 A sincere thank you to Dr. Nelson for that inspiring vision and personal story to kick off this conference. Next up is the panel, Parsing the Pandemic, which examines how central banks have responded to the COVID-19 pandemic globally. This panel will be taking live Q&A, so please submit any questions through the Engagement Hub for Registered Attendees in the day one live stream section. Hi there, thank you, Katelyn. My name is Gina Smilik and I cover the Federal Reserve and the Economy at the New York Times. I'm really excited to join you all today along with a great panel to talk about how central banks have reacted to what they have not so affectionately labeled the COVID event. I wanna thank the University of Michigan and San Francisco Fed for having us on to discuss what is a really interesting and timely topic. I think we can all agree that March and April were a terrifying experience, including for anyone in or adjacent to financial markets. You know, as a reporter, I was getting a lot of panic calls from traders and strategists. And I think the day it really hit home for me was March 17th when I asked a former Fed official about something that had happened during the financial crisis and the person replied, which financial crisis do you mean? Implying that we were in another 2008. You know, in the months since, and especially in the days of late March and early April, the Fed and its global counterparts have rolled out an unprecedented array of market backstops and monetary policies meant to globalize both markets and also to sort of set the groundwork for a stronger economy when we get to the other side of this. Here to demystify what those various programs are doing, whether they are working and how we can rebuild for a more equitable economy. We have four complete experts on these topics. Sir Paul Tucker is chair of the Systemic Risk Council, a private sector group of former public officials and legal experts focused on financial stability. He is also a fellow at the Harvard Kennedy School and author of the book, Unelected Power, The Quest for Religion, Missy and Central Banking in the regulatory state. Previously, he was deputy at the bank, deputy governor at the Bank of England. Seth Carpenter is the US chief economist at UBS and formerly deputy director of the division of monetary affairs at the Federal Reserve Board in Washington. He's also served as the acting assistant secretary for financial markets at the US Treasury during the Obama administration. Pernanda Neckio is the deputy governor of international affairs and corporate risk management at Brazil Central Bank. She previously worked at the Federal Reserve Bank of San Francisco and her research is focused on exchange rates, price setting, demographics and monetary policy. And Michael Weigend leads the Bill and Melinda Gates Foundation effort to make high quality financial services widely accessible to poor people throughout the developing world. His team works to foster development of digital payment systems. And prior to that, he spent 10 years with standard charter. I am going to go ahead and ask the panel questions to get us started, but I will throw it open to the virtual floor before we get to the end here. So please do submit your questions. To start us off, I was hoping that Paul Tucker could explain a little bit about the difference between liquidity policy, credit policy and monetary policy as the Fed has employed all three of them in this crisis because I think the distinctions can get a little bit blurry here and I feel like it would be good to just lay that around, Paul. Gina, I could barely hear you. The sound is breaking up really terribly. I've been mailing people to say that, but I know what question you're going to ask me and I heard you say, Paul, at the end. So think of monetary policy. I'm going to distinguish these three things by both their purpose and the basic instrumentality. Think of monetary policy as trying to steer spending in the economy as a whole, aggregate demand so that it enables smooth growth in line with the economy's potential and with inflation staying low and stable and that the Fed or the central bank tries to achieve that by changing the terms on which it supplies its own money, central bank money, the final settlement asset in the economy. Significance of defining it that way will become apparent. Monetary policy will affect credit conditions but it is not identical with credit policy. Credit policy is the policy of trying to steer the terms and allocation of credit to different sectors of the economy or different regions of the economy to different needs in the economy. And credit policy can be done by the regular government. It doesn't have to be done by the central bank. Central bank can do it through what it buys but the central government, the US Treasury could do it and nor does it necessarily always involve buying things. It could use, it could involve guarantees, it could involve subsidies of direct kinds, it could involve derivatives. Now liquidity policy which comes in two very significant variants. Liquidity policy is trying to fix a liquidity problem either in part of the financial system or for people at home and ordinary businesses or in the financial markets. So I think it's important to say that the lender of last resort policy which deals with liquidity problems in banks that can be extended to non-financial firms or to non-bank financial firms. And then fixing liquidity in markets which is really which I prefer to call market maker of last resort isn't directly trying to help any particular type of intermediary or beneficiary but is trying to fix a fracture or dislocation in the markets themselves. Now bringing all of this together what the Fed did in March and into April I think was largely liquidity policy and credit policy that was presented as monetary policy. And the reason I don't think that was correct analytically is it doesn't make much sense to try and stimulate aggregate demand, aggregate spending in the economy when the government and others are busy closing down the economy. It doesn't make much sense to stimulate aggregate demand when you're closing down aggregate supply. And it's not the same as saying they did the wrong things but I think it would have been much more straightforward and easier to understand if they had explained that they were trying to get liquidity to families and to businesses and then as time went on trying to steer the allocation of credit. The same could be said of other central banks around the world by the way but I think this has left them with a legacy that they didn't, a kind of problem of comprehension particularly in political