 2022, underlining significant challenges for policymakers. Previous studies suggest that debt levels exceeding 90% of GDP can adversely affect growth, and persistent fiscal deficits and high debt can restrict the central bank's ability to tighten monetary policy, leading to higher inflation expectations. Our research indicates that real GDP significantly decreases following an unexpected increase in public debt, while inflation responds in the opposite direction. Specifically, a 1% positive public debt shock results in a maximum real GDP decrease of –0.015% approximately two years post-shock. Conversely, an unexpected rise in public debt is associated with a sustained increase in inflation about one year after the shock. Our study also examines domestic economic fundamentals that could influence these outcomes. Higher initial debt levels, tighter domestic financial conditions, and lower income levels exacerbate the effects, particularly on GDP. Emerging market economies also experience more severe impacts during recessions. Policymakers aiming to enhance public debt sustainability should focus on long-term fiscal consolidation strategies, as lower initial debt levels or a declining debt trajectory can reduce the negative impact of debt shocks on growth. Building fiscal buffers during prosperous times can be a significant factor. Policymakers should take into account the output and inflation effects of unexpected debt shocks when designing medium-term fiscal frameworks, especially given the severity with high and increasing debt. In this context, national fiscal authorities must establish credibility in macroeconomic projections and maintain a well-anchored fiscal path. Fiscal rules can support public debt management and macroeconomic resilience. Monetary and fiscal policies should be well-coordinated. Incorporating risk factors into fiscal frameworks can mitigate the effects of debt shocks on the economy, reducing debt sustainability exposure and creating policy space for shock responses. Furthermore, emerging market economies should concentrate on policies for long-term sustainable growth, as higher income levels enhance resilience to debt shocks for both growth and inflation. Increasing tax revenue and mobilizing domestic financial resources, including by broadening the tax base, will be crucial.

Currency

A Comprehensive Guide to Currency Risk

2025-11-17 01:21:10

Currency risk, also known as exchange-rate risk, pertains to the uncertainty faced by investors and businesses regarding fluctuations in the value of one currency relative to another. This type of risk is a potential source of both profit and loss for international investors or companies engaged in global operations. Institutional investors, including hedge funds, mutual funds, and multinational organizations, frequently employ various financial instruments such as foreign exchange (forex), futures contracts, options contracts, and other derivatives to manage and mitigate currency risk. Understanding Currency Risk Businesses and individuals engaged in international transactions are inherently exposed to currency risk. Hedge funds, mutual funds, and large multinational corporations utilize the forex market and derivatives like futures and options to hedge against currency fluctuations. Hedging strategies involve offsetting potential losses from currency movements. For example, a U.S. investor holding Canadian stocks will see their returns influenced by both the performance of the stocks and the exchange rate between the Canadian dollar (CAD) and the U.S. dollar (USD). If the CAD depreciates against the USD by the same amount as the stock gains, the investor's profit is effectively neutralized after accounting for trading costs. Examples of Exchange-Rate Risk U.S. investors can hedge against currency risk by investing in countries with appreciating currencies and favorable interest rates. However, inflation rates and national debt levels must be considered, as high debt often precedes inflation, potentially leading to currency depreciation. Countries with low debt-to-GDP ratios tend to have stronger currencies. For instance, the Swiss franc (CHF) is supported by Switzerland's political stability and low debt-to-GDP ratio. Similarly, the New Zealand dollar (NZD) benefits from robust agricultural and dairy exports, contributing to potential interest rate hikes. Conversely, a weakening USD, often due to lower U.S. interest rates compared to other countries, generally benefits foreign companies. Bondholders are particularly vulnerable to currency risk due to typically lower returns. Currency fluctuations can significantly impact the returns on a foreign bond index. Bonds denominated in USD provide more stable returns by eliminating currency exposure, while portfolio diversification across various regions mitigates currency risk. Investors may also find opportunities in countries like China, which pegs its currency to the USD. However, central banks could alter these pegging relationships, potentially impacting investor returns. Unique Conditions Various exchange-traded funds (ETFs) and mutual funds are designed to hedge against forex, options, and futures market volatility. Many currency-hedged funds have been established in developed and emerging markets due to the strengthening dollar. These funds typically incur higher costs compared to non-hedged funds, affecting overall returns. BlackRock's iShares, for example, offers a range of currency-hedged ETFs. As the USD depreciated in early 2016, investors reduced their holdings in these funds, leading to the closure of several currency-hedged ETFs. Risk-Free Simulation Engage in virtual trading with $100,000 in play money using our no-risk simulator. Compete against thousands of Investopedia users to hone your trading skills in a simulated environment. This experience will prepare you for success in real financial markets, allowing you to trade like a professional. Interrelated Concepts Transaction risk, arising from forex rate fluctuations before settlement, is a specific type of currency risk. Systemic risk in the market, encompassing broader financial loss potential, and investment risk, defined as the divergence of actual returns from expected outcomes, are also crucial considerations. The forex market operates as a decentralized platform for global currency exchange. A currency peg occurs when a government or central bank maintains a fixed exchange rate between its currency and another, influencing currency risk dynamics. Conclusion Effective management of currency risk is essential for international investors and businesses to safeguard their returns. By employing hedging strategies and diversifying investments, entities can mitigate the adverse effects of currency fluctuations. Understanding and navigating currency risk are fundamental to achieving financial stability and optimizing global market opportunities.

