COVID-19 has reinforced the dividing line between the developed and developing worlds. Recovery in developed countries, with high vaccination rates and generous fiscal stimuli, is impressive. But the situation is the opposite in developing nations. The future is as unpredictable as the virus, but experts are forecasting what may happen.
European Central Bank (ECB)
US bond yields have remained stubbornly low, flying in the face of key indicators such as rising inflation and employment. The US isn’t the only country with low bond yields, and many credit lingering pandemic uncertainties. Failing a robust, sustained recovery in confidence and economic performance, they may continue to languish.
Digital payments promise greater convenience and efficiency with lower cost but also carry substantial potential risk to the economy at large. The long-term success of this innovation will depend on the development of a top-down, holistic regulatory framework to securely govern digital payments, maximizing benefits while minimizing risks.
The COVID-19 crisis proved how nimbly governments could step up to the plate to support the private sector. But have they done too good a job, becoming the source of all things to eagerly waiting firms, including banks, at the expense of self-reliance? What type of capitalism do we have if governments are omnipresent? As debts levels continue to grow, is equity the solution for “sunflower capitalism”?
Climate change, renewable energy, biodiversity, social equality and other sustainability objectives are top concerns for financial firms and stakeholders. To be on the right side of the transition, banks need to adopt strategy models that incorporate social and environmental factors in loan criteria. Only then will they begin banking for impact.
As central banks worldwide unveil their CBDCs, the ECB continues to develop the digital euro. Nearly 20 years after the euro’s historic issuance, the ECB’s digital euro is in the formal investigation phase but is guaranteed to become a reality soon, once the necessary preparations have been made to ensure its effectiveness and security.
Nonperforming loans are unfortunate consequences of an economic crisis, but their severity varies depending on the nature of the crisis and remedial responses. In Europe, as recovery kicks in, speculation abounds regarding the intensity of the inevitable NPL aftershock. Will it be a tsunami or a wave? What can be done to lessen its force?
The Bank of Japan is adding more grit to its campaign to incentivize Japan’s financial sector to fight climate change by supporting sustainability projects and unravelling financing for fossil-fuel sectors. The strategy will involve various lending measures to encourage banks to incorporate climate-mitigation action in their funding.
The upheaval spawned by COVID-19 has forced governments’ hands to wield counter-offensive measures, and one popular weapon has been fiscal stimulus. Although not everyone supports massive government spending as a tool for protecting and reviving economies hard hit by crisis, history confirms its successes and provides hope for recovery.
One pleasant surprise of the pandemic has been the shortage of business bankruptcies, despite recurrent lockdowns that have drained their incomes. But is this rosy picture a cruel illusion to be removed as governments stop propping up small companies? Banks will soon find out if government life support has simply delayed the inevitable.