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Review of the OECD Codes of Liberalisation

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Review of the OECD Codes of Liberalisation

  1. 1. THE 2019 REVIEW OF THE OECD CODES OF LIBERALISATION
  2. 2. WHAT ARE THE OECD CODES OF LIBERALISATION?
  3. 3. The Capital Movements Code • Established in 1961 at a time when many OECD countries were in the process of economic recovery and development and when the international movement of capital faced many barriers. • The Code remains to date the only multilateral instrument promoting liberalisation of the full range of international capital movements as its primary purpose, as the IMF does not have a legal instrument in the area. • Example of operations covered by the Capital Movements Code: direct investment, real estate, securities, money markets, collective investment securities, financial credits and loans, deposit accounts, operations in foreign exchange.
  4. 4. The Current Invisibles Code • Also established in 1961, covers primarily cross-border services. • Example of operations covered by the Current Invisibles Code: banking and financial services, insurance and private pensions services, professional services, maritime and road transport and travel and tourism. • Predecessor of the WTO General Agreement on Services (GATS). • In some areas more detailed guidance than in the GATS (example: insurance and private pensions). • Same governance provisions as the CLCM.
  5. 5. THE CONTEXT OF THE REVIEW
  6. 6. Volatility of capital inflows has, at times, become an important policy challenge OECD Non-OECD G20 • Capital inflows became the most important transmission channel for spillovers after the global financial crisis USD billion USD billion Source: IMF Balance of Payments Statistics
  7. 7. Policy challenges arising from capital inflows • Capital inflows can lead to currency appreciation and potentially a loss of competitiveness. • Capital inflows may entail financial stability challenges (lending booms). • Following the global financial crisis, the world has seen increased and more heterogeneous use of financial tools, especially by emerging markets. • An ad-hoc and uncoordinated policy use can increase the risks of cross-border spillovers and beggar-thy-neighbour behavior. • These challenges have led to a renewed interest in the OECD‘s Capital Movements Code (including within the G20).
  8. 8. Important trends in the use of financial policies … Cumulative use of financial policies (Introduction, adjustment and termination of policies) -1400 -1200 -1000 -800 -600 -400 -200 0 200 400 600 1999q2 2001q2 2003q2 2005q2 2007q2 2009q2 2011q2 2013q2 2015q2 2017q2 MPM_cum. CBM_cum. CFM_cum. Note: Currency Based Measures (CBMs) = FX-differentiated measures; Macro-prudential Measures (MPMs) = neither residency- nor FX-differentiated. Sample of 62 countries, among which the 36 OECD countries and 25 Emerging economies. MPM/CBM not available in 2017 Source: Lepers and Mehigan (2019); De Crescenzio et al (2015), Alam et al (2019)
  9. 9. … with a more active and heterogeneous use post- crisis. Note: Residency Based Measures (RBMs)= residency based measures; Currency Based Measures (CBMs) = FX- differentiated measures; Macro-prudential Measures (MPMs) = neither residency- nor FX-differentiated. T= tightening, L=loosening. Sample of 62 countries, among which the 36 OECD countries and 26 Emerging economies. MPM/CBM not available in 2017 Source: Lepers and Mehigan (2019); De Crescenzio et al (2015), Alam et al (2019) -80 -60 -40 -20 0 20 40 60 1999q2 2001q2 2003q2 2005q2 2007q2 2009q2 2011q2 2013q2 2015q2 2017q2 CBM_L. CBM_T. RBM_L. RBM_T. MPM_L. MPM_T. Quarterly easing and tightening of financial policies
  10. 10. THE REVIEW PROCESS
  11. 11. Key players in the review OECD BODIES: • The Advisory Task Force on the OECD Codes (ATFC): advisory body, composed of governmental experts from OECD countries, non-OECD G20 and FSB Members, other non-OECD countries, experts from relevant International Organisations (IOs) such as the IMF. • Three parent committees (Investment Committee, Insurance and Private Pension Committee, Committee on Financial Markets). • The Investment Committee: responsible for the Codes. EXTERNAL CO-ORDINATION: • G20 Finance Ministers and G20 International Financial Architecture (IFA) WG • IMF
  12. 12. Terms of Reference: Purpose of the Review “A Review should strengthen the Code” “An agreement which emerged from the discussions at the ATFC and the Investment Committee is that the Code's obligations should not be diluted” “A Review should adapt to current requirements for capital flow management” “in particular of recipient countries”
