Gita Gopinath

Born and raised in Kolkata, India, Gita Gopinath saw her country gradually open to the world market in the early 1990s. A student of economics, she left India to continue her studies in the United States and pursued a PhD at Princeton University. Since 2018, the professor of international studies and economics at Harvard University is on public leave to serve as Chief Economist of the International Monetary Fund. An expert in finance and trade, Gopinath keeps a close eye on the IMF’s 189 member countries. Her analysis and advice on the economic impact of the coronavirus pandemic or how emerging economies can build good policy instruments and institutions are examples of key global economic matters.

The IMF, established in 1945, works to improve the economies of its member countries. As the IMF’s economic counsellor and director of the research department, Gita Gopinath works in a number of different areas.

A regular part of her agenda is the World Economic Outlook, which is essentially a growth projection for the upcoming year, but also includes policy advise to address global or country-specific challenges. The outbreak of the coronavirus or the US China trade tensions are developments Gopinath and her team monitor closely, to adjust their growth projections and discuss policy responses.

When the coronavirus crisis hit the global economy, Gopinath said it was the “worst recession since the Great Depression”. In April 2019, the IMF projected global growth in 2020 to fall to -3 percent, which was a downgrade of 6.3 percentage points in less than three months. “We’ve had a hundred countries approach us for emergency financing,” says Gopinath. “It’s never happened before. That tells you the gravity of this crisis.”

Gopinath’s advice to policymakers was clear. Deal with the health crisis, help those who have been hit the hardest, and work together. “It’s very important to collaborate, making sure that medical supplies are available, that countries don’t put restrictions on each other, that they share information, and that low-income countries get the debt service relief they need. Everybody is in this together.”

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Gopinath is concerned that the coronavirus leads to economic decoupling and deglobalization. “What we want to avoid is a situation where countries start putting protectionist measures in place to prevent movement of goods, to limit the movement of people drastically,” says Gopinath. “We should be very worried about that.”

Gopinath sees opportunity for a green recovery once the health crisis has been dealt with. “To do the kinds of public investment that are supportive of preserving the environment, that could be a positive outcome of this crisis,” says the economist. One example, according to her, is the environmental benefit of remote working, something that by necessity was encouraged during the crisis. “Working from home has the potential positive impact on climate, where there’s less people on the roads and travelling to work. People will find ways of interacting. You don’t have to get on a plane.”

She also points towards important issues that the coronavirus brought to the forefront. “That people have health security, that everybody has access to good health care. If ever there was a crisis to give impetus to making that happen, I hope this would be it,” says Gopinath. “In terms of inequality, this crisis has made very clear that you need to have strong social safety nets so that you can provide the appropriate support to households when they need it. These have to be top priorities for countries around the world.”

Gopinath emphasizes that her academic background is essential for her everyday work. “You keep your eye on the major issues of the day,” she says. “And the idea is to make sure that whatever policy advice the IMF is giving is up to date with where we are at in the research frontier.” The economist also points out how her Indian origin influences the way she looks at the challenges in a global economy. “The times have changed. Emerging and developing economies make up over 60 percent of world GDP. I’m from an emerging market. My managing director is from an emerging market. We have an eye on these different growth issues which maybe another person would not have.”

Also working to foster sustainable growth, Gopinath emphasizes how countries need to ensure that all people can benefit from new growth opportunities. Taking action that boosts economic growth while at the same time improving inclusiveness is needed across all economies, according to Gopinath. “How do you continue to raise income levels and improve the livelihoods of people while at the same time not creating increased inequality? How do we get people who have otherwise not been big participants in the global economy to play a bigger role? All of this is important for sustainability.”

At the same time, she underlines the importance of greater multilateral cooperation to address global challenges. “Every country’s problems are not the same, but there are some issues that are truly multilateral,” she says. “Climate is a big part of that, international trade is a big part of that.”

How can countries grow sustainably?

Part of Gopinath’s academic work has been on the US dollar as the world’s dominant reserve currency and the implications for global trade and finance. After World War II, when European currencies were in collapse, the dollar came to dominate international exchange. “The dollar came in as a substitute for the British pound,” explains Gopinath. “The wars led to a lot of disruption and reduced the wealth of Britain while at the same time the US was doing very well. It had become a major economic power.” While there are other reserve currencies, for example the euro or the Japanese yen, Gopinath says that the dollar remains unchallenged as a currency to save, borrow and denominate trade in.

Together with her research colleagues, Gopinath developed the Dominant Currency Paradigm. Unlike other standard economic models, it takes into account that prices in global trade are predominantly not set in either the producer’s or destination’s currency but are set in dollars. The economists found that when most transactions are dollar denominated, a currency depreciation is rather unlikely to increase exports.

“When you’re in this world of dominant currency pricing, you don’t really see a big export boost that comes immediately after your currency weakens,” says Gopinath.

At the same time, a currency depreciation relative to the dollar leads to an increase in the price of imported goods, which means high pressures on inflation.

The dominance of the US dollar in trade and finance

Though there has always been a dominant currency throughout history, Gopinath says that a more balanced system would be beneficial. The euro has been the main contender to replace the dollar in recent years, but its impact has been modest at best.

“The euro is a credible option,” she says. “They have made progress in improving the euro area architecture. If much more is done on that front, a stronger banking union, a capital markets union, a central fiscal capacity, you could see the euro becoming more important.”

Despite recent conversations around Facebook’s Libra, or the fact that many central banks are experimenting with digital currencies, Gopinath does not believe that those will displace the dollar in the near term, whether attempts are private or central bank backed.

“You might be willing to move between different payment technologies,” says the economist. “But I don’t think the world is ready yet to transfer across currency. The currency you use has a lot to do with trust, with stability, whether it preserves its value.”

Still, Gopinath acknowledges that whoever is able to best address the privacy and security concerns around digital money will have a strong competitive advantage in the future.

Talking international trade, Gopinath has pointed out how trade barriers destabilize the global economy and have to be considered harmful especially at times of already slowing growth. She explains how times have changed in recent years, after a decades-long push by many countries to lower trade barriers.

“The global trading system was moving towards much greater integration, and for the first time we saw a reversal,” Gopinath explains. “Countries stepping back, unsure about the gains from international trade. That’s a sense in which these times are quite unique.”

The economist can relate to the dissatisfaction many feel, given that people in developed economies have not equally benefitted from globalization. While Gopinath says that international trade is not the main driver of increased levels of inequality within countries, she believes that domestic policy has failed to address its redistributive consequences. “There is now a deeper recognition that the people who don’t gain from international trade will not automatically move to some other region,” she says. “Mobility is much slower than we thought.”

Gopinath hopes that addressing rising inequality will be a top priority of policy efforts, instead of prolonged geopolitical tensions and rising trade barriers. “We find that the world is in a much better place when countries are working together to reduce barriers,” she says.

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When Gopinath’s fellow economist Pinelopi Goldberg was the Chief Economist of the World Bank, it was the first time in history that the three leading multilateral institutions, the World Bank, the IMF and the OECD, had female chief economists.

Gopinath says that it’s an important sign that times are really changing, especially for young aspiring economists. “It makes a big difference especially for young women to see senior women as role models,” she says. “It’s very important to break a lot of stereotypes that exist in economics.”

In her position at the IMF, but also as a professor at Harvard, Gopinath feels that it’s her responsibility to help make the field of economics more inclusive.

“It’s hugely important for me that women get the attention that they deserve,” she says. “That they have the right environment to work in, to encourage people from all kinds of backgrounds to pursue different kinds of economics and do really well in their careers.”

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