But it requires those holding SDRs to realize that they are ways to use the SDRs that maintain them as liquid reserve assets -- and the World Bank to recognize that there is a fundraising advantage by tapping official sources of funding directly.

So the World Bank can make its existing capital do a bit more -- and of course it would generate a real increase in capacity if combined with a bit of hybrid capital!

The key is that the MDBs get operational leverage (they can strength their balance sheets) by tapping an under-used pool of reserve assets now held by their shareholders (the SDRs). The bond provides the shareholders a perfect asset-liability match!

In our proposal, the SDR bond settles in standard hard currencies -- so it actually is just a dollar denominated or euro denominated triple AAA bond. It really is a classic reserve asset!

Great to see Politico's Central Bank Pro highlight Setser/ Paduano SDR bond proposal -- it seems a bit complicated (SDRs, leverage ratios etc) but it is a feasible way to deliver real funds for climate investment and green infrastructure.

But China's domestic weakness (and the CNY's current level v the USD + China's reluctance to do a consumer focused stimulus) are also pushing China to export more ... so to me at least not everything is yet written in stone. 11/11

Going forward, there is real pressure on many firms to look to set up alternatives to China, tho it will take time. Deglobalization could become a reality not a forecast. 10/

As I noted on Odd Lots, China's exports as a share of WGDP rose a ton between 2019 and 2021 -- and China's manufactured surplus rose in 2022 even tho China's export share was constant at an elevated level. 9/

So for those who think about trade patterns globally, the US bilateral data misleads a bit -- US imports from China and Asia are weak b/c US consumer goods imports are off the peaks from early last year, and others can export a lot to the US b/c they import from China ... 8/

And in global terms East Asia ex Japan and China specifically cannot run a large global surplus without the large US deficit in manufactures (the EU runs a surplus there, as does Japan). 7/

In global terms, the oil exporters right now cannot run an outsized surplus without large deficits in Europe and Japan (and with falling oil prices Europe and Japan are swing back to surplus) 6/

And c) the weakness in US non petrol imports logically has to map to weakness in China -- but in aggregate China's surplus is still quite large v the usual seasonal lows or what would be expected given the size of the US deficit. 5/

No matter how you cut the aggregate data, three things stand out -- a) Asia's surplus is now all a Chinese surplus; the surplus of the other Asian economies has disappeared; b) Asia's surplus still maps to the US non-oil deficit; 4/

There is no doubt that China's share of the US import market has fallen this year in the US bilateral data (less so if you use the Chinese data but that's a different issue). But the aggregate data tells a different story -- China's surplus still maps to the US deficit 3/

There is an obvious disconnect between how I see the world and how those who focus exclusively on the US bilateral trade data tend to see the world (Politico's latest trade newsletter is a convenient example) 2/

Bloomberg did a nice job of summarizing the portion of my Odd Lots appearance that touch on the deglobalization/ fragmentation debate (there was also a more technical conversation about the belt and road and EM debt) 1/

The bigger question of course is whether China (effectively Exim and Sinosure) should be given a veto over IMF disbursements (as a result of the financing assurances policy) if its policy banks are acting like commercial creditors interested in a commercial return. 7/7

And the rather arcane debate over financing assurances matters because (as Theo notes) the IMF explicitly spelled out its expectation for progress in the official restructuring earlier -- and it isn't clear if that expectation has been met or the IMF lowered the bar. 6/

As a reminder, Zambia matters because in Zambia (unlike in Sri Lanka) the IMF's debt sustainability analysis calls for real concessions and a shift to below 5% interest rates on dollar claims ... 5/

Real progress = clarity on the terms ExIm and Sinosure will accept (grace, interest payments etc -- no one expects face value debt reduction) Kicking the can = accepting ongoing discussions as enough for further disbursement absent clarity on terms. 4/

There may not may not be progress in the Zambia talks -- as @TheoMaret notes, it isn't clear if there is now path toward a MoU, or if the IMF decided to accept the ongoing talks as sufficient "financing assurances" 3/

Inspired by Martin Wolf's call for debt relief -- and call that such relief emerge from a cooperative deal with China as it is too big to be coerced. "But it is important that such progress be made cooperatively with China" 2/

The sovereign debt impossible trinity: 1) No restructuring can restore sustainability w/o China's participation; 2) China has to voluntarily agree new debt terms are in its interest; 3) China ExIm and CDB won't accept concessional terms on their commercial loans 1/x

A bit more from @nate_taplin of the WSJ "What this probably means is that more direct fiscal support from the central government will also be needed, one way or another"

But if this is true, interest rates would remain a bit too low to stabilize the lira (w/o a corridor creating a gap between the policy rate and the effective rate facing the banks) 2/2