Currency

The Influence of Political Stability on Fiscal Space Amidst Climate Risks

2025-11-17 01:21:10

Climate risks have a profound impact on fiscal space, with sovereign bond yields and debt ratings serving as indicators of the financial challenges. The role of political stability and financial development in reducing these risks is pivotal, highlighting their significance for fiscal sustainability in the long run. Climate risks, encompassing the potential negative socio-economic consequences of climate change, pose considerable fiscal threats, particularly through their impact on fiscal space. For instance, a major disaster triggered by climate change could require substantial fiscal expenditures for relief and recovery efforts. Similarly, extreme heat due to global warming might lead to significant agricultural damage, prompting governments to offer subsidies to affected farmers. Broadly, public spending on climate change adaptation and mitigation stands as one of the largest fiscal demands globally. Combined with other significant fiscal demands, such as those stemming from an aging population, climate change-related fiscal expenditures pose a substantial threat to fiscal space and sustainability in the future. A recently published ADB Economics Working Paper analyzes the effect of climate risk on fiscal space across 199 countries from 1990 to 2022. We measure fiscal space using sovereign bond yields and ratings on foreign currency long-term sovereign debt. Elevated sovereign bond yields and downgraded sovereign debt ratings signal higher borrowing costs and default risks, indicating a deterioration in fiscal space. We also explore the mitigating role of political stability and financial development in climate-related fiscal risks. Specifically, we assess whether more politically stable and financially developed economies are less susceptible to these risks. Political stability is likely to reduce these risks as it increases the probability of more sustainable fiscal policies, such as a robust medium-term fiscal framework. Consequently, a more stable political environment is likely to lessen the impact of climate shocks and other shocks on fiscal sustainability. Moreover, political stability fosters more cautious, rational, and cost-effective government planning in response to potential climate shocks, helping to preserve fiscal space. Financial development is also anticipated to reduce climate-related fiscal risks. In financially developed economies, businesses and households have access to insurance and other financial instruments that protect them from the adverse effects of climate shocks. This reduces the need for substantial fiscal outlays, thereby mitigating the negative impact on fiscal space. Additionally, financial development increases the credit available to businesses and households to help them absorb the effects of potential climate shocks. Our findings reveal that a one-unit increase in climate vulnerability results in a significant one percentage point increase in bond yields in countries with high political stability risks, peaking at 2 years post the initial impact. Conversely, in countries with lower political stability risks, the response of bond yields is not statistically significant. In the case of financial development, economies with low financial development are more vulnerable to climate-related sovereign risks. Bond yields rise by approximately 0.6 percentage points for these economies, peaking at 2 years post the initial climate shock. Meanwhile, in economies with high financial development, no significant effect is observed. Overall, our empirical analysis indicates that climate vulnerability negatively affects fiscal space, with the most pronounced effects in countries most susceptible to climate change and where fiscal space is most limited. We also find that these effects are reduced in countries with more stable political environments and more developed financial markets. More specifically, our evidence shows that climate risks are associated with lower bond risk premiums and higher sovereign ratings in countries with less exposure to both external and internal conflict. Furthermore, better financial development weakens the link between climate risks and fiscal space. Financially developed countries do not experience a climate-related bond risk premium or a persistent decline in sovereign ratings due to climate vulnerability. While fiscal consolidation is crucial for mitigating the adverse effects of climate risks on fiscal space, our results suggest that political stability and financial development can also contribute. Political stability is valuable in its own right, but our analysis provides evidence of a significant additional benefit in protecting fiscal space from climate risk. Similarly, our findings reinforce the argument for governments to promote financial development further.

