Central Banks Must Evolve to Help Governments Fight Coronavirus

The challenge of responding to the devastating impact of coronavirus is a defining moment for this generation of economic policymakers, the Financial Times reported in a commentary. Part of that must be a reappraisal of central bank mandates. As governments unleash huge fiscal efforts to combat the economic effects of Covid-19, one risk they face is that yields on government debt start to soar. If that happens, it would undermine the entire public policy response to the coronavirus by making government debt more expensive. Central banks inevitably will be required to ensure that does not happen. Price action in financial markets already has been extraordinary. Global equity markets have fallen more than 25 per cent in a month. Over the same period, the US equity market closed up on only a handful of trading days. This exceeds even the darkest days of 2008. This ongoing turmoil reflects uncertainty about how the virus will run its course, how public health systems will cope, and how policy tools will be deployed across the globe. Read more

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