ACTIONS: Given the complex and ambitious set of transformations needed to deliver on the 2030 Agenda, coherence across policy areas is critical. There is a growing understanding of how financial regulations are affecting incentives for sustainable development investment. There is less understanding of the impacts of social and environmental risks on credit quality and the stability of the financial system. Policies and regulations need to act together in order to create a sustainable financial system. The regulatory system needs to be congruent with the measures used to boost the sustainability of the private financial system, such as sustainability reporting and impact measurement. Well-run national development banks can help countries develop financing options for Sustainable Development Goal-related investments. Such banks should be aligned with the Goals in a holistic way and be considered in integrated national financing frameworks. Collaboration between national development banks and multilateral banks, through co-financing or on-lending arrangements, can enhance Goal-related finance through the complementarity of international resources and local market knowledge. EVENT: On December 4th, a high-level meeting to mark the International Day of Bank 2024 will be held at the United Nations Headquarters in New York, Join the International Day of Banks observance!
Central Bank Digital Currency Development enters the next phase. Many of the world’s monetary authorities are seeking more guidance on how best to pursue digital forms of central bank money. Central bank digital currencies can improve payment systems as well as financial inclusion—if they are appropriately designed. If not, they could pose risks. While not all countries may see an immediate case to deploy a CBDC, many countries are exploring Central Bank Digital Currencies so they will have the option to introduce one in the future if it becomes pertinent for them. Benefits are more likely to come in time, following the policies pursued by countries and the private sector’s response, as well as the evolution of technology. In most cases, it would be useful for countries to continue exploring CBDC, carefully and systematically, as IMF Managing Director Kristalina Georgieva noted in her recent speech at the Singapore Fintech Festival. The Bahamas, Jamaica, and Nigeria have already introduced CBDCs. And more than 100 countries are in the exploration stage. Central bankers in Brazil, China, the euro area, India, and the United Kingdom are at the forefront. Follow the conversations with the hashtags: #multilateralBanks, #Developmentbanks#4December, #InternationalDayofBanks, #bankingsystems, #digitalbanking on social medias.
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The IMF recently launched a virtual CBDC Virtual Handbook to collect and share knowledge with policymakers around the world, and to serve as a basis for the IMF’s engagement with country authorities. We intend this to be a living document that will be updated and expanded as our body of knowledge and analysis grows, and as new lessons and insights emerge from countries.
The chapters published so far cover process and policy topics:How Should Central Banks Explore Central Bank Digital Currency? Countries that decide to pursue CBDCs will take different paths, depending on the degree of digitalization of the economy, the legal and regulatory frameworks, and the central bank’s capacity. We propose a dynamic decision-making process in which central banks can proceed despite uncertainty, and adjust the pace, scale, and scope of their initiatives in response to changes in domestic and international conditions.
A Guide to Central Bank Digital Currency Product Development. To help guide central banks in exploring and developing CBDC, we’ve established a step-by-step guide to address the complex requirements and risks associated with CBDCs. We call it the 5P methodology: preparation, proof-of-concept, prototypes, pilots, and production.
Implications of Central Bank Digital Currencies for Monetary Policy Transmission. We analyze how CBDCs would likely affect monetary policy. In general, policy transmission is not expected to be affected much under normal circumstances, but the effects can be more significant in an environment with low interest rates or financial market stress.
Implementing capital flow management measures with CBDC. We explain how CBDCs could be designed to facilitate cross-border payments while still managing capital flows. With new digital technologies that can make payment infrastructure programmable, some of the capital-flow management measures could be implemented more efficiently and effectively with a CBDC compared to the traditional approach.
Central Bank Digital Currency’s Role in Promoting Financial Inclusion. As a risk-free and widely acceptable form of digital money, with potentially lower costs and greater accessibility, CBDCs can increase financial inclusion. If properly designed to replicate some of the properties of cash, CBDCs could gain acceptance as a payment mechanism for financially excluded populations—and be an entry point to the broader formal financial system.
Looking ahead, our engagement with central banks will continue as they pursue new technologies. We will keep assessing the potential effects of CBDCs on areas from financial stability to cybersecurity and cross-border payments and build on these first five chapters with new publications planned for next year. And we’ll continue our collaboration with other global bodies, including the Group of Twenty. The IMF will continue assisting countries exploring CBDCs, along with efforts by other global bodies like the Bank for International Settlements.
FORUM: "Address the systemic economic and financial risks and architectural gaps that threaten the implementation of the 2030 Agenda." International Day of Banks 2022.
The banking sector plays an important role in achieving the 2030 Agenda due to its capacity to provide and channel resources towards sustainable initiatives that contribute to the implementation of the SDGs. To achieve this goal, most banks are identifying ways in which their activities can contribute to delivering the global sustainable development agenda, with about half of survey respondents reporting the use of indicators and targets aligned with the SDGs.
