20 September 2022

IMF blog: From 1980s Debt Crisis to Crypto Era, Financial Stability Monitoring is Always Evolving

Twenty years ago, the IMF released its inaugural Global Financial Stability Report to strengthen surveillance of financial markets after a series of crises in emerging market economies and the dot-com bust.

This semiannual publication by the Monetary and Capital Markets Department has since evolved through years of seismic shifts in the global economic and financial landscape into one of our key multilateral surveillance tools. Along with the World Economic Outlook and the Fiscal Monitor, this flagship report aims to foster international monetary and financial stability.

The beginning

Monitoring the health and outlook of the global economy and member countries is the bedrock of the Fund’s work. This surveillance role, outlined in amendments to our Articles of Agreement first adopted at the 1944 Bretton Woods Conference, charges us with overseeing and safeguarding the international monetary system.

In the early years, surveillance focused on the macroeconomic and exchange-rate policies of member nations, but growth in international banking in the early 1970s highlighted a need to better track global capital markets and assess financial-stability implications. Consequently, the Fund started discussions with monetary authorities in major financial centers and in 1974 initiated internal reports on market developments and prospects.

Starting in 1980, the report known as International Capital Markets became our main vehicle to monitor conditions in financial markets, warn of risks, and analyze disruptions like Latin America’s debt crisis of the 1980s or Europe’s exchange-rate mechanism crisis in the early 1990s. But that era’s rapid expansion and integration of global capital markets, and the ensuing financial crises in Asia and several other emerging markets, highlighted the need to better assess systemic risks.

The introduction of the Global Financial Stability Report marked an important step toward a more comprehensive and frequent assessment of cross-border capital flows and financial market risks. In his forward to the first GFSR, the then-Managing Director Horst Köhler noted how the report had its roots in crisis.

“The rapid expansion of financial markets has underlined the importance of a constant evaluation of the private sector capital flows that are the engine of world economic growth, but sometimes at the core of crisis developments as well,” he wrote. “Opportunities offered by the international capital markets for enhancing global prosperity must be balanced by a commitment to prevent debilitating financial crises.”...

more at IMF

© International Monetary Fund