Central banks are making increasing use of targeted refinancing operations to pursue their mandates. However, so far none of them, with a few exceptions in developing economies, has aligned its targeting with the objective of a transition to a low-carbon economy. This must change.
Refinancing operations are a core monetary policy tool to provide liquidity to credit institutions. Whereas traditionally such operations have all been short-term, many central banks extended their maturity in response to the last financial crisis. …
By: Gudrun Johnsen
The economic effect of the Covid-19 pandemic varies highly across industrial sectors, education levels and income groups, adding further to inequality across the globe. This calls for highly targeted policy responses for the sake of fiscal prudence and to avoid further economic and financial hardship for those in need. Given the general consensus that society at large should bear the cost of the pandemic, the case for targeted public support for those households that have been hit the hardest by the pandemic is imminent.
Many countries have already supplied firms with government guaranteed credit lines and enhanced…
This blog was originally published by Austaxpolicy (here).
The economic impact of COVID-19 is both unprecedented and far-reaching. There is now little doubt that the pandemic will disproportionally hit the worse-off, hence exacerbating inequality. It is also clear that the pandemic is particularly affecting groups and sectors that were already under significant stress before the start of the crisis, namely women, racial minorities, the young, and those working in the informal sector.
Against this background, it is more important than ever that we develop public policies to halt, and if possible help…
By: Pierre Monnin
An adapted version of this article was originally published (in French) by Le Monde here.
The COVID-19 crisis is a stark reminder of how sharply asset values can shift. Amid a crashing demand for oil and gas, giant energy companies like BP, Chevron and Shell massively wrote down the value of their assets. And those that did not, like Exxon, are now facing the prospect of lawsuits.
Beyond the COVID-19 pandemic, the looming climate crisis will also significantly reshuffle asset values in the next decade. Energy stranded assets are a case in point. Some estimates indicate that…
Christine Lagarde, the President of the European Central Bank (ECB), this week raised the critical question whether, in view of market failures, market neutrality should remain the guiding principle driving central banks’ policy portfolio management. Her spotlight on market neutrality underscores growing and overdue scrutiny of what has been a key principle in central banking — but also one that, on closer inspection, stands on shaky grounds.
Central banks frequently invoke market neutrality as a core concept guiding the implementation of monetary policy. They highlight this principle as underpinning their aim to minimize…
The Central Banks and Supervisors Network for Greening the Financial System (NGFS), a group of more than 70 central banks and financial supervisors across the globe, has repeatedly highlighted that climate risks are financial risks. Its members have also continuously put a spotlight on the fact that these financial risks are not sufficiently accounted for — neither by banks and investors nor by the rating agencies that market participants, including central banks, rely on. As central banks rapidly expand their balance sheets, they must urgently close this gap in their risk management.
Tax expenditures (TEs) — also called tax benefits, tax reliefs, or simply tax subsidies — are used widely to pursue different policy objectives, e.g. boosting innovation and R&D, attracting investment and reducing poverty. Governments worldwide forego significant amounts of revenues through the implementation of these provisions. In the US, the fiscal cost of federal TEs was estimated at USD 1.3 trillion, 6% of GDP, in 2019. For the same year, the estimates are less than 1% of GDP in Germany, above 4% in France and more than 3% in Italy.
Tax Expenditures in Switzerland Remain a Blackbox
The resources needed for financing the Sustainable Development Goals (SDGs) are estimated at US$ 2.5 to 3 trillion per year. According to the IMF, low-income countries (LICs) will need, on average, additional resources amounting to 15.4 percent of GDP to finance the SDGs in education, health, roads, electricity, and water by 2030. Unfortunately, the COVID-19 pandemic has made mobilization of resources for financing the SGDs almost impossible.
In this blog post, we argue that the COVID-19 crisis has made it imperative for developing countries to begin reforming their tax systems to generate more resources…
By: Pierre Monnin
The COVID-19 crisis is profoundly and durably transforming our economies. So will the transition to a low-carbon economy, which is necessary to contain the environmental crisis ahead of us. Shifting our economic system from its current state to a sustainable post-COVID version entails large and uncertain transition costs — and thus substantial financial risks.
Managing financial risks associated with economic transitions is crucial for central banks as it falls squarely into their financial stability mandate. It is also essential to protect their balance sheets from undue financial losses.
Central banks usually rely on the same risk metrics…
By: Agustin Redonda
The economic shock triggered by the current pandemic is unprecedented. The number of victims of COVID-19 has already hit half a million and continues to rise. At the same time, the impact on economic output is massive. According to recent OECD estimates, global economic activity is expected to fall by 6% in 2020 in a single-hit scenario and 7.6% in case of a second outbreak.
In response, governments worldwide have been deploying an extraordinary policy toolkit to mitigate the downturn and strengthen economic growth in the recovery phase. Short-term containment measures have been and remain crucial to…
CEP is an international nonprofit nonpartisan economic policy think tank for sustainability.