Central banks in emerging markets with weak currencies should not resort to unorthodox monetary tools such as quantitative easing as a response to the crisis triggered by COVID-19. Preferable alternatives include shifting public spending away from less pressing needs, moderately increasing public debt and falling back on official development assistance.
Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimising the risks of large depreciations and spiralling inflation.
COVID-19 is by far the biggest challenge policymakers in emerging economies have had to deal with in recent history.
COVID-19 is by far the biggest challenge policymakers in emerging economies have had to deal with in recent history. Beyond the potentially large negative impact on these countries’ fiscal accounts, and the related solvency issues, worsening conditions for these countries’ external funding are a major challenge.
Without a robust healthcare system and lack of medical equipment, emerging market economies are vulnerable to the current COVID-19 pandemic. How can developed countries help tackle the issue? Is international cooperation more needed than ever? This week, Giuseppe Porcaro and Guntram Wolff are joined by Barry Eichengreen to discuss the impact of COVID-19 on emerging markets.
Several European central banks have begun assessing the impact of adverse climate scenarios on banks’ capital. Comparable work at EU or euro area level has evolved more slowly. Supervisors need build up a distinct and more complex type of analysis, and should engage with banks now.
The author proposes a tilting approach to steer the allocation of the Eurosystem’s assets and collateral towards low-carbon sectors, which would reduce the cost of capital for these sectors relative to high-carbon sectors. Central banks have already started to look at climate-related risks in the context of financial stability. Should they also take the carbon intensity of assets into account in the context of monetary policy?
Simone Tagliapietra and Georg Zachmann write on the climate governance lesson European governments should learn from the "gilets jaunes" experience.
The author analyses the current renewable energy development in Southern Mediterranean countries (SMCs) and proposes a climate financing strategy that retreats from the Eurocentric approach. Not only will it allow the region to meet its energy demand sustainably, it will also benefit the EU, both in economic and political terms.
We need to move towards more sustainable, long-term thinking in the corporate and financial worlds. Coalitions of willing actors could play a role in driving this process. But what makes for an effective coalition, and how can this be measured? The authors assess existing coalitions for sustainable finance and business, and argue that well-functioning coalitions can positively reinforce social and government action.
Traditional finance focuses on financial return, considering the financial sector separate from both society and the environment. In contrast, sustainable finance considers financial, social and environmental returns in combination. In a new essay, Dirk Schoenmaker provides a framework for sustainable finance highlighting the move from the narrow shareholder model to a broader stakeholder model. Here he presents the key arguments.
Essay / Lecture
Traditional finance focuses solely on financial return and risk. By contrast, sustainable finance considers financial, social and environmental returns in combination. This essay provides a new framework for sustainable finance highlighting the move from the narrow shareholder model to the broader stakeholder model, aimed at long-term value creation for the wider community. Major obstacles to sustainable finance are short-termism and insufficient private efforts. To overcome these obstacles, this essay develops guidelines for governing sustainable finance.