In “Limits and pitfalls of QE in emerging economies”(OpiniiBNR, 14 August) I argued that, while central banks in advanced economies undertake quantitative easing (QE) in order to mitigate the shock of the Pandemic and the economic crisis, this kind of operations needs to be contemplated with caution in emerging economies. A reaction to my text suggested that the accumulation of net foreign assets (NFA) in emerging economies (EMEs) could be seen as a form of QE. I argue below that this is not an appropriate analogy. But first, I reiterate my view as to why EMEs have to treat QE with much caution.

The pandemic caused by COVID-19 has shocked the whole world and is another huge blow to the world economy after the financial crisis that erupted in 2008. A sanitary crisis is interweaving with a very severe economic and social crisis. Although most economies seem to have got out of the deep hole caused by The Shutdown, a steady recovery is likely to be difficult and painful, surrounded by big uncertainties and contradictory effects. Much of economic activity is badly hit, not a few companies may not be able to survive, unemployment has been growing rapidly[1], and repair efforts will be time consuming.

Three words can mean a lot, both in someone’s love life and in financial markets, especially when it comes to major central banks. These words are “Whatever it takes” and they were voiced by former ECB President Mario Draghi back in July 2012, in a bid to persuade investors that the European economy was not in such dire straits as it seemed.

The coronavirus pandemic has stunned Europe, and indeed the entire world. Although the likelihood of this kind of pandemic was sounded off by not a few high-profile voices quite a while ago, its devastating impact reveals how unprepared medical systems and how defective our prevention schemes have been. But, like in times of war, an unprecedented resource mobilisation has been mounted to fight the coronavirus, while governments and central banks have summoned a wide range of tools to mitigate the impact of the lockdowns.

In addition to major health issues, Covid -19 creates major economic problems. The risk of a deep global recession is very high. It is a shock that reduces supply, especially through the shock on the labor force, through illness or social distancing, resulting in the closure of many activities in different industries.

Mai multe articole

  1. “Climate change: why policy-makers and central banks need to be increasingly concerned”[1]
  2. The single currency needs a robust euro area
  3. “Reigniting growth in emerging market and low income economies; what role for structural policies”
  4. The book entitled The Capital in post-communist Romania (Florin Georgescu, Romanian Publishing House) is now available online
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OpiniiBNR.ro este o platformă - forum pe care specialiştii din Banca Națională a României dezbat principalele evoluții macroeconomice și financiare locale și internaționale. Opiniile exprimate sunt strict personale, nu reflectă poziția oficială a Băncii Naționale a României și nu implică sau angajează în niciun fel această instituție.
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