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31. The value added of central bank digital currencies: a view from the euro area

Author:
Maria Demertzis and Catarina Martins
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Different jurisdictions have set out different reasons for creating central bank digital currencies (CBDCs). Some countries, particularly those with already-operational CBDCs for retail purposes, aim to to promote financial inclusion. But in countries where most citizens have access to financial services, central banks are interested in CBDCs as an aspect of the increasing digitalisation of finance. Central banks could also choose to use CBDCs to guarantee in full citizen’s holdings (currently, deposits in commercial bank are only partially guaranteed), but this would trigger major changes in the financial system in terms of the role of commercial banks in intermediation and the role of fiat money. So far, central banks have not opted to go this way. In the euro area, consumers have multiple payment options and a very efficient retail payments system. The currency enjoys high levels of trust and is not challenged by the emergence of private currencies, such as Bitcoin, or by the risk that cash, a monetary system’s anchor, will disappear. Therefore, creating a CBDC for retail purposes in the euro area offers little obvious value added, at least for the foreseeable future. However, there is a strong case for building a CBDC that banks could use for cross-border wholesale purposes (ie with other currencies). Wholesale CBDCs could revolutionise the way that cross-border, cross-currency payments are made for two reasons. Cross-border payments are currently slow and inefficient. Pilot projects have shown that wholesale payments with CBDCs can generate substantial time and cost savings. Any two central banks that have operational wholesale CBDCs could settle transactions between themselves. This would be very different from the current system, as most settlements today are done via the dollar (and then the euro) infrastructure and use correspondent banks. The euro area and the United States would have to consider carefully from a geopolitical perspective how wholesale CBDCs might affect their global economic standing. By developing a CBDC for wholesale purposes, the European Union would be able to contribute to developing the global standard.
Topic:
Monetary Policy, Governance, Regulation, Central Bank, Digital Currency, and Euro
Political Geography:
Europe

32. The longer-term fiscal challenges facing the European Union

Author:
Jeromin Zettelmeyer, Gregory Claeys, Zsolt Darvas, Lennard Welslau, and Stavros Zenios
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The pandemic and subsequent price shocks triggered by Russia’s invasion of Ukraine, have increased longer-term fiscal pressures in the European Union through higher debt, higher expected real interest rates and higher public investment needs. This Policy Brief makes some simple quantitative assessments of those effects and discusses policy implications, with the following results. First, long-term increases in primary fiscal balances required to offset higher debt and higher expected real interest rates are in the range of 0.5 percent to 1.5 percent of GDP for most EU countries. However, because of pre-existing differences in fiscal space, not all countries will need to undertake that adjustment, while some countries may need to adjust by substantially more. Among the 21 EU countries for which we have data to undertake this analysis, 14 will need to adjust by more than they were planning to do by 2025. Second, the required additional fiscal adjustment looks manageable, although it is substantial in some cases. To achieve medium-term debt-reducing primary balances, several EU countries will need to raise primary balances by more than 2 percent of GDP above their 2025 target, but no country will need additional fiscal adjustment of more than 3 percent of GDP. Third, market data suggests that the future path of real interest rates is very uncertain. Compared to the period immediately preceding the pandemic, longer-term expected real interest rates have increased by about 2 percentage points but remain low on average, at about 1 percent in real terms. Future developments depend on whether the structural factors that led to low interest rates in the first place persist or unwind. While interest rates might decline again, fiscal policymakers should not make plans that assume such a decline. Fourth, public spending needs for additional defence and climate spending run well above 1 percent of GDP per year. These needs do not appear to have been incorporated into current fiscal baselines, and hence will come on top of the adjustment described above. To ensure that fiscal adjustment does not defeat its purpose by slowing growth, it is essential that it is conducted gradually. In countries that require such adjustment, it should start as soon as cyclical conditions allow.
Topic:
Governance, European Union, Finance, and Fiscal Policy
Political Geography:
Europe