  13. 13. MAIN OUTCOMES OF THE REVIEW
  14. 14. Main outcomes of the Review A CODE MORE IN LINE WITH CURRENT CHALLENGES… … A MORE EFFICIENT AND TRANSPARENT CODE… … WITH CLOSER LINKS TO OTHER INTERNATIONAL ORGANIZATIONS ... … AND MORE EFFECTIVE DECISION MAKING
  15. 15. Main outcomes of the review (1/4) A. Improved guidance on the treatment of macro-prudential measures under the Code B. Measures to discourage a possible excessive dependence on short-term foreign currency liabilities to be analysed case-by-case C. National adaptations of Basel III regulations (bank liquidity ratios) differentiated by currency to be considered outside of the scope of the Code D. Further guidance on the invocation of derogations from the Code associated with capital inflow surges. A CODE MORE IN LINE WITH CURRENT CHALLENGES…
  16. 16. A. General treatment of macro- prudential measures under the Code • Macro-prudential measures normally fall outside the scope of the Code  Standard caps on Loan to value (LTV) or Debt to Income (DTI) ratios  Countercyclical capital buffer  Higher risk weights for sectoral exposure  Leverage ratio […] Not covered
  17. 17. B. Basel III liquidity ratios differentiated by currency • Basel III liquidity ratios are considered outside of the scope of the Code, even if differentiated by currency:  Differentiated Liquidity Coverage Ratio (LCR)  Differentiated Net Stable Funding Ratio (NSFR) Not covered
  18. 18. C. Non-residency based measures on foreign currency liabilities  Higher reserve requirements for FX liabilities  Measures based on the remaining maturity of bonds or other debt securities Case-by-case assessment Restrictions on foreign currency liabilities of financial institutions (non-residency based) will be analysed on a case-by-case basis. Examples:
  19. 19. D. Review of the derogation clause • Clarification that the derogation clause has been invoked in the past and can be invoked for serious economic and financial disturbances associated with capital inflow surges. • Introduction of a quantitative method of measurement of inflow surges, to complement other inputs and elements of context.
  20. 20. Main outcomes of the review (2/4) • Clarification of the criteria for the conformity assessment of measures under the Codes (p47 of the User’s Guide). • Formalisation of the possibility for the OECD Secretariat to bring measures to the attention of the Committee. • Strengthening of the notification procedure for new measures through clearer deadlines. • Requirement for prompt declassification of the reports on assessment of measures (subject to safeguards). A MORE EFFICIENT AND TRANSPARENT CODE…
  21. 21. • Explicit provision for the possible consultation of other relevant International Organisations by the ATFC and/or the Committee, in addition to other OECD Committees. • Possibility to request the IMF to give its views on issues related to balance of payments and the state of the international reserves of a Member. WITH CLOSER LINKS TO OTHER INTERNATIONAL ORGANISATIONS ... Main outcomes of the review (3/4)
  22. 22. Main outcomes of the review (4/4) …MORE EFFECTIVE DECISION MAKING • Adoption of Consensus-minus-one decision-making for the review of country-specific measures, which do not alter by themselves a Member’s rights and obligations under the Codes.  Preventing the country under review to block final decision on whether its measure is conforming or not. • Will only apply after every effort has been made to reach consensus, and provided that the views of all countries are fully reflected in the Committee’s report. • The general rule at the Investment Committee will continue to be consensus.
  23. 23. • Three defined cases under consensus-minus-one : 1. recommendations to the Member concerned to consider ways and means towards relaxing certain existing restrictions; 2. individual conformity assessments of a new measure with a Member’s obligations under the Codes; 3. Committee proposals for action by a Member, following a Committee review of a measure introduced or maintained by a Member. Consensus-minus-one
  24. 24. Read More Links to OECD Codes of Liberalisation of Capital Movements and of Current Invisible Operations Link to The Revised Code and User's Guide - OECD Report to G20 Finance Ministers and Central Bank Governors Link to the OECD Codes of Liberalisation of Capital Movements and Current Invisible Operations: Users' Guide

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