circles that they didn't need to have. Seth, I see you making a face. So I'd love to hear your response to that. And then I'd also love it if you could just walk us through it a little bit how you think the liquidity responses in general have been working. Yeah, so I mean there were a whole mattering of things that the Fed did in the early spring and whereas I appreciate the parsing that Paul did I think the Fed itself has almost gone out of its way to obfuscate things because especially if you take the step back to September, arguing over what is and what isn't QE and what is or is not creating market liquidity versus easing financial conditions. On the one hand there's a bit of a difference without a distinction and on the other hand there's a wonderful historical irony with the semantics of it all because QE was originally just buying treasury bills in order to increase the quantity of reserves that was in fact precisely what the Fed was doing in September. So I think the framing that Paul did is actually quite helpful, but a Fed I think has intentionally obfuscated it. And second, there was a fair amount of monetary easing there's always a lack of monetary policy clients would frequently ask what's the Fed doing how can lower interest rates possibly do anything against a virus and the answer is clearly I think precisely as Paul laid out, not a lot that's not going to address anything in the short run. It was sort of setting the stage so that when and at that point they clearly didn't know how long the COVID shock was going to be once things were able to start to rebound set the stage that it could take off as quickly as possible. And we saw that at least in some quarters of the US economy, the housing market is booming in no small part because interest rates had been so low for so long. So I mean, I think in lots of ways intellectually it's helpful to parse these sorts of things but at the end of the day they end up mushing together almost sometimes by intent. I'd say right now the Fed's asset purchase program where they're buying from two years out to 30 years the two year interest rates are pinned out of the zero lower bound. There's not much in the way of financial easing that's going on there but the Fed is doing it anyway. And I think that's sort of somewhat inexplicable policy combination is sort of just helping to contribute to the model of the different components. Right, and I think we should maybe mention for viewers who aren't as familiar that when Seth referred back to September the Fed rolled out a bond buying plan that they were extremely careful not to call QE to the point that all of us journalists had in our headlines not QE on a regular basis. So yeah, so it was a really interesting time. For Nanda, I was hoping we could go to you next. Obviously we've seen a lot of central bank response to this crisis. We aren't through to the other side yet necessarily. I guess are we at a stage where central banks like in Brazil can start thinking about how to lay the ground market for an equitable future or are we still in sort of crisis fighting mode and it's just too early to think about that. And thanks for the organizers for inviting me for this panel. I think we are certainly not out of the woods yet. I think this is a very the correct assessment at the moment, but we are not in the extreme episode. We're not facing the extreme environment that we faced in the beginning of the year, right? So because we are not, well, we are not out of the woods but it's not the extreme case. So I think in any case it's always fair to consider the challenges ahead when you're formulating policies. I think throughout this episode, all central banks responded very quickly to the crisis. In many ways, the initial measures that were announced by central banks were also used during the financial crisis. So there was a learning experience that we had in 2008 that we could quickly put together and act very forcibly this round. Of course, the nature of the crisis is different and as we went through the crisis episode, we needed and we did adjust the measures that have been announced since then to make sure that we had guaranteeing the well functioning of financial markets and supporting the economy. And this is something that the central bank of Brazil did and other central banks as well. As we went through the crisis, we did a few rounds of announcements since beginning of March. And so in this round of new announcements and measures were meant to better target our measures and the challenges that were brought by the health crisis, right? I think as we continue to be impacted by the health crisis and everything that is happening in the economy since then, we should always have in mind not only the challenges that we are facing at the moment but everything that we are about to face. I think there's a lot of uncertainty regarding what's gonna be the new equilibrium in the economy? How households are gonna behave? How firms are gonna behave? What's gonna happen to labor markets? We saw a big jump in technology and is this gonna have an impact going forward? I think it's fair to say that it will. And so in formulating our measures going forward, we need to take that into account as well. What types of sectors are gonna be most impacted and how the relationship between firms, households, and the financial sector is gonna be going forward. So yes, I mean, we are not out of the woods yet but we should definitely take into account the challenges that are coming in formulating our policies to face the challenges today. Right, right, absolutely. And Michael, I guess when it comes to sort of encountering the challenges ahead, how do you see the role of developed economy central banks compared to developing economy central banks and where do you just draw the distinctions there? Yeah, so many lower middle income countries, central banks already have had for a long time a mandate for financial inclusion and bring people into the financial system. So the pandemic has hit the, well, I don't know, I see countries much harder. There's an estimate that 80% of Africans that live below the poverty level, it's about two thirds of the population of the continent saw a sharp reduction in income due to the pandemic. So while all most central banks even across Africa did take monetary policy measures, they really stepped in to try to facilitate some of the fiscal policy measures as well, largely by facilitating the payments from governments to their citizens, right? So globally, about 138 countries have either implemented or scaled up cash payments to citizens covered around a billion people globally. And central banks have really stepped in to