33. How Europe should answer the US Inflation Reduction Act

Author:
David Kleimann, Niclas Poitiers, André Sapir, Simone Tagliapietra, Nicolas Veron, Reinhilde Veugelers, and Jeromin Zettelmeyer
Publication Date:
02-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
The 2022 United States Inflation Reduction Act (IRA) is a significant and welcome climate law. It also includes trade-distortive subsidies, including local-content requirements prohibited under World Trade Organisation rules – the first time the US has done this and a blow to the international trading system that could trigger protectionism in other countries. The expected IRA green subsidies are of similar size to those available in the European Union, except in renewable energy production, where EU subsidies remain far larger. However, there are important qualitative differences. Some IRA subsidies discriminate against foreign producers while EU subsidies do not. IRA clean-tech subsidies are simpler and less fragmented, and they focus mainly on mass deployment of green technologies rather than innovation. The IRA will likely harm Europe through its competitiveness effect, while it will likely benefit climate transition in Europe and most of the rest of the world. However, the magnitude of both effects is very uncertain, partly because the IRA will induce substitution away from Chinese inputs. By forcing the reorganisation of supply chains, the IRA may make the EU and other economies more competitive relative to China. It may also initially slow the green transition. But in the longer run, this effect should be outweighed by the reduction in the cost of clean tech driven by the IRA. In responding to the IRA, the EU should not just seek to protect its competitiveness relative to the US but to pursue broader aims, including competitiveness in general, speedy decarbonisation and broad foreign policy and development policy goals. These aims imply that the EU should not impose local-content requirements of its own, should not loosen state-aid rules and should not mimic the IRA’s approach to manufacturing subsidies. Rather, it should focus on boosting its structural competitiveness, formulate a trade policy response that includes reform of the international subsidies regime, and develop an instrument for EU-level subsidies that focuses on early-stage development and increasing EU resilience to trade disruptions.
Topic:
Governance, European Union, Inflation, and Trade
Political Geography:
Europe

34. The Functionality of Uganda’s Single Spine Agricultural Extension System

Author:
Elijah Dickens Mushemeza
Publication Date:
01-2023
Content Type:
Research Paper
Institution:
Advocates Coalition for Development and Environment (ACODE)
Abstract:
This report presents the findings and discussions on the functionality of the single-spine agricultural extension system in Uganda. The recommendations from the research process will potentially inform the implementation of the new national agricultural extension strategy aligned to the NDP III, the Parish Model and the national agenda of socio-economic transformation. The single spine extension system was conceptualized as a well-coordinated, harmonized, public sectorled pluralistic extension system. The aim was to eliminate the parallel institutional arrangements that emerged during the NAADS program implementation. It aims at enhancing agricultural production and productivity, value addition, food security, household income and export. In addition, it focuses on building the capacity of individual farmers and farmer institutions to have greater access to and control over structures and processes that transform their resources and assets into the outcomes that they desire to achieve their goals. The study sought to address four objectives: (i) assessing the effectiveness of coordination among key actors (including clarity of mandates) in the delivery of agricultural extension; (ii) assessing the functionality of transparency and accountability mechanisms in the single spine agricultural extension system; (iii) assessing the performance of the system in the attainment of key agricultural extension outcomes; and (iii) assessing the effects of COVID-19 on the delivery of agricultural extension services. The report gives a background to the reform and an overview of the strategy that has been used to implement it. The report gives the methodology utilised in the research process, the limitations of the study and how methodological challenges were addressed. The report brings out the findings in relation to the objectives set and in particular; on coordination dilemmas, transparency and accountability mechanisms, and performance of the system and the effects of COVID-19 on the delivery of agricultural extension service.
Topic:
Agriculture, Governance, Reform, and Policy Implementation
Political Geography:
Uganda and Africa

35. Emergent Agency in a Time of COVID-19: Research report

Author:
Flippo Artuso, Katrina Barnes, Duncan Green, and Irene Guijt
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
Oxfam Publishing
Abstract:
The outbreak of the COVID-19 pandemic was an unprecedented event in the modern era. Earlier studies demonstrated how ‘critical junctures’, which comprise major historical events and emergencies, often play an essential role in social change. This paper seeks to explore whether the COVID-19 pandemic would prove to be a similar pivotal moment, and what lessons and insights we could gather for positive social change. The research set out to find key insights on how individuals, communities, and organizations in civil society were responding to the pandemic in low-income populations at the intersection of multiple inequalities. These lessons could inform how donors, governments and NGOs might reshape their efforts to reduce emerging or deepening inequalities, and how civil society organisations and community-based organisations could amplify their positive impacts. Over 18 months, from September 2020 to March 2022, the ‘Emergent Agency’ research convened a global conversation between activists, development practitioners, researchers, and academics to better understand the phenomena that were taking place in response to the pandemic. The research collected more than 200 case studies and held a series of webinars and conversations in thematic clusters to uncover what these responses could teach us. The research project was enabled with funding from The Atlantic Fellows for Social and Economic Equity programme (AFSEE) of the London School of Economics.
Topic:
Civil Society, Governance, Pandemic, and COVID-19
Political Geography:
Global Focus