Currency

Enhancing Debt Resilience in Emerging Economies

2025-11-17 01:21:10

Unexpected surges in debt can impede economic growth and trigger inflation in emerging economies. Strategies such as fiscal frameworks, strategic debt consolidation, and policy coordination are crucial in addressing these issues and strengthening economic resilience. The global financial crisis from 2007 to 2008 led to a significant rise in debt accumulation in emerging market economies due to lower global interest rates, which reduced the cost of sovereign borrowing. This trend continued as the need for fiscal stimulus in response to the COVID-19 pandemic further increased debt levels. In 2022 and 2023, high inflation post-pandemic led to a tightening of global monetary policy, raising concerns about debt sustainability due to high debt levels and increased debt servicing costs. Although inflationary pressures have been easing throughout 2024, partly due to the delayed effects of tight monetary policy and a decrease in global commodity prices, the US Federal Reserve's 50 basis point rate cut in September provided some relief for emerging economies looking to start their monetary policy easing cycles. However, the robust US labor market and stronger economic activity suggest that the Fed's easing pace might be slower in the future. This is further complicated by the potential inflationary effects of policies proposed by US President-elect Donald Trump on trade, immigration, and tax. Fed rate futures indicate a reduced expectation of cuts, forecasting only 75 basis points by October 2025, down from 125 basis points before the election on 5 November. While some interest rate reduction is anticipated, which could alleviate debt servicing burdens in emerging markets, rates are expected to remain higher than in the 2010s. A recent ADB Economics Working Paper and journal article analyze the impact of unexpected increases in debt on output and inflation in 34 emerging market economies from 2000 to 2022, highlighting significant challenges for policymakers. Previous studies suggest that debt levels exceeding 90% of GDP can negatively affect growth, and persistent fiscal deficits and high debt can limit the central bank's ability to tighten monetary policy, leading to higher inflation expectations. Our research shows that real GDP significantly decreases following an unexpected increase in public debt, while inflation reacts in the opposite direction. Specifically, a 1% positive public debt shock results in a maximum real GDP decrease of –0.015% approximately two years post-shock. Conversely, an unexpected rise in public debt is linked to a sustained increase in inflation about one year after the shock. Our study also investigates domestic economic fundamentals that could influence these outcomes. Higher initial debt levels, tighter domestic financial conditions, and lower income levels exacerbate the effects, particularly on GDP. Emerging market economies also experience more severe impacts during recessions. Policymakers aiming to enhance public debt sustainability should prioritize long-term fiscal consolidation strategies, as lower initial debt levels or a declining debt trajectory can lessen the negative impact of debt shocks on growth. Building fiscal buffers during prosperous times can be a significant factor. Policymakers should consider the output and inflation effects of unexpected debt shocks when designing medium-term fiscal frameworks, especially given the severity with high and increasing debt. In this context, national fiscal authorities must establish credibility in macroeconomic projections and maintain a well-anchored fiscal path. Fiscal rules can support public debt management and macroeconomic resilience. Monetary and fiscal policies should be well-coordinated. Incorporating risk factors into fiscal frameworks can mitigate the effects of debt shocks on the economy, reducing debt sustainability exposure and creating policy space for shock responses. Furthermore, emerging market economies should focus on policies for long-term sustainable growth, as higher income levels enhance resilience to debt shocks for both growth and inflation. Increasing tax revenue and mobilizing domestic financial resources, including by broadening the tax base, will be crucial.