make sure that those payments can be delivered. And they've done that by adopting simplified diligence programs to bring more people into formal financial system to enable payments. Again, in the developing world, people don't go to bank branches, they often access their accounts on the mobile phone and they access cash on agents out into villages. So there was a lot of work that was done to facilitate agents having access to cash to hand out to citizens. They reduced fees to enable people to have that access. The central bank really saw a primary role in facilitating the direct transfer and inclusion of the poor population in these government programs that were being set up in response to the pandemic. That's interesting. And that is particularly interesting, I think, because certainly here in the US, what we've seen is the Fed taking a number of moves to try and sort of facilitate the flow of credit, not necessarily direct fiscal payments, but the flow of credit to households. It seems like a lot of times those have actually involved sort of prudential tweaking and regulatory tweaking, exempting certain types of securities from certain leverage ratios in order to allow banks to continue lending as the official reason. I guess the question that all raises to me is as the Fed and other central banks sort of play around the edges here to try and make sure credit continues flowing, are we creating financial vulnerabilities? And on a global scale, we need to worry about vulnerabilities going forward. Paul, could we start with you on this? And I now can hear. Oh, wonderful. I'm very glad to say. So yes, but I think the key thing here is vulnerabilities that could be avoided. So I don't think that there has been some nasty, nasty unavoidable trade off where we have to choose between stimulating the economy and getting credit to families and businesses that need it on the one hand and running some financial stability risks on the other. I think there just hasn't been enough care taken to avoid the financial stability risks. And I think that's in two areas. First of all, and I was staying with before COVID. In the years when monetary policy has been very, very low, I think the authorities could and should have raised minimum margin requirements, haircut requirements, basically required imposed higher collateral requirements in trade and marketing. One of the things that happened in March is the March Treasury market dislocation. Remember, this is meant to be the most liquid capital market in the world. And we discovered that that's nonsense. It is not the most liquid capital market in the world. And the West should be very bothered about that. The incoming administration should be very bothered about that. Why? Partly because there are all sorts of people beyond banking out beyond their skis. And I think some of that, they could have been leaning again. I wait for the leader of the Federal Reserve or the other central banks elsewhere who will do for financial stability what Paul Volcker did for inflation, which is take the punchbowl away. And this is taking it away from Wall Street and the city of London. This isn't taking it away from regular people or the real economy. And then the other thing I would say is that we have just got to recognize that if you reregulate banking as my generation of policymakers did, then as night follows day, there are powerful incentives for bank-like activities, including sometimes bank-like fragilities, to move outside of banking. And yet when everything cracks, they'll turn up and say, help, I'm in a terrible state. And if I fail, it'll be terrible for everybody else, not just me. And so lo and behold, the central bank turns up and says, OK, we'll provide you with some liquidity so you can get through. And we've now seen the private equity industry bailed out twice in just over a decade. I mean, call this capitalism. Seth, I'm curious to hear your thoughts. A, do you think it's right that we need to reregulate? And B, do you think that's likely given in new administration coming in? Yeah, so I'm super sympathetic to the way that Paul just characterized things. And for me, in lots of ways, it ties into a lot of Michael's comments as well about where central banks do or do not intermediate the flow of government credit. I mean, I think very, very clearly there's a way of regulating one part of the economy and having the risk spill over to other parts of the economy and being mindful of that. I think it's extraordinarily important. I know from my personal experience in September and then again in March, clients globally would have any questions about, when is the Fed going to come in? Clearly, they're going to have to come in and fix things. This kind of dislocation is good, is not good. And it was, in many ways, echoing, I think, exactly Paul's point, socializing the cost and privatizing the gains in the hands of people who were taking pretty substantial risk positions. And then the central bank came in and cured. I would contrast that. So another version of that is the corporate bond facility set up between the Treasury and the Fed. So an immediate change in credit spreads and prices of bonds, that market healed very well with direct intermediation because the central bank knows how to deal in those very large wholesale markets. In contrast, when we think about something like the Main Street lending facility that was meant to work for much smaller businesses who saw much, much, much different outcome and in no small part because the framework involved was not the central bank directly interacting with agents to provide that credit from the government facility the way Michael talked about it working in certain countries. Instead, it was the Treasury and the Fed jointly working just through banks, having the banks set their own risk tolerance for what sort of money, what sort of risks were going to be taken. And it's not at all obvious to me that in an event where you're trying to solve a market failure, private sector preferences are the same as what the public demands in terms of risk tolerance. And so they're quite explicitly, and the Secretary of the Treasury talked about this in testimony, they set the bender so tight that the Treasury was not expected to take any loss, like the Congress had explicitly allocated capital for the Treasury to take losses. So I do think those sorts of issues and the contrasts in the cross developing and middle income countries versus the developed ones are pretty stark. That's an interesting point. It's an interesting point. And I guess, obviously beyond just sort of the major facilities, the corporate credit facilities, there were also the Fed