Although governments could protect against the economic devastation of future pandemics by requiring businesses to insure against pandemic-related risks, insurers do not currently offer that insurance. Even given sufficient actuarial data to set underwriting standards and rate tables, insurers are concerned that they lack sufficient capacity, as an industry, to cover pandemic-related risks, which are likely to occur worldwide and to be highly correlated.
Climate change and climate change policy pose significant risks to financial and fiscal stability.They also pose risks and offer opportunities for growth and development prospects.As the only multilateral, rules-based institution charged with maintaining the stability of the international financial and monetary system, the International Monetary Fund (IMF) should put in place an overarching climate strategy that is then mainstreamed across the IMF’s toolkit.
Digitalisation is a revolution in the world of money and payments. Technological and social transformations are disrupting the status quo. Central Banks have to ensure their money remains relevant, and the financial system has to keep pace with progress. We urge the G20 to lead the process of integrating innovations and ensure the approach accounts for economic and social dimensions while relying on technical expertise. We favour taking full advantage of change and innovation as long as financial stability risks are addressed.
The COVID-19 pandemic has highlighted long-standing fractures in the international financial system, especially weaknesses in the safety net for emerging market and developing economies (EMDEs). We present a proposal to provide short-term liquidity to EMDEs that face balance of payment stresses due to global shocks. Our proposal for a liquidity insurance mechanism would, in effect, institutionalize the ad hoc swap lines provided by the central banks of the major countries, providing and broadening access to short-term lines of credits to EMDEs.
The uneven post-pandemic recovery brings great challenges for global financial stability and sustainable growth.
The international financial architecture is not well equipped to deal with a situation in which many countries default at the same time as a result of an exogenous shock. If all creditors could be coordinated, they would agree that they would benefit from legal protection that allows the affected sovereigns to use their resources to fight the pandemic and get their economies back on track. This policy brief describes options to provide such protection, while also aligning incentives for private creditors.
Climate change can negatively affect macrofinancial stability and amplify sovereign risk. By raising the cost of sovereign borrowing for climate-vulnerable countries, it limits the fiscal space available for scaling up investment in adaptation and resilience to climate change and can threaten debt sustainability. This policy brief proposes actionable policy solutions for mitigating and managing the effects of climate change on macrofinancial stability and the cost of sovereign borrowing.
The formal arrangements for the governance of international monetary and financial crises have remained reasonably stable over the past 40 years, but the identity of the leading actors, has changed. Over this period, the role of the largest central banks – first and foremost, the US Federal Reserve (Fed), currently the most important central bank due to the international role of the US dollar, the European Central Bank (ECB), the Bank of England (BoE), the People’s Bank of China, and the Bank of Japan – has increased substantially.
The IMF estimates that State-Owned Enterprise (SOE) assets totalled US$45 trillion in 2018, close to 50% of the global GDP, and calculated the debt of the largest SOEs to be US$7.4 trillion. Clearly, SOEs have a direct bearing on the global economy. The most systemically important SOEs are the State-Owned Multinational Enterprises (SOMNEs) since they are focused on cross-border financing and business.
This policy brief warns about the risks of discontinuation of the policy responses to the COVID crisis by pursuing exit strategies too early and/or too sharply. It outlines a comprehensive strategy for limiting such risks at a global level, and offers an in-depth discussion of the EU situation. In our view, the Euro Area could be left with long-lasting scars, so that its situation requires special treatment. We therefore present some policy proposals designed to preserve and strengthen the recovery in this area.
With Environmental, Social and Governance (ESG) investing becoming mainstream, it is urgent to develop a standardised set of information that investors and companies can use in their decision-making process. Information consistency, integrity and trustworthiness, and appropriate evaluation of the impact of the ESG-related efforts are essential to ensure positive spill-over in societies, countries and the environment. We urge the G20 to play a proactive role in defining standardised disclosures and narrative, and assessing companies’ ESG policies.