U.S. tax reform plan could have currency spillover effect

March 13, 2017 09:46 AM

A proposal to overhaul the U.S. tax code that favors exports over imports could have spillover effects on other economies as it would strengthen the dollar, International Monetary Fund (IMF) chief economist Maurice Obstfeld said on Monday. 

"There are significant spill-over effects that we are looking into," Obstfeld said, adding that G20 finance ministers and central bankers will discuss the issue later this week at their meeting in Baden-Baden, Germany.

"It's a legitimate topic for discussion... It'll be discussed. There will be a lot of questions among the finance ministers," said Obstfeld, adding that a proposed border adjustment tax could impact other economies via the currency exchange rate channel.

Emerging economies like Saudi Arabia would be most affected.

Asked about the European Central Bank's ultra-loose monetary policy, which some conservative policymakers want the ECB to unwind, Obstfeld said the bank was doing a good job and the IMF was not advocating a premature tapering.

He also said the divorce negotiations between Britain and the European Union should aim for a deal as soon as possible to avoid uncertainty.

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