rolled out sort of unprecedented efforts to make sure that dollars were flowing globally during this crisis. For example, you could speak a little bit toward why that was necessary, whether it's likely to be necessary going forward and sort of house global central government cooperation. It's going to play into making the system more resilient so that shops don't sort of play out the way they did this time. So I can hear you pretty well. I think once you're sold with someone, it spreads to someone else. And now the poll is listening. Your question was really choppy. But I think you were asking me about the relationship between central banks, among central banks during the crisis and, OK. So I think it is, I think the strong coordination that we saw among the actions by central banks this time around was key to curb the panic mode that we started to face in the early stages of the crisis. So financial markets nowadays are very global and very well interconnected. So the actions from one central banker affecting other central banks as well, particularly from the perspective of emerging economies, what we saw at the beginning of the crisis, even before COVID reached us, actually, and the health crisis started here, we basically saw a very sharp decline in risk appetite and capital outflows of unprecedented levels coming out of emerging economies. And the actions taken by central banks and the coordination among central banks, I think were very key to reestablish confidence and reverse this panic mode that we entered in. Coordination, of course, relates to some of the programs that were put together, the swap agreements from the Fed, for example, with not only some other developed economies, but some emerging economies as well, such as Brazil. But also the very strong, I would say, relationship and positive correlation between the type of measures that were being implemented. So a lot of the actions that we saw in developed economies were also taken by central banks in the emerging economy. And that was very new, I think, in terms of the response to the crisis. So emerging economies, central banks, were able to actually acting in similar ways than other advanced economies, central banks were acting. And I think there is one point that, you know, I think a lot of times we take it for granted and it was very clear for us to see the importance of this is the fact that, you know, central banks all over the world are very, they relate very closely and we talk and discuss the issues in several international forum. And the fact that we have this proximity among central bankers and governors and deputies and so on, during normal times, allow us to be very close to each other when we get into a crisis mode. So the amount of conversations and meetings and so on that we had in international forums, such as the BIS, for example, throughout this crisis I think was very key for all of us to understand the differences and the similarities between the crisis and the impact of the crisis on our economies and be able to move together and acting similar ways or in ways that complement each other's actions. So I would say that this coordination and this good relationship among central banks in the world was very, very important, especially in the beginning of the crisis. That's interesting. And I guess, you know, if you had a great how that coordination worked on like a one to 10 scale, where would you put it? Like, how did it rank and what could be improved? That's, I don't know how to grade it, but I would say that I think the coordination among central banks for me, at least they look like it's much more well-established and this relationship is much more well-established than among, for example, ministers of finance. And I think that made a big difference, you know? It's hard for me to give a grade, but it can certainly improve in many ways. I think, I don't know, I think doing more of it would be a, you know, this whole interconnectness that we have in among central bankers is something that is very important. But I'll refrain from giving it a grade and I'll let you judge it. I guess, Michael, you know, from where you're sitting, obviously payment systems have been a huge point, the sort of point of international coordination and international discussion recently. I'd love to hear, you know, where you think we stand on, you know, cross-border digital payments and sort of the like, you know, how is that likely to evolve going forward? Right. What we're seeing is tremendous momentum at a national level to put in place sort of real-time payment platforms across a range of financial providers, both bank and non-bank financial providers. And that's really, really helpful because most of the flows are domestic. And there's opportunities then once you have those domestic platforms in place for the cross-border payment providers to plug into them. So you're seeing that in the remittance corridors, for example, costs coming down and being much lower going into countries where they've got those domestic payment platforms. That said, it's still quite, quite sort of clungy and unsophisticated. I think there's huge opportunities to really rethink how we do cross-border payments. The BIS did some excellent work over the past year and a half really looking at the current system and starting to think about new ways to do that. I haven't seen any sort of emerging solutions about significant improvements of the way the cross-border works, but certainly domestically we're seeing, you know, more and more countries really leapfrogging what can be done domestically. Right, and it seems like from the Fed's perspective, this is going to be a huge issue in the coming years. I would say kind of together with climate change, it seems like these are digital payments and climate change seem to be sort of the two big agenda items coming up. I guess if I could just kind of throw it open to the floor here, you know, when it comes to climate risk and finance in particular, what do you see as sort of the big unresolved global issues and where do you see, you know, the central banks you follow most closely addressing them? Maybe Paul, I know you're interested in this topic, so maybe we can start with you and then move around. I think it's a massive issue and I think it's quite right that central banks should be an disposal of government to help address climate change. But I'm choosing my words carefully, at the disposal of governments and under the terms from governments. And I say that for kind of three reasons, very quickly. So one argument is central banks care about financial stability. They therefore should take climate change into account in their stress