The role of the central bank in maintaining the stability of a nation’s financial system is paramount at all times, but especially during a crisis of the magnitude of COVID-19. Around the world, policymakers have intentionally shut down their economies for the greater good of public health. What specific emergency measures have the world’s top central banks taken to confront this truly unique peril to both physical and financial well-being?
“For the first time since the pandemic began, there is now hope for a brighter future.” That was the assessment given by the OECD (Organisation for Economic Co-operation and Development) on December 1 following the news of progress being made with coronavirus vaccines.
In June, The Atlantic published “The Looming Bank Collapse”, a piece by University of California, Berkeley law professor and ex-Morgan Stanley derivatives structurer Frank Partnoy, which generated significant debate over whether a banking crisis in the same mould as that witnessed during the global financial crisis (GFC) is just around the corner.
During its policy meeting on Thursday, September 10, the European Central Bank (ECB) decided to keep its main refinancing benchmark rate unchanged at 0 percent, along with leaving its rates on the marginal lending facility and deposit facility the same at 0.25 percent and -0.50 percent, respectively.
The warning not to put all your eggs in one basket may apply to policymakers’ exclusive focus on boosting the demand side of economies. Monetary policies, in particular, are fixated on promoting growth in demand. But is the supply side of the equation being ignored in the process? Is this one-sided approach most likely to prosper the economies that are subjected to it, or is a change of focus needed?
Digital currencies are proliferating around the globe, with even the bigtech players such as Facebook jumping in. What about central banks issuing their own central bank digital currencies? Many central banks are weighing the advantages and disadvantages of CBDCs so as to minimize disruption. More recently, six central banks announced that they will work jointly on this issue with support from the BIS, which shows the increasing focus on cross-border implications.
Occasionally, an anomaly becomes the new normal, and this seems to be true of negative interest rates in many regions of the world. Used as a tool of expansionary monetary policy in the aftermath of the global recession, negative rates may be wearing out their welcome, especially in some countries in Europe. But can they be scrapped entirely, or are they a natural part of the global economy’s cyclical trends?
Problems have continued to mount for the German banking sector in 2019. According to Ronit Ghose, the global head of banks research at Citibank, German lenders are in a much worse position than their European counterparts—and that even includes Italy when it comes to profitability.
Data lineage is becoming more important for financial services organisations today. Increasingly, it is becoming hard-wired in regulations and in data quality frameworks like the European Central Bank’s (ECB) Targeted Review of Internal Models (TRIM) – and ultimately this is all related to the need for ‘explainability’.
Relations are growing frostier globally, as political leaders become more nationalistic. And this change in climate is impacting economies, rendering them less cooperative. Two significant changes affecting the global business cycle include the US Fed’s tighter monetary policy, the impacts of which have rippled throughout the world, as well as the geographical shift of the centre of manufacturing production to the East, to the dismay of some Western leaders.