Against a backdrop of heightened international trade tensions and a possible decoupling of leading economies it may be time to examine the economic validity of countries maintaining large foreign exchange reserves denominated in the US dollar.

This note is a joint publication between the Finance for Development Lab and the Chair in Sovereign Debt and Finance at Sciences Po.

This commentary presents a snapshot of the global sovereign debt and international finance landscape.

The COP27 has seen renewed calls for the use of IMF Special Drawing Rights (SDR) to meet increasing climate- and development-related financing needs across emerging and developing economies. This policy brief gives an overview of the characteristics of SDR and the various ways they can be used by IMF members.

At the recent COP 27 in Sharm El Sheikh, climate negotiations have mainly focused on the “finance” dimension. From the perspective of the Global South, rich countries have thus far not delivered on the funding promises made to poor countries. This raises three sets of issues for international cooperation: fairness, efficiency, as well as solidarity and development.

Current geopolitical tensions are spilling over to sovereign debt markets. They raise questions related to technical defaults, willingness versus ability to pay, or currency denomination. At the same time, they sparked renewed interest in research pertaining to the access of despotic regimes to debt markets, specifically the concept known as “odious debt”. This underpins the idea that sovereign debt, more than any other financial instrument, is intertwined with political and moral considerations.

Following the invasion of Ukraine, financial sanctions were taken against Russia. For the first time in modern times, those sanctions included the freezing of foreign exchange reserves. This Policy Brief discusses the potential consequences on the international monetary and financial system.

Emerging economies will be confronted in 2022 to a very demanding global environment and numerous policy challenges. For them, like for advanced Economies, the COVID-19 crisis has left a legacy of increased public debt and reduced fiscal space. Just as advanced economies, they will face inflation pressures coming from supply bottlenecks, as well as rising commodity and energy price. All these factors will be amplified by the consequences of the Ukraine invasion and subsequent sanctions imposed by western powers on Russia. In addition, they may face specific headwinds and constraints on capital flows, debt, and exchange rate management.

Andres Perez M. is Head of Advisors & International Finance at the Ministry of Finance of Chile. He explained to us how Chile has adapted its sovereign debt strategy to face those intertwined challenges.

We asked Nicolas Goetzmann, Head of Research and Macroeconomic Strategy at la Financière de la Cité, to share his thoughts on those movements and the risk of another “taper tantrum” as happened in 2013, when fears of monetary tightening led to sharp yields rises.

On December 9, the Chair in Sovereign debt organized an online roundtable to discuss the situation of Argentina following the country’s latest sovereign debt restructuring.

On November 9, Chancellor of the Exchequer Rishi Sunak announced that the UK would issue its first sovereign green bond in 2021, subject to market conditions.

Despite intense government crackdown, the popular uprising in Belarus following an allegedly rigged presidential election in August 2020 does not seem to be fading.