tests and that will help address the problem of climate change. But remember that if you do stress tests and there are some kind of wonderful farms completely green in areas that may sink in the worst climate change outcome, then those are very bad risks indeed. So a policy that is focused on financial stability that tries to take climate change into account will be green friendly, but it will also address, it will be green unfairly as well. The second thing I would say is that I think there is a great danger in terms of our democracies, constitutional democracy. If central banks are left to decide how much to do. There's an article in the Guardian newspaper today which I think makes a good case that what's being proposed in various places by central bank isn't enough. And I would say but that's what counts as enough isn't for the unelected central banker to decide. And here's a way of crystallizing the thought which is that if central banks are put in the position of effectively applying taxes to various types of activity because they're socially bad, war is socially bad as well. Should central banks be raising the cost of credit to arms manufacturers and arms dealers. And the reason I'm raising this isn't because I'm opposed to what's being proposed in various places, but I think that the framework for this needs to be decided by people who we elect. The privilege of electing people and not be left to unelected people. And my greatest worry about all of this is that just as with macroeconomic policy where central banks have become a substitute for fiscal policy, it would be even worse to have the central bank, oh, you can attach Paguvian taxes to credit policy. Therefore, since we can't get anything through Congress or through parliament or through the European parliament, therefore we can have the central bank do that. So then America would be a country where moral policy is delegated to the Supreme Court. And general social welfare is delegated to the Federal Reserve. And these things happen in small smiths. So I guess I'm actually curious to have you delineate that a little bit further. Where are the bright lines here? Because obviously you've got people who are proponents of green QE and buying things that serves some sort of social purpose. But then you've also got folks like the Bank of England who are just looking at climate stress tests and really sort of testing the banking sector against climate risks. Where do we prop on the line? What is acceptable and appropriate for a central bank versus what is pushing that boundary too far? Are you addressing that too? No, sorry, did you hear my question? I'm asking what is pushing the limit too far? Like where does the line lie? I think doing stress tests is a kind of absolute necessity. I don't think it answers the question of how they should respond to the stress tests. I think if it's don't buy X, do buy Y, I think that should come from the elected arm of government and ideally will be bipartisan and wouldn't be something that changed after each presidential election or the midterm elections, but would be kind of rooted a bit and that would be their contribution in this case to the climate change. So I think not buying certain bonds or raising aircrafts on things is fine as long as it's not Jay or Christine and Andrew sitting around saying, do I wanna do a bit more or do I wanna do a bit less? You know, I was a person that took decisions like that, but it wasn't quite on that scale and none of this, none of this is leaning against climate change being an existential problem that we face. I just wanna preserve constitutional democracy as one of the world. And Gina, on that point, because I think I agree with the trust of Paul's points. I mean, looking at it through a painfully U.S. centric perspective, there's massive debate in the United States as to whether or not it is in fact an existential threat. I personally haven't believed that it is, but if the central bank and elected officials were to intercede themselves into that sort of role without an official mandate from the elected officials and right of foul of the popular sentiment denying climate change, you could easily see a pushback, a backlash against the central bank for its actual fairly clearly defined mandate because it was starting to venture off a bit beyond the dream it. The stress tests are a bit easier in that regard because you can sort of easily imagine the sorts of scenario where climate change has direct impairment on assets of a bank's balance sheet whether that asset impairment comes from one cause or another, you sort of understand how to run a stress test. But when it comes to the sorts of additional, how much credit financing should a green technology company have versus an old-fashioned carbon-heavy industry, central banks relancing on their own and run the risk of not only having those authorities clipped, but lots of others as well. At the risk of getting you in trouble with your former employer, Seth, I wonder if you could weigh in a little bit on whether the Fed is being aggressive enough in this department. It's a place they haven't done as much as I think their global counterparts. And I'm curious whether you think that's appropriate given the sort of different political conversation we have here or you think they need to be a little bit more aggressive. So I would similarly tie it back to the sorts of debates about fiscal policy when you're in a difficult situation or even pre-COVID, we heard central bankers globally asking for more fiscal policy. And then as that didn't happen or didn't happen sufficiently, we had lots of different venues looking at central banks saying, well, now is the time when central banks should take on fiscal policy roles that should do helicopter money, they should do things that are sort of outside of the remit. And I think that's what the recipe for a bad policy backlash that overcorrects for any sort of overstepping. And so again, I wouldn't necessarily criticize the Fed for saying for what they're doing in this regard because the Fed is a creature of the Congress. The Congress is one who has the authority here. They're elected by the American people. They create the rules, the laws for the Fed. And so that's where I would actually place the responsibility with the elected officials. I'm going to put you a little further there, though, because there are definitely things that the Fed could do that wouldn't require any change in legislation. Climate change has been an example of that. They've clearly been very cautious in their approach there. Do you think that's appropriate? So no question. There are clearly things that the Fed can do that