THE MONEY OF HOPE
In the early part of 2020, the entire globe went into lockdown, suffered a plague of sickness and death that took lives and livelihoods of those in every corner of the world. In an urgent response, money on an unprecedented scale has entered the global economy.
Economic stimulus, large deposits of cash and loans, initiated to save national and global economies, present opportunity. How countries direct their bailouts may determine the future. Never again will so much money be readily available to rebuild the world. Let’s take a look at some examples:
UNITED STATES OF AMERICA
$700 billion pledged in asset purchases or quantitative easing (QE)
Federal funds rate: 0-0.25%
Discount window rate: cut by 150 basis points
Unlimited QE, including purchase of corporate and municipal bonds
Six months of allowing foreign central banks to access U.S. dollars for overnight dollar loans
$2.3 trillion to support local governments, small-mid businesses, with 4-year loans to enterprise with up to 10,000 staff
$2.2 trillion aid package (27 March 2020) with $500 billion for suffering industries and direct payments to individuals ($1200) and families (up to $3,000)
120 billion euros ($130 billion) added to asset-purchase program of 20 billion euros per month
750 billion euros in QE, adding to existing with total of 1.1 trillion euros
Eliminated cap on number of bonds EU could buy from any Eurozone country
Cut interest on Targeted Long-Term Refinancing Operations (TLTROs) by 25 basis points to -0.75% (12 March 2020)
Suspended limits of EU government borrowing
Allowed credit line equal to 2% of national GDP from European Stability Mechanism (ESM) fund
European Investment Bank lending 200 billion euros to businesses
ESM freeing up 240 billion Europe of credit to governments
Total of 3.2 trillion euros: including provisions to cut company working hours rather than jobs
750 billion euros total: with 100 billion for economic stability fund with direct stake in businesses
100 billion euros for public-sector development bank
400 billion euros to secure corporate debt vulnerable to default
300 billion euros guaranteed for corporate borrowing from commercial banks
45 billion euros to shore up businesses and employees
400 billion euros of liquidity and bank loans to businesses
25 billion euros to suspend mortgage and loan repayments for families and companies, and funds for firms to pay workers on furlough or layoff.
200 billion euros divided in half with 50% government-backed credit for businesses/50% to help vulnerable people
700 million euros program to suspend evictions for six months after emergency is lifted
200 billion pounds ($248 billion) of bond purchases
interest rate cut to 0.10% Bank of England
Bank of England doubled corporate bond purchase program to 20 billion pounds
Bank of England pledge to buy commercial paper with maturity of up to 1 year for businesses with pre-crisis investment grade credit
330 billion pounds in loan guarantees to business including paying 80% of staff salaries
Allowing businesses to temporarily retain 30 billion pounds of VAT (value added tax)
Reduced overnight interest rates to 0.25%
Pledged purchase of Government of Canada securities – C$5 billion per week
C$50 billion credit for insured mortgages
C$10 billion for business support
C$150 billion for morgtages
C$55 billion for tax deferrals for businesses and families
C$27 billion aid for workers and low-income households
Government payment of up to 75% of salaries for workers in small and mid-sized businesses
Bank of Japan one-year zero-rate program to financial insitutions
Y430 billion for small and mid-sized businesses
Funding upgrades of medical facilities
Pay working parents forced to take leave due to school closures
Stimulus package of Y108 trillion ($993 billion) with cash payouts to households, small businesses; total package is equal to 20% of Japan’s economic output
Yuan 2.8 trillion for infrastructure investment, backed by local bonds (19 March).
People’s Bank of China cut reserve requirement ratio (RRR) for small banks by 100 basis points. Worth about 400 billion yuan; cut will be in two phases, 15 April then 15 May 2020.
