International Relations

The surprising potency of the multilateral sanctions imposed on Russia has been exceeded only by that of Ukrainians’ resistance to Russia’s invasion of their country. True, it is difficult to imagine that sanctions will bring the Russian economy to its knees faster than Russian troops are able to capture Kyiv or lay waste to the country. But, ultimately, Russia will lose much in this war.

 

The geopolitical and geo-economic forces wrought by the coronavirus pandemic, as examined previously in this series, are likely to slow the transition to a more sustainable global energy mix. Fortunately, the pandemic has also resulted in governments gaining vastly greater influence over whether this shift stalls or accelerates.

For most people, there was nothing to celebrate when the International Monetary Fund downgraded its outlook for global economic growth in June, anticipating a contraction of 4.9% for 2020. Yet for others, such as the small but persistent group of economists and others known as the “degrowth movement,” the Covid-induced economic slowdown has a silver lining.

The search for silver linings to the coronavirus pandemic has come up woefully short. But one hopeful — and much talked of — prospect is that the disruption will accelerate the global shift to a more sustainable energy future.

As economies begin to orient themselves towards recovery and growth in a post-COVID-19 era, they will first need to disentangle themselves from their prior bedfellows, the state, whose courtship was necessary for survival during the pandemic.  Such bedfellow relationships have become increasingly common as government intervention is urgently needed for economic stabilization. Governments have also embraced their new role with vigor. According to the IMF, as of April 2020, countries have committed around $8 trillion to combat the pandemic and to remedy its ill effects on economies and societies. Decisions about how this money will be spent will undoubtedly recalibrate the logic of capitalism for years to come. 

China piloted a national digital currency in April 2020. The European Central Bank has convened a working group of major economies to coordinate digital currency research and development. The U.S. Federal Reserve said it was in the early stages of researching the digital dollar. Spurred by the potential to modernize domestic payments systems, or take a leading role in updating the global payments infrastructure that supports cross-border trade and remittances, nations around the globe are exploring the merits and risks of issuing a digital currency. While many are in the early stages of research, central banks representing one-fifth of the world's population say they will issue a digital currency very soon.

The Belfer Center’s Economic Diplomacy Initiative, in collaboration with the Atlantic Council’s Global Business and Economics Program, is tracking the latest developments in central bank issued digital currencies.

Today’s economic crisis leaves us with an unsettling and perplexing regret. Why weren’t financial portfolios already adjusted for risks that stem from health events such as pandemics? After all, financial portfolios are adjusted for liquidity risks, market risks, credit risks, and even operational and political risks.

Could using the cash in your pocket have the potential to spread covid-19? That question has rarely appeared in the news, but many governments and leaders in the digital payments industry are wondering how the virus might impact the use of cash. Several countries have already taken drastic measures to limit circulation of bank notes. Could such interventions lead to the end of cash payments?

Because hand-to-hand exchange of physical currency could transmit the coronavirus, countries around the world are being forced to reconsider the use of cash. In fact, COVID-19 might turn out to be the catalyst that finally brings digital payments fully into the mainstream. Not surprisingly, the digital-payments industry is already focusing on the opportunities created by the crisis.