don't necessarily require a change in their mandate, the legislation. I do think the more direct support buy-in for their actions, whether absolutely undeniably within their legal remit or sort of fuzzing up against the border, the more direct buy-in they have and support they have from the Congress, the better position they will be and the more effective they will be. Right, absolutely. Now, I actually think we should probably go ahead and throw to audience questions because we only have about 20 minutes left and we've got quite a few of them. So I'm just going to go ahead and at the risk of sounding a little bit, still could hear you just read them off. I think the first one actually is something that we can kind of do from a global perspective. So maybe we'll start with Fernanda and Michael and then kind of move back around. The question is how can central banks make sure that the general public, individual households and small businesses are not financially penalized for a public health crisis? Fernanda, I guess how do you see that playing out from where you said? Thanks, this is a great question actually. So a lot of the initiatives central banks have throughout the measures that were announced and implemented throughout the crisis were aimed at making sure that the financial sector remained liquid and credit continued to flow throughout the COVID episode, right? And I think fostering that safe environment or fostering the well-functioning of financial markets is key to make sure that households and businesses are not gonna be penalized by the health crisis. So I think the actions that were taken in that direction were very important to try to foster that market. And given that you gave me the microphone, can I talk a little bit about the previous topic as well, the climate change one? And I'm not gonna judge other central banks or evaluate what they are doing or what they are not doing. But from the central bank of Brazil perspective, we have been having very fruitful conversations about this internally. We believe an agenda that is focused on sustainability. And in fact, the reasons behind we started to act on it is because we do believe that the climate change and issues related to climate change are very well related to mandates from central banks. Think about our mandate, which is make sure that the financial sector is stable and working efficiently. And when you have a new risk, such as climate change risks in action, right? I mean, the climate events are becoming much more frequent. This is something that affects exactly our mandate to make sure that our financial sector is working efficiently. In the same way, you can think about how it affects monetary policy. Climate change affects relative prices. And when they are more frequent and or extreme events happen more often, it does affect the way we pursue our target and pursue monetary policy. So, the challenges associated with climate change are related to the mandates of most central banks in the world. And that's why we started talking about it much more frequently and having initiatives related to that. Michael, I was hoping you could address this as well. What can central banks do? What should their mandates be right now when it comes to things like climate, but also when it comes to sort of wanting to fall out of this pandemic? Sure. And climate is a top concern central banks across the developing world, the Alliance for Financial Inclusion, which is a collection of LMIC central banks has made this a top priority, primarily because they see lower income countries being disproportionately impacted by climate change. I think one thing that pandemic has made very clear is that countries that had made greater advances in terms of financial inclusion, including payment systems, the links to national ID systems and so forth, were much better able to respond to this immediate crisis of the pandemic. And I think as we think about adaptation and resilience under climate change, there's lots of evidence that this sort of inclusive economy will help people become much more adaptable, whether it be aiding in migration and urbanization, adapting to do crops and so forth. There's a real role to play of sort of having inclusion there and giving citizens access to credit to enable them to adapt to the changes. And so I think that'll be a big, continue to be a big area of focus across lower income countries. Right, absolutely. Another audience question that I think is actually pretty provocative is, central banks have been vocal about the need for fiscal support to combat the economic fallout of the pandemic, but what should we expect them to do if the governments decide to withhold fiscal stimulus in 2021? And I guess I'll add to that, how much further can they push their mandates? What more can central banks realistically do? Becky, you're nodding, so do you wanna go ahead and start? Yeah, I think the answer is what will they do? It's going to be as much as they can, but that forces you to the second part of your question. And I think if we just look at the Fed, so you can think about their tools as what they do with federal funds rate and overnight policy rates, these lending facilities, credit facilities, and then their asset purchases, so-called QE. The first one, you read the zero lower bound, they ruled out negative policy rates for a set of reasons that we can discuss later if you like, and they've certainly promised to keep the federal funds rate at zero until inflation is not just at 2%, but on its way to overshoot in the economy that full employment in a manner to be defined later. I would say that that tool is then actually having ruled out negative interest rates. That tool has now fully been utilized. You can cross it off the line. The lending facilities, the Fed has gone out of its way to congratulate itself for the efficacy of the lending facilities as evident by the lack of use. But they have essentially declared those and no more use there. And so then you're left with the last lever for these asset purchases or QE. And my read of the chair, the vice chair of the committee, so John Williams, when talking about what they're doing, they stress that they're already doing a lot. So there seems to be a bit of discomfort with turning up just the volume. So the internal modeling that the Fed knows as well, it's not just the dollar amount, it's also how much you do at what point on the curve. So maybe you can push down longer to interest rates a little bit. And in fact, the 10-year rate's gone back up to 95 basis points having been down in the 60s. So maybe that's something they can do. I mean, a little bit more like night and dusk rather than night