500 billion yuan ($71 billion) for re-lending and re-discount quotas
350 billion yuan for increased loan quota for businesses
Cut cash reserve requirements for banks, releasing 550 billion yuan
Also ruled: expand budget deficit, issue more bonds, drop interest rates, delay loan repayments, reduce supply-chain bottlenecks, and encourage renewed consumption
1.7 trillion rupee ($22 billion) for food security and direct cash transfers. (26 March)
Reserve Bank of India cut repo rate by 75 basis points to 4.40%
100 trillion won economic rescue package (7 April) including 29 trillion won in loans to small and mid-sized businesses, and 20 trillion won to buy corporate bonds and commercial paper
36 trillion won in loans to exporters hurt by virus shutdown
9.1 trillion won ($7.5 billion) cash payments to most families
17.7 trillion won to boost consumption
$24.9 billion for social welfare to 10 million household for food and energy discounts, and 3 percentage point cut in corporate tax rate (to 22%)
Bank Indonesia cut seven-day reverse repurchase rate to 25 basis points to 4.50%
Central bank cut reserve requirement ratio by 200 bps for banks (and 50 bps for Islamic banks)
A$90 billion ($56 billion) funding for banks at rate of 0.25%
A$15 billion program for residential mortgage-backed and asset-backed securities
Reserve Bank of Australia cut rates in two steps for total to 0.25%, and introduced QE with a target of 0.25% for bond yields
A$66 billion for companies and welfare
A$17 billion for apprentices, small business, retirees
A$130 billion for wage support for 6 million workers
A$715 million support for airlines
1.2 trillion reals ($231 billion) for central bank purchase of bank loan portfolios, repurchases of dollar-denominated sovereign bonds
150 billion reals for most vulnerable people and jobs
51 billion reals to allow companies affected by virus to reduce worker pay and hours, with a goal of preserving jobs (1 April)
South African Reserve Bank (SARB) cut rate by 100 basis points to 5.25%, and then reduced again (14 April 2020) to 4.25%
1.2 billion rand ($66 million) for small farms to keep up food production
INTERNATIONAL MONETARY FUND
$50 billion to help low-income and emerging market countries
FUNDING THE FUTURE
Add up all those stimulus packages, monetary funds, loans, and that’s a lot of money, much of it supporting business interest rates and workers’ jobs. Yet, with the exception of instances where the industry is targeted (agriculture, transport, finance), there are few stipulations on how the money should be directed. For example, there could be payments and supportive programs for innovations in energy or water, decarbonizing transport, or reducing air pollution.
While the 2020 coronavirus is an acute crisis, and climate change is a chronic crisis, both require response. Over the past decades, we have talked about climate change, but taken too little action. Part of the reason is funding. Without the urgent public health crisis and resultant shutdown, the world would never have allocated so much money to rebuild economic life. Yet, there it is. Now.
Yes, there has been disaster response to unfortunate hot-spots suffering tsunami or hurricane damage, earthquake or fire devastation. But that was in a region. Yes, there has been systemic change, world-wide, in some industries due to disaster; after 9/11, airports and security changed permanently, but that was just one sector.
In 2020, the whole world changed at once. With everyone hit by the corona virus, new ways of communicating and working evolved. Cities rethought transport. Fossil fuel loss dropped and cities saw cleaner air. Sadly, it was all due to death and sickness. But as a result, to rebuild after the virus, every country on earth has raised new money, and new hope.
Where money goes to an industry, how can that sector direct renewal to the future we know is coming: de-carbonized and sustainable? Of course, some of the funds must support present production lines and supply-chains, but surely a percentage could be directed forward to future goals.
What would you do with this one-time funding to rebuild the world?
Cash, David and Rebecca Herst, “Covid-19 and Climate: Policy and Practice.” 22 April 2020. University of Massachusetts Boston. https://www.umb.edu/news_events_media/events/covid_19_and_climate_policy_and_practice
Figueres, Christiana and Tom Rivett-Carnac. A Future We Choose: Surviving the Climate Crisis. Knopf, 2020. ISBN: 978052658351
International Monetary Fund. “IMF makes available $50 billion to help address the coronavirus.” 4 March 2020. https://www.imf.org/en/News/Articles/2020/03/04/sp030420-imf-makes-available-50-billion-to-help-address-coronavirus?mod=article_inline.
Ivanova, Maria. “Coasts and Communities.” Integrative Graduate Education and Research Traineeship, National Science Foundation. University of Massachusetts Boston, Center for Global Governance and Sustainability, Global Environmental Governance Project. https://www.umb.edu/igert/about.
Reuters, “Factbox: Global economic policy response to coronavirus crisis.” 14 April 2020. https://www.reuters.com/article/us-health-coronavirus-economy-factbox/factbox-global-economic-policy-response-to-coronavirus-crisis-idUSKCN21W2AJ
Steil, Benn. The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order. Princeton University Press, 2013. ISBN: 9780691149097
Appreciation to the University of Massachusetts Boston, especially Dean David Cash, Professor Maria Ivanova, and Director Rebecca Herst.
Building the World Blog by Kathleen Lusk Brooke and Zoe G. Quinn is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unpo