Currency

Demystifying Crypto Assets: What You Need to Know

2025-11-17 01:21:10

The concept of an Initial Coin Offering (ICO) originated from the development of crypto assets, such as digital coins and tokens, within the operational framework of blockchain technology. Much like physical currency, crypto assets are scarce and their ownership can be transferred. However, while physical coins can be exchanged face-to-face, the transfer of control for crypto assets is realized through digital means via network transmission of cryptographic keys. Essentially, a crypto asset is an entry on a distributed ledger, assigning control to a specific user identified by a private key. This private key, which functions as a secure password, allows the user to exercise exclusive rights associated with that ledger entry. Even though private keys can be exchanged physically, the actual crypto asset remains as a ledger entry, inherently bound to its local blockchain protocol. The Evolution of Crypto Assets The inception of crypto assets began with Bitcoin and its distributed ledger technology, commonly known as blockchain. Prior to the advent of digital currency, monetary systems existed in the form of centralized ledgers managed by financial intermediaries, such as bank accounts or PayPal balances. Bitcoin emerged as the pioneering digital currency system that eliminates the need for centralized intermediaries to maintain ledger integrity. The core innovation of Bitcoin and other public blockchain systems lies in their ability to maintain a reliable and immutable record of ownership without centralized control. Bitcoin's ledger is decentralized and replicated across a network of computers, known as nodes, which communicate through the Internet. When a Bitcoin holder initiates a transaction to transfer Bitcoin to another user, it is broadcasted to the network nodes. This decentralized system ensures that no single entity can alter the ledger unilaterally. Instead, economic incentives and cryptographic principles govern the consensus mechanism, ensuring that all copies of the ledger remain consistent and up-to-date. Significance of ICOs and Blockchain Technology ICOs represent a method for raising capital through the issuance of digital tokens or coins, typically in exchange for cryptocurrencies like Bitcoin or Ethereum. This fundraising model leverages the decentralized nature of blockchain technology to facilitate secure and transparent transactions. Crypto assets, which are the basis of these ICOs, serve as digital representations of value within the blockchain ecosystem. The decentralized and transparent nature of blockchain technology ensures that transactions are recorded and verified by a distributed network of nodes. This reduces the risk of fraud and enhances the security of digital asset transactions. Moreover, blockchain technology's reliance on cryptographic algorithms provides a robust framework for maintaining data integrity and privacy. Future Prospects of Crypto Assets and ICOs As the adoption of blockchain technology and crypto assets continues to grow, the potential applications and use cases are expanding. From financial services and supply chain management to digital identity verification and beyond, blockchain technology is poised to revolutionize various industries by offering enhanced security, transparency, and efficiency. In the realm of finance, the ability to tokenize assets and facilitate peer-to-peer transactions without intermediaries has significant implications for market accessibility and liquidity. Additionally, the programmable nature of smart contracts allows for the automation of complex processes, further enhancing the potential of blockchain technology. Conclusion Crypto assets and ICOs represent a transformative shift in the way value is transferred and capital is raised. Understanding the fundamentals of these technologies, including the role of distributed ledgers and cryptographic keys, is essential for navigating the evolving landscape of digital finance. As blockchain technology continues to mature, its impact on global markets and industries is expected to be profound, driving innovation and creating new opportunities for growth.