and day in terms of the setting of things. But that's sort of what I would expect if we end up with a foundering economy and no forthcoming fiscal policy, central banks end up being painted into a corner where they try to be the best that they can. And the very reason why pre-COVID there was so much of a global chorus for more fiscal is because they think there was an appreciation of how limited the actual firepower was. Right, interesting. And Paul, like one of the things that we frequently hear as reporters, one of the things we frequently hear from critics of the Fed is that they should be more aggressive and more forthcoming with these liquidity capabilities, set the terms better than what is available on the market and try and use them as sort of almost a quasi-fiscal policy because they can do that with this KERS Act backing. I guess, is that what the Fed should consider if there is more fiscal support forthcoming or is that crossing this line that you were talking about with climate? Yeah, I was gonna say, your question is probably don't believe in democracy. I think this is a massive, massive issue. It's one thing to be able to go out there and pull down the 10-year or 30-year yield. And actually, they needed to buy as much as they did in order to do that, whether or not I'm right about that. It's one thing to be able to do that. It's another thing to say that in these conditions, that was a meaningful stimulus, rather than a two to three-year horizon. And I think actually for a while, they have made a communications error. I don't just mean the Fed, both sides of the Atlantic, in telling fiscal policy makers what they should do, rather than being more open about what they can't do. And I would say that most of the former retired, very senior central bankers in the Western world, central banks can't do much more. And it's a kind of game of chicken, but it's worse. The more people in Congress or the European Parliament, council ministers think that the central banks can be the Calvary, lower their incentives to act themselves, given all the difficulties of getting stuff through Congress and through Parliament in Europe. And I don't doubt that they will try, which is why there's a debate about negative interest rates in Europe. In the States, if Congress doesn't act, and I think Congress may be feasibly be able to do balanced budget fiscal stimulus. I mean, the fact that there's probably going to be a Republican Senate, doesn't mean that fiscal stimulus is off the table if it's a balanced budget fiscal stimulus. But even if that's off the table, then I think the Federal Reserve will probably end up, this is going back to where you began, which is types of credit policy, where essentially what you're doing is setting different interest rates for different parts of the economy. And actually I think that the Bank of England in 2012 and the ECB have had better possibilities of doing that than the Federal Reserve have had. But it's a big thing. And where you need fiscal, you need political buy-in, you need not just to be within the law, you need to know where the politics are and that you've got the support of the broad base of the country in doing it. And the way I just put it, you think, oh, wow, that's not central banking as normal, and no, it isn't. And I think central, I want to emphasize, I think central bankers should have been much more noisy about this a few years ago, but they weren't. That's fine, that's happened. But I think they need to find a way of communicating this to Congress without completely dislocating the markets, but nor can they consider volatility in capital markets and a bad day for Wall Street, a constraint on what it is that they should do to help the American people best. And Michael, you made this point to me when we were preparing for this panel, actually, and I'd love to hear you kind of detail a little bit for the audience, but obviously when you talk about what central banks can and could and do do, I think often we think about it from sort of a developed economy, central bank perspective. You know, when you look around at the central banks that you're talking to, what are they doing that we might not appreciate as sort of a normal part of central banking in somewhere like the United States or Europe? Yeah, by and large, they have a much larger mandate. The regulatory system is often much simpler and a wide range of regulation of the financial system sits with the central bank. I saw the latest question about what can be done in a technology-driven financial system. Central banks in the developing world are already active there because that's the only way that you can get half of the population included in the financial system is through these alternative providers that really leverage technology that substantially lowers the cost to serve these consumers. So they're already much more active in thinking about different types of financial institutions that have different risk profiles, but then the different sort of supervision and regulatory approach. And I think that will continue. The one worry that I have is that a lot of these countries have been quite progressive in terms of letting new financial providers in, connecting them to traditional banks and other financial service providers. They're probably behind in terms of regulating and supervising these institutions and managing the risk. So I think the nature of these firms oftentimes are prohibited from lending. They have to basically keep reserves for 100% of their deposits with a bank. But so the nature of the risk shifts much more to operational risk than traditional credit risk. And I just think banks are still trying to, central banks are still trying to figure out what is the appropriate type of regulation and supervision to manage those risks. In particular, how can they leverage technology to monitor and manage those risks in a very low cost way that doesn't destroy the economics of serving the poor? Fernanda, I see you nodding along here. You want to elaborate a little bit from what you said? I think I second everything that Michael said, the big challenge that we have with technology and the evolution of technologies that first, on the positive side, it is a great opportunity to bring more inclusion into the financial sector and include the population in the financial system and give people opportunity to participate. But at the same time, you want to be, you want to regulate it in such a way that you still foster innovation and allow for these new technologies to evolve, but still keeping the financial sector safe. So I think this is one of the big challenges that we have as central bankers. And this