because all their feedstocks are imported. import substitution in barbados is largely substitution between categories of imports, and it therefore does little to reduce the demand for foreign exchange. a high propensity to import is what economists call a structural feature of small open economies which enjoy a good standard of living, a feature which barbados shares with similar economies worldwide. therefore, the scope for countercyclical government expenditure in barbados is limited because of its impact through imports on foreign exchange reserves. the maintenance of an adequate level of foreign exchange reserves is a major objective of official policy, because it is the foreign reserves which guarantee the stability of the exchange rate and of the macroeconomy. at the moment, barbados ’ foreign reserves are comfortably above the equivalent of three months of imports, which remains the international norm for countries like barbados which have an exchange rate pegged to the us dollar. indeed, an important benefit of barbados ’ remarkable record of 34 years of an unchanged peg is that the country has demonstrated that it can maintain a stable exchange rate with far less than the international norm, in terms of foreign exchange. foreign reserves, it should be remembered, are held in us treasury securities, and are therefore a loan to the us government. it is not only the chinese and saudi arabians who have been contributing to financing american profligacy ; barbadians have also been making a modest contribution. it wouldn ’ t make a lot of sense to take bread out of the mouths of barbadian mothers and children to add to our funding of the u. s. government, much as they may need the money. ( it is a sad irony that relatively poor countries like jamaica are constrained to hold far larger foreign reserves, in relation to imports, because their exchange rates are prone to devaluation. ) the barbados government therefore needs to proceed with caution in incurring extra spending because the domestic employment impact is limited, and the additional spending will result in additional import demand. even though reserves are currently more than adequate, no one knows how long it will be before tourism demand will revive, and until then, it would be wise to proceed cautiously, using the more pessimistic assumptions about the pace and timing of economic recovery in barbados ’ main tourism markets. if things turn out better than our assumptions, the country will have foreign resources to allow for new initiatives by government for the diversification of exports and services, but if things do turn out for the worse, the stability of the economy will not

one driven by social distancing in high - contact sectors – tends to increase inequality. at the peak of the crisis, 40 % of income for the poorest europeans was coming from sectors that were heavily affected by covid - 19, compared with 16 % for the richest. according to one estimate, two months of lockdown followed by six months with the economy operating at 80 % capacity could increase the gini coefficient by almost 14 % in europe3. and this feeds back into the recovery, since lower income households have a higher propensity to consume. in this context, it is clear that both fiscal support and monetary policy support have to remain in place for as long as necessary and “ cliff effects ” must be avoided. otherwise, we risk hysteresis in the labour market, an unnecessary loss of viable businesses and greater inequality. and the recovery in the euro area remains uncertain, uneven and incomplete, while the new coronavirusrelated restrictions currently being introduced across europe will add to uncertainty for firms and households. 1 / 3 bis central bankers'speeches fiscal authorities are already taking action. all of the “ big four ” euro area countries have extended their short - time work schemes into next year. our analysis finds that, at the peak of the crisis, such schemes halved the share of firms under liquidity stress and reduced “ employment at risk ” by almost two - thirds4. this week governments also announced their planned fiscal measures for 2021, which suggest that member states plan to provide sizeable fiscal support to their economies next year. all the conditions are in place for monetary policy and fiscal policy to continue working together. the gdp - weighted sovereign yield curve in the euro area is in negative territory for maturities up to ten years. and our forward guidance on our asset purchase programmes and interest rates provides clarity for governments on the future path of interest rates. but precisely because the covid - 19 recession has affected services so deeply, it will also herald structural change. there is always some rotation of businesses during downturns, but the pandemic is different : it is accelerating the pre - existing spread of digitalisation in ways that look set to permanently reshape our economies and our societies. nearly 50 % of europeans say they have worked from home during the pandemic and of those only 18 % are in favour of a full return to the office5. e - commerce increased by almost one fifth in terms of volume of sales between february and august 2020 and online payments