Currency

Beyond Growth: How AI Can Reshape Economies for Ecological Sustainability

2025-11-17 01:21:10

Amid converging crises of climate change, biodiversity loss, and resource depletion, the urgency of reimagining our economic systems has never been greater. Artificial Intelligence offers a unique opportunity to rethink how we manage resources and align economic activities with environmental sustainability. For decades, global economic policy has been driven by the relentless pursuit of GDP growth, often at the expense of environmental and social well-being. This growth-centric model has spurred overexploitation of natural resources, driven deforestation, depleted oceans, and contributed significantly to global climate change. These issues underscore a fundamental flaw: the assumption that economic growth can continue indefinitely without hitting ecological limits.  Economic activities frequently externalize environmental costs, treating them as side effects rather than central concerns. For instance, standard agricultural practice has long prioritized short-term yield maximization, relying heavily on chemical fertilizers and monoculture cropping. While this boosts immediate output, it leads to soil degradation, water depletion, and loss of biodiversity, ultimately threatening the long-term sustainability of food production and security. Artificial Intelligence has the potential to disrupt these outdated models by supporting the transition to circular and regenerative economies. Unlike the traditional linear model of “take, make, dispose,” a circular economy seeks to minimize waste by reusing and recycling resources. AI can play a critical role in optimizing these processes—enhancing supply chains, extending product lifecycles, and reducing waste.  Imagine AI algorithms that analyze vast amounts of data to optimize supply chain logistics, reducing waste and inefficiencies. In manufacturing, AI can aid in designing products that are easier to repair, reuse, or recycle, aligning with circular economy principles. This shift not only lowers the environmental footprint but also reduces costs, providing economic incentives for businesses to adopt more sustainable practices. In agriculture,  AI can revolutionize practices through precision farming, which allows farmers to make data-driven decisions about how to manage their crops and resources. AI systems can provide real-time information on soil conditions, weather patterns, and crop needs, enabling farmers to use water and fertilizers more efficiently and reduce their environmental impact. Precision farming optimizes resource usage, directing them exactly where required, thereby bolstering food security, safeguarding natural habitats, and strengthening resilience against climate change. AI’s potential extends beyond industrial efficiency to direct environmental protection. An inspiring example is the use of AI-powered wind farms that can detect when migratory birds are passing through and temporarily shut down turbines to prevent collisions. Such innovations highlight how AI can be a force for harmonizing human activities with the natural world, advancing both renewable energy goals and biodiversity conservation. AI can also be a game-changer in reforestation and ecosystem restoration. Autonomous drones equipped with AI can plant trees in deforested areas, monitor their growth, and even identify and respond to threats such as wildfires or illegal logging. These efforts are crucial for carbon sequestration, biodiversity recovery, and the overall health of ecosystems.  Using AI to enhance the efficiency and effectiveness of reforestation can make significant strides in reversing some of the damage caused by decades of environmental neglect. AI should be deployed to support systemic changes that align economic activities with ecological limits. Take, for example, how AI can streamline the incorporation of renewable energy into national grids, balance energy demand with greater precision, and minimize waste. Harnessing predictive analytics, AI guarantees that renewable energy is accessible at the right moments and places, facilitating a seamless shift to a low-carbon economy. As we navigate the AI revolution, we are like guardians of highly intelligent toddlers—curious, rapidly growing, and absorbing information at an unprecedented rate. Just like young children, these AI systems will mature based on the values, knowledge, and principles we instill in them today. If we feed them the right data—balanced, ethical, and grounded in the principles of sustainability and equity—they can grow into powerful allies for a sustainable future. The choices we make now will echo for generations to come, determining if AI becomes a force for good that nurtures the delicate balance of our natural world.