is a big topic for discussion in developing and emerging market economies. And it is true in Brazil as well. We have a big agenda, institutional agenda inside the central bank of Brazil aiming to foster inclusion and competitiveness and the clear pricing of financial instruments and guaranteeing that people have access to the credit market. And we do believe technology is the way to go for this, but you need to take it into account for the risks that come with it and still allow for this whole new area to evolve and foster innovation. So this is a big topic for discussion for all of us. Oh, absolutely. And you know, we've only got five minutes together, so or five minutes left. We're just to kind of wrap this all together. I'm hoping that you guys could each briefly address sort of how do you see central bank mandate shifting with this crisis? Because obviously, central banks have formal mandates, most of which are just price stability. Here in the US, it's price stability and maximum employment. But what you've all described is sort of this broad array of functions that I think central banks are taking on maybe in certain ways, maybe beyond them. And I guess if you could just kind of each talk a little bit about how you see the goals and purposes of central bank shifting coming out of this, I think that'd be really interesting. Paul, would you mind starting at work? I would underline the purposes being monetary system stability with the emphasis on system, so including the stability of the private parts of the monetary system, which would include digital parts of the monetary system. And to the extent that people want the public or representatives want central banks to help with broader social justice issues, I would introduce that as a set of constraints on the banks rather than giving them discretion. So I wouldn't say go forth and help address inequality or go forth and address climate change. This is for independent central banks. This isn't for non-independent central banks are completely different. What I would do for independent central banks is I'd say just as the Federal Reserve Act says you can only buy government securities, they could say and you can't lend against the following types of securities. I mean, it's possible to constrain them in in the pursuit of certain objectives. But the reason I wouldn't change the basic mandate monetary system stability, which goes beyond low and stable inflation is there is no chance of pursuing social justice effectively without monetary system stability, just as that there is no chance of pursuing social justice without internal and external security. Central banking is involved in something really rather elemental. And I think the alternative is to suspend its independence or actually repeal its independence. And say you're an instrument of the executive government and you then see all sorts of things. But with them we should remember that what's happened is that the right of elected assemblies to determine taxation has been jumped. So these are big choices about who we are in some sense. I lament that we, I really hope we don't give up on our elected representatives addressing the big issues of the day. In about 30 seconds. Two thoughts on again, agreeing with the systemic aspect of things first in terms of the mental system stability. I think the notion at least in the United States that macro-prudential stability is in principle the right way to go. You don't necessarily want to use monetary policy for those sorts of risks. And then give us a while and we'll come back to you when we actually have the effective tools. I think there's a, I think this episode is absolutely understood how critical it is to have those macro-prudential pools in a way that are actually deployable and restrainable. And then when it comes to payment systems, I think the topic of inclusion comes in a lot. The statistics on how many Americans are unbanked and this isn't essentially the, you know, all the superlatives we always hear about the greatest, most advanced country in the world, that sort of thing. And to have a non-trivial fraction of the population be unbanked, I think is sort of line impressionable. And the central bank has always been critical to payment systems. They're discussing, you know, the real-time payment system that the Fed's been discussing shows that they're already going down at least some version of this path. And so I think that sort of increasing access to payment systems, settlement systems, banking functions for the whole economy is actually another part of it. My gosh, I'll just talk, that leads into you, well. Thank you. Yeah, so the financial inclusion mandate is already there for most developing central banks. I think the ones that have lagged in really making progress, there'll be, you know, huge pressure for them to catch up. The good thing is they've got many leading examples that they can follow and really accelerate. I think the big question on mandate is around consumer protection. What is the role of the central bank in protecting consumers in these new and largely digital financial services? And I think that may sort of stretch or cause a redefinition of the boundaries of the role of the central bank. Absolutely. And then, Fernanda, if you just want to wrap us up here. I think the crisis and the COVID episode showed us that there is a demand for a sustainable and inclusive recovery. And I think a lot of the actions that are coming from central banks and how we're going to see things going forward is unrelated to that, you know, and the technology agenda that we talked about is a way to promote that inclusion more efficiently and also promote better productivity and growth going forward. So I think the sustainability and the inclusion agenda are gonna be the main topics going forward. Of course, everything within the mandate of central bankers. Okay, absolutely. Okay, great. Well, guys, thank you all so much for joining this panel today. Thank you to the audience for tuning in. And I think we are completely out of time. So with that, we'll wrap it up. Thank you. Thank you. Thank you. Thank you. Thank you to our fantastic panel of experts for digging into that essential and ever present topic of COVID-19. We will now have a brief 15 minute break between sessions. We have a group poll to check out what your fellow attendees are thinking about. You can access it using the following QR code up on screen or the URL. The QR code just acts as if you're taking a picture and it will redirect you to the poll. Our next session will start promptly at 10.45 AM Pacific time and features Mary C. Daly, president of the Federal Reserve Bank of San Francisco.