Ignazio Visco: Closing keynote address - "2021 IIF G20 Conference
- The G20 Agenda Under the Italian Presidency"
Closing keynote address by Mr Ignazio Visco, Governor of the Bank of Italy, to the "2021 IIF G20
Conference - The G20 Agenda Under the Italian Presidency", organized by the Institute of
International Finance, live-streamed event, 17 June 2021.
* * *
Let me start by thanking the conference organisers for their kind invitation. This year Italy is
chairing the Group of Twenty (G20) for the first time since it was founded in 1999. Our
Presidency began under exceptional circumstances, at a time when the COVID-19
pandemic, a human tragedy of global proportions, had triggered an economic collapse that
is unprecedented in recent history.
Today the world is facing multiple challenges: not only that of protecting public health, but
also of ensuring environmental sustainability, continuing to eradicate extreme poverty,
maintaining trade openness and financial stability. All of these issues contain elements of a
global public good, whose provision may fall dangerously below desirable levels if national
interests and market outcomes are not mediated by a truly multilateral and far-sighted
approach. The G20 is the ideal forum in which global cooperation can be achieved.
In the rest of these remarks, I would like to summarise some of the activities that we are
carrying out within the Finance Track of the G20, by delving deeper into the work on financial
regulation and digital cooperation, which was discussed in the last two panels of this
conference.
COVID-19 and the global economy
The global economy is recovering: the latest OECD projections for world GDP growth have
been revised upwards for both this year and the next, thanks to continued progress in the
vaccination campaigns. Cooperation between countries and coordination among monetary
and fiscal authorities have set the stage for the recovery, marking an important change of
direction. According to the IMF, the global economic contraction recorded last year would
have been three times worse without such swift and worldwide policy support. Nonetheless,
the World Bank also warns us of the disproportionate burden falling on the poorest and most
vulnerable countries: the pandemic has sadly reversed earlier gains in extreme poverty
reduction and has exacerbated food insecurity for millions of people.
The global outlook, though improved, is uneven across the world's regions. In advanced
economies, speedy vaccinations provide a way out of the health emergency, allowing the
reopening of contact-intensive activities. In emerging economies, instead, slow progress in
vaccinations and fresh outbreaks hinder growth, especially where the policy space is
narrower.
The fact that today's conference is taking place online reminds us that we are not out of the
woods yet. Risks have become more balanced, but uncertainty regarding the timing and
path of the global recovery remains substantial.
Continuing uncertainty depends not only on health developments, but also on the difficulty in
gauging the changes that have been unleashed by the pandemic. The extent of the
economic damage it has inflicted, notwithstanding strong policy support, will become more
evident as these measures are gradually unwound. The large dislocations in supply and
demand it has caused, which are especially marked in some sectors, coupled with the
pickup in commodity prices, will complicate the assessment of the inflationary outlook for
some time.
Many of the challenges ahead of us predate the crisis but are now starker than ever before.
For example, digitalisation accelerated with the pandemic, changing the way we live, work
and spend. These challenges also provide opportunities to revive productivity growth, which
has long been faltering worldwide, and can help to reduce inequalities. Much will depend,
however, on the effectiveness of the policies that will be implemented during the recovery.
In April, the G20 Finance Ministers and Central Bank Governors, together with the major
international organisations, updated the Action Plan ("a living document"), to steer the global
economy, ensuring that economic policy responses continue in a coordinated and coherent
way. We will need to closely monitor the increasingly divergent recovery paths - which may
well entail an asynchronous unwinding of monetary and fiscal support measures - and take
international policy spillovers into account.
Avoiding unintended cliff effects calls for careful actions, first and foremost within each
jurisdiction. Reducing policy support too soon could jeopardise the recovery, exacerbate
social disruptions and, ultimately, prove self-defeating. In this respect, it will be critical to
preserve the financial system's lending capacity without compromising its stability. The risk
that corporate insolvencies will soar once measures have been lifted needs to be monitored.
Financial regulation
The financial sector faced the pandemic from a stronger position across most countries,
due to the regulatory reforms agreed after the global financial crisis. It remained resilient
during the health emergency, continuing to provide credit to the economy. Vulnerabilities
persist, however, and must be addressed, particularly in the non-bank financial
intermediation (NBFI) sector, where regulation remains less stringent.
Looking ahead, regulatory and supervisory authorities will focus their attention on completing
the remaining elements of the reform agenda, including Basel III, resolution frameworks, and
NBFI regulations. At the same time, they will look into ways to apply the lessons that have
emerged from the pandemic on the functioning of the regulatory framework, such as those
concerning the usability of capital buffers, the role of countercyclical elements in prudential
regulation, and potential sources of pro-cyclicality.
The resilience of the NBFI sector must be strengthened. The first initiatives concern the
NBFI segment of Money Market Funds, where policies need to address vulnerabilities
stemming from liquidity transformation and from the potential cliff effects produced by
regulations. Other initiatives will be explored to tackle the risks due to liquidity misalignments
in the assets and liabilities of open-ended funds.
