Pandemic Policy Analysis -- 9 April 2020

The COVID19 Report

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Summary:  Fiscal policy gridlock in the United States (over the Paycheck Protection Program) and the European Union (over joint bond issuance) placed central banks at center stage again at the start of the holiday weekend.  Overnight moves visible on our PolicyScope platform were mostly minor, trend-consistent actions associated with regulatory relief and delay that deliver stealth stimulus to the economy....except in Singapore regarding digital payments issues.

Chart Analysis:

Today's PolicyScope platform charts show plenty of action increasing while rhetoric decreases.  The pie charts (not pictured here) show a wide range of activity fro official sector letters to research to newly relaxes regulations.  They do not, however, show concrete action by fiscal authorities on either side of the Atlantic.

We had to wait until relatively late in the day to learn the outcome of the EuroArea finance minister meetings. Spoiler alert:  the action was underwhelming.  Stalemate in the Congress created space for the Federal Reserve to ride to the rescue of the economy again, this time with the Paycheck Protection Program as the focus of activity.  Neither of these actions is represented in the charts above, since these are intraday activity.

So time series readers this morning would have seen from the hyperlinks and documents that the composition of action from around the world constituted nothing more than extensions of existing programs and additional delays regarding pre-existing work.  Momentum readers would have seen the same thing.

Key technical moves included:

* UK:  regulatory relief extended to credit unions

* Securities and Exchange Commission:  regulatory relief extended to business development companies so they can continue investing in small companies

* European Securities and Markets Authority:  MIFID/MIFIR consultation period extended to June

* Australian Securities and Investments Commission:  unlisted companies now have more time to file financial reports.

The really interesting action was in Singapore regarding digital payments policy.

As we anticipated recently, the pandemic is accelerating public policy moves regarding digital payments.  The Monetary Authority of Singapore is actively urging individuals and businesses to rely on digital payments rather than bank visits (and, implicitly, rather than cash) in order to combat COVID19 transmission.  The central bank will also be launching a promotional campaign to increase adoption of existing contactless and digital payments.

At the same time, the Financial Stability Board released a report to the Group of Twenty that establishes a "roadmap to enhance cross-border payments."  The accompanying technical note makes clear that policymakers mostly aim at addressing frictions and inclusion issues associated with remittances (high volume, low value personal transactions). 

The Annex should be required reading for all strategists interested in policy trend projection with respect to distributed ledgers.  The Annex itself does not break new ground regarding DLT technology.  But it provides on the last page four very specific use cases for how distributed ledgers could function within financial systems.  Only two of those use cases involve shared ledgers.  Only one of those use cases involved relying on a third party to manage the ledger. 

Readers that watched the Bank of England's CBDC webinar earlier this week will realize that the FSB paper thus implicitly endorses the model Bank of England officials said in the webinar that they favor (third party ledger management). 

Regarding the EuroArea situation, European finance ministers reached a deal.  The spin cycle starts now. 

Ignore the rhetoric.  Ignore the speeches.  Even ignore the headline grabbing EUR500bn price tag for their agreement.

Only two components of the deal matter.

1.  The European Commission has been authorized to tap capital markets up to EUR100bn.  Proceeds will be used to fund loans to Member States for the purpose of funding short-term work and other support mechanisms at the national level for the self-employed. 

2.  Look at these two sentences buried in paragraph 16:  " The only requirement to access the credit line will be that euro area Member States requesting support would commit to use this credit line to support domestic financing of direct and indirect healthcare, cure and prevention related costs due to the COVID 19 crisis. The provisions of the ESM Treaty will be followed." 

Translation:  The Dutch position has prevailed.  While Italy may now access ESM funding up to 2% of its 2019 GDP, the only way that it can avoid classic conditionality and oversight is to promise that the funding will be targeted to meet "healthcare, cure and prevention related costs." 

Even if Italy wants to take an expansive definition of what kind of "indirect" costs might fall under this umbrella, the 2% GDP ceiling effectively constrains creativity.  The European Commission's new borrowing and funding authority will be of little assistance because Italy cannot be the sole recipient of funding from the Commission.  The anticipated EUR100bn needs to be spread across all Member States of the Eutopean Union, not just the Euro Area. 

Moreover, the Commission cannot take action until a full legislative package has been approved.  So it will take quite some time before any funding flows from this facility.

The remainder of the announcement re-hashes previously agreed initiatives.

Having suffered significant fatalities and having received magnanimous donations of respirators and personal protective equipment, the political consequences for the European Project in Italy could be dramatic  Populist sentiment can only harden against the EU, particularly if the economic crisis that follows the pandemic is as severe as most expect. 

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About BCMstrategy, Inc.

BCMstrategy, Inc. is an early stage company using patented technology to measure public policy risks through the PolicyScope platform which uses multiple layers of analytical automation to deliver daily momentum analysis and the only time series of public policy activity.  Global coverage started in January 2019 with the following issues:  Brexit, Trade, Banking Regulation, and FinTech Regulation (including cryptocurrency and CBDC policy).  COVID19 economic and financial policy was added in February 2020. The risk data is objective and transparent.

About the COVID19 Report

The COVID19 Report analyzes overnight PolicyScope data and intraday activity to identify macro trends and anticipate outcomes.  Written by subject matter experts with deep experience in policymaking, the COVID19 report provides the only analysis of policy reaction functions available on the market.  Subscribers include scenario analysis designers, senior risk managers, strategists and advocates.

For more information, please visit us at

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