Sustainable-focused products have high potential as a source of SDG financing. 63.3% of banks surveyed in the study have already launched products, services or commercial initiatives based on the SDGs. For bank customers, these mostly include bonds and investment funds aligned with the SDGs. At the retail level, banks are developing products and services that promote a transition to a low-carbon economy, ranging from green mortgages to loans for the purchase of eco-friendly vehicles. Some products also promote other topics such as entrepreneurship or gender equality.
Establishing sustainable financing frameworks also enables the banks to identify activities that can channel funding into projects aligned with the SDGs. In terms of portfolio evaluation to measure alignment with the SDGs, progress has thus far been uneven, with most banks reporting that little headway has been made in integrating these aspects into the business. The same trend is observed in terms of defining objectives and metrics suitable for monitoring. According to the study, this is largely motivated by the lack of a methodology to facilitate these tasks, and by the need to engage in strategic business thinking that considers SDGs from the initial stage.
Recognize the role of National and regional development banks during financial crises when private sector entities become highly risk-averse.
Call on Governments to revisit their labour market policies, social protection systems, fiscal policies, competition policies, trade policies and financial sector regulations and strategies to ensure that they are in line with the new realities.
Call upon national and regional development banks to expand their contributions in areas such as sustainable infrastructure, energy, agriculture, industrialization, science, technology, and innovation, as well as financial inclusion and financing of micro, small and medium-sized enterprises
Ensure that financial and economic systems are coherent with sustainable development
Demonstrate how the well-functioning national and regional development banks can play in financing sustainable development
Urge relevant international public and private actors to support such banks in developing countries.
Develop Integrated financing frameworks to respond to financing challenges.
The process for banking supervision can be envisaged as a cycle:regulation and supervisory policies provide the foundation for the development of supervisory methodologies and standards, which underpin day-to-day supervisory activities Lessons learned in the course of supervision and through regular quality checks are used to improve this processs.
The future of banking will look very different from today. Faced with changing consumer expectations, emerging technologies, and new business models, banks will need to start putting strategies in place now to help them prepare for banking in 2030. Explore eight key trends below that are changing the banking landscape.
How can you drive bold transformation in your organization over the next 10 years? Learn how our holistic, integrated solutions can help you address the challenges and maximize the opportunities of the next-generation bank.
The 2022 Financing for Sustainable Development Report: Bridging the Finance Divide finds that while rich countries were able to support their pandemic recovery with record sums borrowed at ultra-low interest rates, the poorest countries spent billions servicing debt, preventing them from investing in sustainable development. The pandemic shock plunged 77 million more people into extreme poverty in 2021, and by the end of the year many economies remained below pre-2019 levels. The report estimates that in 1 in 5 developing countries’ GDP per capita would not return to 2019 levels by the end of 2023, even before absorbing the impacts of the Ukraine war.
Successive crises including COVID-19, Russia’s war of aggression against Ukraine and the climate emergency are exacerbating inequalities between and within countries and stifling progress to achieve the Sustainable Development Goals (SDGs) and the Paris Agreement. While developed countries deployed historic stimulus packages to build back better, developing countries lacked fiscal and monetary buffers to respond. Countries with the fewest resources face challenging trade-offs between short-term rescue and long-term financing for a sustainable recovery. The SDG financing gap in developing countries grew due to a drop in available resources called upon in the Addis Ababa Action Agenda coupled with rising financing needs. Official Development Assistance (ODA), or aid, played an important role to help narrow the gap, but could not do so on its own. Global crises open a window of opportunity for SDG alignment of broader resources to narrow the gap. Growing trillions in developed countries aim to reduce risks, including environmental, social, and governance (ESG) criteria. However, resources are not reaching the countries most in need. Urgent action is needed to remove bottlenecks for a more equitable and needs-based allocation of sustainable finance.
A NEW WAY TO INVEST FOR PEOPLE AND PLANET. The Global Outlook on Financing for Sustainable Development 2021 calls for collective action to address both the short-term collapse in resources of developing countries as well as long-term strategies to build back better following the outbreak of the COVID-19 pandemic. The financing gap to achieve the Sustainable Development Goals (SDGs) in developing countries was estimated at several trillions of dollars annually before the pandemic. The report demonstrates that progress to leave no one behind has since reversed, and the international community faces unprecedented challenges to implement the holistic financing strategy set out in the Addis Ababa Action Agenda (AAAA). The report finds that trillions of dollars in financial assets held by asset managers, banks and institutional investors are contributing to inequalities and unsustainable practices. It highlights the need to enhance the quality of financing through better incentives, accountability and transparency mechanisms, integrating the long-term risks of climate change, global health, and other non-financial factors into investment decisions. The report concludes with a plan of action for all actors to work jointly to reduce market failures in the global financial system and to seize opportunities to align financing in support of the 2030 Agenda for sustainable development.