36. Sustaining Congressional Engagement with Southeast Asia

Author:
Erik Ashida
Publication Date:
06-2023
Content Type:
Special Report
Institution:
East-West Center
Abstract:
As a representative institution whose members can outlast presidential administrations, Congress plays a vital role in sustaining long-term US foreign policy commitments. The perception of long-term commitment is particularly important in Southeast Asia, where most states seek to maximize their strategic autonomy by balancing relations among great powers. Thus, expectations about the future behavior of great powers can significantly affect foreign policy choices. Congress speaks through the exercise of its formal powers but also in more subtle ways. Congressional actions on foreign relations operate along three channels. The first channel is support for policies initiated by the executive branch, e.g., passing appropriations, making requested statutory changes, or, at the very least, not obstructing what an administration seeks to do. The second channel is symbolic support for a relationship, such as meetings with foreign officials or public statements of support. Though these actions are generally nonbinding, they can be a more meaningful gauge of support than the first channel because legislators must seek them out and can define the terms of their engagement—something not always possible when voting on legislation. The third channel is policy advanced independently from the executive branch, such as standalone bills, conditions placed on funding, or rigorous oversight. Each of these tools is available to individual legislators, groups of legislators such as caucuses or committees, or the entire legislative branch acting collectively.
Topic:
International Relations, Foreign Policy, Politics, and Governance
Political Geography:
Asia, Southeast Asia, and United States of America

37. What the Compact Impact Fairness Act Means for Compact Host Governments and Migrants

Author:
Angelo Paule and Alec Weiker
Publication Date:
06-2023
Content Type:
Special Report
Institution:
East-West Center
Abstract:
The Biden-Harris Administration’s 2024 Department of the Interior (DOI) budget proposal supports passing the Compact Impact Fairness Act (CIFA). CIFA would restore federal benefits to migrants from three Pacific countries: Palau, the Federated States of Micronesia (FSM), and the Republic of the Marshall Islands (RMI). Support for CIFA is a welcome development for Compacts of Free Association (COFA) migrants and the US states and territories that host them. Yet, the budget proposal’s omission of funding support for host governments and uncertainty on implementation and prioritization for COFA migrants present acute issues that may linger for years ahead.
Topic:
International Relations, Politics, Governance, and Public Health
Political Geography:
Samoa, Marshall Islands, Palau, Guam, Micronesia, and Pacific Islands

38. Korea Matters for America/America Matters for Korea (2023)

Author:
East-West Center
Publication Date:
04-2023
Content Type:
Special Report
Institution:
East-West Center
Abstract:
The 4th edition of Korea Matters for America/America Matters for Korea, part of the Asia Matters for America initiative, maps the trade, investment, employment, business, diplomacy, security, education, tourism, and people-to-people connections between the United States and South Korea at the national, state, and local levels. This publication and the AsiaMattersforAmerica.org website are resources for understanding the robust and dynamic US-Indo-Pacific relationship.
Topic:
International Relations, Climate Change, Economics, Education, Environment, Politics, Science and Technology, Governance, Population, Public Health, and Travel
Political Geography:
Asia, South Korea, North Korea, North America, and United States of America

39. Japan Matters for America/America Matters for Japan (2023)

Author:
East-West Center
Publication Date:
02-2023
Content Type:
Special Report
Institution:
East-West Center
Abstract:
The 4th edition of Japan Matters for America/America Matters for Japan, part of the Asia Matters for America initiative, maps the trade, investment, employment, business, diplomacy, security, education, tourism, and people-to-people connections between the United States and Japan at the national, state, and local levels. This publication and the AsiaMattersforAmerica.org website are resources for understanding the robust and dynamic US-Indo-Pacific relationship.
Topic:
International Relations, Climate Change, Economics, Education, Politics, Science and Technology, Governance, Population, Public Health, and Travel
Political Geography:
Japan, Asia, North America, and United States of America

40. Balancing Natural Resources and Human and Social Capital: Pathways to Economic Diversification in Mongolia

Author:
Thorvaldur Gylfason and Jean-Pascal N. Nganou
Publication Date:
09-2023
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Economic diversification has gained significant attention as a crucial factor for sustainable development worldwide. This paper addresses the risks associated with extreme specialisation and explores the potential benefits of economic diversification for Mongolia. By comparing Mongolia with its designated aspirational and structural peers, the paper aims to shed light on strategies that can foster economic and societal diversification in the country. Although Mongolia possesses favourable levels of human capital compared with its peers, its unusually high ratio of natural capital to human capital highlights the necessity of reducing reliance on natural resources and promoting human capital-intensive economic activities. The paper examines the implications of declining demand for Mongolia's key minerals, primarily coal, resulting from climate change concerns and evolving investor preferences towards sustainability, China's coal consumption reduction goals, and the enduring impact of the COVID-19 pandemic. Through this analysis, the paper offers insights into pathways for Mongolia to diversify its economy and enhance the well-being of its people by striking a balance between natural resources and human and social capital.
Topic:
Natural Resources, Governance, Democracy, Economic Growth, Human Capital, Diversification, Macroeconomics, Social Capital, Transition, and ASEAN
Political Geography:
Russia, China, Malaysia, Canada, Mongolia, Kazakhstan, Colombia, Armenia, Australia, Qatar, Chile, Peru, United Arab Emirates, Ecuador, and Guyana