By Sofia Yialama – Sustainability Reporting Analyst-Intern, G&A Institute
Exploring how the G20 leaders plan to preserve the global financial safety.
The G20 Group, representing both developed and developing countries and the 80% of the world’s economic output, recently expressed its willingness and responsibility to undertake an immediate, coordinated and bold response on the current global health and economic crisis.
At the latest virtual G20 Leader’s Summit, the leaders of the world’s largest economies committed to amplify their fiscal, credit and monetary support aiming to bolster the resilience and stability of the global economy, provide adequate stimulus packages and safeguard the global market from a global recession.
In a spirit of cooperation and readiness to support the global economy, the G2O nations, among other commitments, pledged to underpin the global economy with over US$5 trillion, as part of targeted fiscal policy, economic measures, and guarantee schemes.
All together, they expressed their support to the central banks and highlighted the urgent need for cooperation between them and the International Monetary Fund (IMF) and the World Bank in order to mobilize emergency funding.
To surmount the socio-economic impact from COVID-19 and ensure market recovery in all countries, they also mandated their respective Finance Ministers and Central Bank Governors to develop a G20 joint action plan.
Following the G20 Leader’s Communiqué, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC Ministerial Meeting on 9th April and the G20 Energy Ministers Meeting on 10th April, were both crucial for the global economic stability.
“OPEC+” (“plus”) is joining forces with the G20 to coordinate the supply/demand imbalance in the international oil market and finally work to end the recent oil price war during such exceptionally difficult times. This was characterized as ‘a historic show of cooperation” and “by far the biggest supply deal in history”.
Enough Effort – Is More Action Needed?
Are these actions enough to counteract the detrimental coronavirus impact on the global economy?
Front-line international organizations — such as the United Nations, the International Chamber of Shipping (ICS) and the International Association of Ports and Harbours (IAPH) — have called on G20 leaders to provide explicit support to vulnerable countries and sectors in high risk, respectively.
At the same time, a strong international group, including various former presidents and prime ministers, with an open letter to G20 leaders, asked them to set up a G20 Executive Task-force and accelerate the development of an action plan for COVID-19, along with targeted financial packages to support the global health system and provide essential financial aid to the developing countries, especially in Africa.
These facts showcase that the world needs urgent coordinated action.
Which system will last by the end of the virus crisis? The cooperation pact or the self-protectionism?
How the central banks of key G20 members responded on COVID-19
In 2009, after the 2008 global financial crisis, the G20 group urged the establishment of the Financial Stability Board (FSB) to gather treasury ministries and central bank governors together with the aim of coordinating actions and find solutions for the global financial system’s vulnerabilities.
For this reason, it is highly important now to examine how the central banks of the world’s largest economies have responded during the pandemic.
Central banks have taken surprising credit, regulatory and monetary measures to ensure adequate liquidity in the market and uphold the credit safety of businesses and households.
And at this moment, as the rampant spread of the virus continues, every day each of the banks announce additional financial packages to prevent the economic collapse.
So far, the central banks of key G20 member countries — notably the US Federal Reserve (Fed), the European Central Bank (ECB), the People’s Bank of China (PBOC), the Bank of Japan (BOJ), and the Bank of England (BOE) — have moved to:
- monetary policy easing and unprecedented cut of interest rates,
- increasing lending,
- provision of cheaper loans and new funding schemes,
- emergency free lending to other financial and non-financial institutions,
- easing bond issuance, and
- additional incentives for SMEs.
Further, as a joint response, the central banks of the U.S., Canada, Japan, Euro Area, the U.K., and Switzerland, enhanced further the provision of liquidity via the standing US dollar liquidity swap line arrangements.
The extraordinary measure of cutting rates to near zero started from the U.S. Fed and triggered similar measures by other central banks all over the world — such as in New Zealand, Japan and South Korea and Australia.
As a result, this extreme U.S decision spurred the “domino effect” and so, other non-G20 central banks followed on reducing their interest rates.
Are these coordinated measures enough to save the global financial system?
The answer is still vague, as the pandemic is still ongoing in all the affected countries.
As the title of this document says, a global challenge requires a global response.
The world economies now are called to action in order to secure a sustainable and resilient future.
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About the Author
Sofia Yialama is a GRI-certified Senior Sustainability Research Analyst from Greece. She holds a Bachelor and MSc degree in International and European studies and her areas of expertise include international relations, international cooperation and sustainable development.
As a former E.U Projects Consultant and member in regional Task Forces, she has significant experience in project management in sectors such as
Sustainability in the Blue Economy sectors, Green Economy, Sustainable Tourism and Nature-Based solutions.
Her solid career objective and self-motivation is to inspire, influence and develop initiatives and projects coupled with multilateral partnerships towards achieving “Sustainability Transition” in the private sector.
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