IMF official says FinTech and climate change are key challenges in next decade
Deputy managing director Tao Zhang urges close global co-operation on both
FinTech and climate change are the among the key global challenges going into the next decade, International Monetary Fund deputy managing director Tao Zhang said.
“In many respects these issues are fundamentally different … But they have some similarities, most importantly in the fundamental need for close co-operation within the global community,” said Mr Zhang in an address given on Thursday in Stockholm, Sweden.
He said these two topics, which both shape the global economy and its financial systems, are important for the IMF and its membership to engage in over “the medium and longer run”.
Climate change is set to have a significant economic impact on many countries.
Tao Zhang, IMF deputy managing director
On the positive side, FinTech has increased convenience, reduced financial service costs and increased financial inclusion, especially in low-income countries where mobile phones have brought payment and credit services to the masses. For example, in Kenya about 90 per cent of the population over 14 years old pays with M-Pesa, Mr Zhang said.
However, Mr Zhang warned that “very rapid and deep changes in financial systems can entail stability risks”. He cited the financial liberalisation of the 1980s, which “led to an easing in credit standards, asset price booms especially in commercial real estate, culminating in serious banking crises”. The framework for FinTech must also address money laundering and other threats to integrity along with consumer protection, he said.
In October of last year, the IMF and the World Bank published the Bali FinTech Agenda, to address 12-high-level issues. The objectives centred around building an environment for FinTech innovation, ensuring an adequate financial sector policy framework, addressing risks and resilience, and encouraging international collaboration.
“There are an estimated 1.7 billion adults in the world without access to financial services,” said IMF managing director Christine Lagarde in a statement at the time. “FinTech can have a major social and economic impact for them and across the membership in general. All countries are trying to reap these benefits, while also mitigating the risks.”
Ms Lagarde added that greater international co-operation is needed to “make sure the FinTech revolution benefits the many and not just the few”.
Mr Zhang said that FinTech could favour “Big Tech” companies entering the payment and credit markets, given their large user base. Another scenario is that some banks adapt the technology faster than others, leading to sizeable movements in market shares.
Climate change is the second challenge that IMF and its membership should focus on, given that it “may have profound implications for economic and financial stability,” said Mr Zhang, who has been the IMF deputy managing director since August 2016.
“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,” he said.
Mr Zhang encouraged finance ministries around the world to help mitigate climate change through the use of measures such as carbon taxation, energy subsidy reforms and emissions trading systems.
“The point is to establish, one way or another, a price on CO2 emissions and thereby incentivise the entire economy to shift to cleaner energy sources and conserve on the use of electricity and fuels,” Mr Zhang said. “Our own message here at the Fund continues to be ‘price it right, do it smart, and do it now’.”
Updated: June 14, 2019 04:22 PM