Mitigating climate-related financial risks also requires coordinated action. The G20 Finance
Track aims to encourage a better alignment of both public and private financial
commitments with the objectives of the 2015 Paris Agreement. The re-established G20
Sustainable Finance Study Group - now elevated to a fully-fledged Working Group (SFWG)
- aims at developing a roadmap of actions involving financial institutions, international
organisations and standard-setting bodies, and investors.
The High-Level Symposium on Environmental Taxation and the Conference on Climate
organised by the Italian Presidency in Venice, respectively on 8 and 11 July, will provide
important opportunities for discussing these issues and assessing the actions and
commitments needed in the run-up to the COP-26.
Coordinated action is also needed to strengthen the monitoring, measurement and
management of climate-related financial risk. The Financial Stability Board (FSB)
coordinates the work on identifying and filling the data gaps, and promoting higher quality and
comparability of information between jurisdictions, firms, and financial institutions.
Financial firms' valuations of sustainability risks could be improved if they were supported by
the implementation of disclosure requirements or guidance, based on the recommendations
issued by the FSB's Task Force on Climate-related Financial Disclosures. Further
cooperative efforts are needed to speed up convergence towards a baseline international
reporting standard for disclosing climate-related risks.
In May, the G20 SFWG hosted a Sustainable Finance Roundtable, a public event involving
the private sector. The event provided two new insights. First, there is growing interest in the
need to improve reporting, including on other sustainability issues such as biodiversity.
Second, special attention should be devoted to setting achievable conditions for small and
medium-sized firms regarding the disclosure of climate-related risks, which should in any
case consider the principles of proportionality and cost efficiency.
Financial inclusion and international digital cooperation
The shift to digital financial services deserves close attention since it offers new
opportunities but, if not carefully governed, could also generate undesirable consequences.
Not only may it lead to new forms of exclusion, making access to finance more unequal, but
it may also favour irresponsible financial behaviour, such as over-indebtedness.
We must work together in the G20 to ensure that the benefits of digitalisation are widely
shared. The outcome will depend, crucially, on the development and accessibility of digital
infrastructures, the degree of financial and digital literacy, and the adequacy of governance,
especially in the fields of regulation and supervision.
There are two main and complementary areas of intervention. One concerns the digital and
financial competences of individuals and firms, which must be raised through education, an
essential tool for people's empowerment, active citizenship and well-being. As co-chair of
the G20 Global Partnership for Financial Inclusion, we have made a full commitment to
delivering on the multi-annual agenda recently endorsed by the G20.
The second area revolves around fostering more innovative regulatory and supervisory
approaches to steer and encourage the development of inclusive and responsible digital
financial services, while granting adequate protection to customers, not least from cyber
risk. Our work programme also gives priority to initiatives such as the G20 Roadmap,
coordinated by the FSB, aimed at promoting the development of cross-border payments, to
make them cheaper, faster, more transparent and inclusive. A key output of the Roadmap is
the identification of a set of qualitative and quantitative targets in the four main areas of
costs, speed, access, and transparency. On 27-28 September, the Bank of Italy will host an
international conference in which we will take stock of the Roadmap one year after its
launch.
The roles played by businesses and governments in the payment system will be an
important issue for discussion. In this rapidly changing environment, we need to strike the
right balance between the private sector's drive for innovation and the role of authorities in
safeguarding the public good.
The Roadmap is also tackling the challenges posed by global stablecoins for regulation,
supervision, and payment-system oversight. In this context, steps must be taken to ensure
that the regulatory initiatives in some jurisdictions and the revisions envisaged by the
standard-setting bodies are consistent with the FSB recommendations and to ascertain
whether the latter are still up to date.
The G20 will also consider issues related to central bank digital currencies and their possible
cross-border use. Their development comes with a host of technological, legal and
economic issues, which warrant careful examination. Central bank digital currencies and
global stablecoins are closely interrelated: they share a transactional purpose and may
complement or substitute one other. It is therefore important to maintain a holistic view of the
payments sector. Central banks will proceed carefully and in line with their mandates of
price stability and guardians of the currency.
* * *
Let me conclude with a final thought. The IIF mission is to support regulatory, financial and
economic policies that are, of course, in its members' broad interest, but that ultimately
hinge on global financial stability and economic growth. I have recently emphasised that the
contrast between the State and the market is misleading, as they are actually
complementary. A healthy economy needs them both: the former provides good rules and
high-quality public services, and intervenes in areas where social returns are high but private
business is insufficient, and the latter generates dynamic and innovative firms able to
promote their work and to be rewarded for the quality of their output.
The private sector must continue to be the engine of innovation and job creation, helping not
just to exit the pandemic, but also to build toward a more sustainable future, with the key
contribution of the financial industry. In the G20 we will continue our endeavours to set the
stage for a market that works effectively and efficiently.