2021 Money and Banking Conference
Online Seminars
Macroeconomic conditions, growth and income distribution.
November
Underlying problems of the global economy and lessons from
03rd, 10th, 17th & 24th
the pandemic
www.bcra.gob.ar
CLOSING REMARKS FROM THE 2021 MBC
Miguel Ángel Pesce
Governor, Central Bank of Argentina
It is time to close the 2021 edition of the BCRA's Money and Banking Conference, which
consisted in online seminars, as in 2020, because of the COVID-19 pandemic.
The presentations delivered these past few weeks have been stimulating indeed.
Speakers have discussed the lessons learned from the pandemic, the problems that
still exist, and the structural challenges in relation to the macroeconomy, distribution
and growth from different viewpoints and based on various experiences.
A significant part of the discussion focused on the relationship between fiscal
policy, growth and inequality. Speakers have highlighted how the exceptional conditions
resulting from the COVID-19 pandemic have led to some kind of "change of eras",
evidencing both the inability of purely neoliberal policies to solve the crisis, and the need
for structural reforms aiming at inclusive, sustainable growth. Although the pandemic
has globally pushed the tolerance threshold for fiscal deficit to new levels, following
this agenda of economic recovery in the medium and long term without
compromising fiscal sustainability poses some challenges. Moreover, it has been stated that the
increase in public spending, which has turned out to be effective amid the economic
emergency, should be reconsidered in terms of composition in the long term. In this
regard, the importance of channeling public spending into education, childcare, health
and social assistance has been highlighted, given the long-term benefits for society as
a whole, along with a potential, positive impact on productivity.
We have also discussed the role of monetary and financial policies in sustainable
economic development with social inclusion. Emphasis has been placed on the negative
effects of macroeconomic instability on inequality, and the manner in which the latter
deepens recession. The challenges faced by central banks when implementing
policies that may help to mitigate the impact of the economic cycle on inequality have also
been underscored. As it reduces marginal propensity to consume, inequality weakens
the channels of monetary policy transmission onto aggregate demand. At the same
time, low-income sectors face increased restrictions in access to credit, even at lower
interest rates. Finally, trade-offs that may pose dilemmas in monetary policy have also
been highlighted. In particular, although the rate reduction may have a positive impact
on aggregate demand and employment, and therefore, reduce inequality, it also leads
to an increase in the price of assets which are generally held by the wealthiest sectors,
thus increasing inequality.
Focusing on emerging countries, we have discussed the limits that a hierarchy of
currencies at a global level imposes on central banks. The most evident sign of this
are the functions of money that the dollar has served globally (unit of account and
denomination of debt, means of payment and store of value). Thus, the focus has
been the asymmetrical internationalization of emerging countries' currencies. That
is to say, global (bank and non-bank) investors have taken risks in those currencies,
but their liabilities continue to be mostly denominated in dollars. This usually causes
considerable exchange rate fluctuation regardless of the local macroeconomic
conditions, and leads to harder structural limits imposed by a shortage of foreign currency,
with negative consequences on long-term growth. Smoothing cycles is necessary for
macroeconomic stability and development, making a managed floating exchange rate
system, along with macroprudential regulations, controls on capital flows and
international cooperation mechanisms inevitable.
From a rather microeconomic perspective, the role of local financial
institutions-especially public development banks-has been underscored, as they may boost structural
change through productive financing in sectors with high social return in the long term,
and which usually access less-than-optimal financing through traditional commercial
banks because of the uncertainty lying behind this type of investments. The challenges
inherent to the management of these public institutions have been analyzed, as their
goal is other than maximizing profit. However, they may not overlook the impact of
their measures on net worth, and must achieve some level of profitability to reinvest
their earnings. Another topic discussed was the difficulty in laying down appropriate
regulatory frameworks for this type of institutions to account for the natural bias in
terms of risk-because of long-term loans-and concentration-as they finance
largescale investment projects-in their portfolio of assets.
At the conference, speakers have also talked about the need to rethink the role of central
banks given the challenges posed by the pandemic. We agreed that, as central banks
of emerging countries, we face greater difficulties than our counterparts in advanced
economies on account of structural problems and less leeway in monetary policy. This
compels us to respond to global shocks earlier and more accurately. The lessons learned
from the past are of paramount importance in this regard. Some lecturers have
highlighted the fact that the limited policy leeway for central banks will demand an incentive
scheme for value creation, aiming at enhanced and larger commercial and financial
integration into the global economy, and will require creative solutions leveraging
development opportunities for the population's good, such as the use of technology to
achieve more inclusive and deeper financial systems. We agreed that, in spite of little
leeway and less developed financial markets in the region, monetary policy has had an
effective countercyclical effect through conventional and unconventional measures.
Another issue that has been underscored is how the dollar currency pricing model
severely weakens the expansionary channel of the exchange rate, and how strong
exchange rate volatility may discourage exports given the uncertainty about future
returns on investment. This explains the change associated to multilateral lending
agencies, e.g. the IMF, regarding the supplementary role of "unconventional" monetary
policy tools, such as the preventive accumulation of international reserves, sterilized
foreign exchange intervention, and the use of macroprudential tools and controls on
unrestricted capital flows, to mitigate the negative effects of the global financial cycle
and reduce financial dollarization.
Finally, we have discussed the global context of the pandemic, the differences among
advanced and developing countries to deal with such unprecedented shock, as well
as the challenges to turn this recovery into inclusive, sustainable growth, including the
environmental dimension.
We celebrate the various and plural approaches and perspectives presented at this
conference, and above all, we affirm our commitment to critical reflection and
academic excellence. Once again, we thank you all for being part of the Money and Banking
Conference. We hope you have enjoyed it as much as we have. We look forward to
meeting you again at next year's edition.