IMF 2025 Spring Takeaways: The Era of EM Exceptionalism

The team just returned from the IMF Spring meetings, meeting with finance, central bank, and other officials from around the world, along with other market participants. Your authors have been going to these meetings for three decades, so there will be some meta-observations as well.

Key Takeaways

• Dollar depreciation – the U.S. is generating uncertainty, economic weakness, and inflation. EM inflation, on the other hand, remains relatively stable in the majority of EM (and deflationary in China). The obvious conclusion arrived at during meetings was that this was very positive for the major currencies and for EMFX, against the USD.
• USD and Treasuries’ reserve status is no longer a taboo topic. This is a completely different topic than USD depreciation, we must emphasize. Up until these Spring 2025 meetings, this topic of reserve status was fringe or taboo. We’ve been publishing on the topic for over a decade, using the orthodox lens of “fiscal dominance”. Now that the topic is being discussed, we see it as over-hyped. Our view remains that the USD reserve status will remain and that the proper framing is to see the dollar slowly sharing reserve status with other deserving currencies over time. We do a deep dive later!
• IMF cannot please any of its stakeholders and is defensive. It is seen as unfair to private creditors, which is correct to us. And it has presided over a massive imbalance between mercantilist China and other economies and the big consumers. The IMF will be forced to change, so keep an eye on this space.
• Any U.S. isolationism is a great opportunity for Europe. Euro is a market winner, representing a great tailwind if greater financial integration is an objective. German fiscal expansion is the great hope. And of course, Euro strength is a tailwind for ECB easing. Will Europe grab this opportunity was the open question.
• “Tariffs” transmit uncertainty which maps to recession risk. That’s the big focus and framing. However, the inflationary impact from tariffs is temporary while the ultimate impact is recessionary, so some in the market are trying to see through any inflation risks and to a new Fed chair in May 2026. We also discuss the U.S. stance a bit in this blog.
• Fed independence was a big topic of conversation. It spiced up the now-acceptable discussion on the dollar’s reserve status, obviously. There was a good amount of ideology disguised as economics, pointing to what a long intellectual slog this could be. Sooner or later, the Fed will become dovish.
• The era of EM Exceptionalism. Overall, we feel even stronger following IMF meetings that many EMs could experience upward pressure on their currencies. This would be due to the dollar’s selloff against the major currencies, typically, but there is now obviously “pressure” from the Trump administration to keep EM currencies stable or arguably stronger as part of “trade” negotiations. A country that devalues its currency to compensate for these negotiations increases risks dramatically, and we are struck that so few meeting participants see a scenario of CNY re-valuation (CNY stronger). This is disinflationary for many EMs. EMs generally have higher real rates, making their currencies both attractive and giving their duration upside potentially even before the Fed inaugurates a new cutting cycle.