Wall Street
Traders works on the floor of the New York Stock ExchangeReuters

Falling commodities prices have increased risks for the global financial system, the International Monetary Fund (IMF) said on Wednesday 15 April.

Exporters of oil and other commodities have already been affected by falling prices, while some emerging economies have been hit by volatility in global currency markets.

"Risks to the global financial system have risen since October and have rotated to parts of the financial system where they are harder to assess and harder to address," said Jose Vinals, a financial counsellor at the IMF.

While falling prices of oil and other commodities would provide a boost to the world economy, they would also inflict pain on producer countries such as Nigeria and Venezuela.

Combined with the strength of the dollar, there are likely to be increased strains on debt repayment capacity in commodity-producing countries like Brazil which has borrowed heavily in US dollars.

'Illusion of liquidity'

Financial markets across the globe are over-leveraged, the IMF said, as investors are borrowing excessively to invest on Wall Street.

"Margin debt as a percentage of market capitalisation remains higher than it was during the late 1990s stock market bubble. The increasing use of margin debt is occurring in an environment of declining liquidity," the IMF said.

"Lower market liquidity and higher market leverage in the US system increase risk of minor shocks being propagated and amplified into sharp price corrections."

Investors were using similar schemes that grew common before the previous two financial crises, according to the Washington-based fund.