In 2020, the Bank used its influence to:
- help shape the global economic policy response to the COVID‑19 crisis
- promote a sustainable economic recovery
- maintain public confidence in the international financial system
By exchanging information and insights with global counterparts, the Bank deepened its understanding of the widespread impacts of the crisis. Given the extreme uncertainty that characterized much of the year, these insights were essential to:
- formulating monetary policy
- identifying risks to the financial system
Contributing to the international crisis response
As COVID‑19 spread around the world, governments and central banks took unprecedented fiscal, monetary and financial stability actions to support economic activity and maintain global financial stability.
Major central banks took coordinated action to enhance the provision of liquidity in the financial system using standing US dollar liquidity swap line arrangements. These swap lines served as an important liquidity backstop and helped to lessen the effects that strains in global funding markets had on the supply of credit to households and businesses, both in Canada and abroad.
In April 2020, G20 finance ministers and central bank governors released an action plan to set out the key principles guiding their response to the COVID‑19 crisis and committing to a recovery that is strong, sustained, balanced and inclusive. An updated plan was released in October, committing members to “do whatever it takes to support the global economy and financial stability, using fiscal, monetary and regulatory levers, in a complementary way for as long as required, and consistent with governments’ and central banks’ respective mandates.”1
G20 members also implemented the Debt Service Suspension Initiative, which is allowing eligible countries in need to suspend official bilateral debt service payments as they address health, social and economic challenges associated with the COVID‑19 pandemic.
The Bank of Canada worked with its counterparts in the G7 and G20 and on the Financial Stability Board to communicate the various aspects of the international response to the public.
High-quality staff analysis of the international economic situation helped the Bank influence the global policy dialogue. Through these discussions, the Bank promoted the importance of:
- strong macroeconomic frameworks
- open trade
- the need to minimize supply chain disruptions
- the consideration of digital and green opportunities in shaping the global recovery
Responding to data challenges
The Bank has chaired the G7 Central Bank Digitalization Working Group since 2018. In 2020, the group focused on the acceleration of digitalization across countries—as consumers shopped more online and firms adapted their business models in response to physical distancing measures. These rapid shifts in behaviour intensified the data challenges already associated with digitalization.
Official data frequently lag real-time developments and the pandemic created new types of information needs.
Central banks supplemented official data with alternative data sources to track economic developments in real time. The uncertain future course of the virus and whether it would lead to permanent changes in consumer behaviour challenged central banks’ core macroeconomic models.
The Bank played an important role in framing discussions about these data challenges and continued to promote the need for improved methods for measuring digital activity in the economy.
Enhancing cross-border payment systems
The continuing rapid pace of change in digital payments highlighted the importance of improving global cross-border payment arrangements. These improvements allow for transactions that are cheaper, faster, more inclusive and more transparent.
To this end, the Bank helped develop the Financial Stability Board’s road map for enhancing cross-border payments. This road map includes practical steps to support ongoing cooperation—in particular, in assessing the benefits and risks of financial innovation.
The Bank also helped draft the G7 statement on digital payments that outlines the need for global cooperation in assessing risks and formulating policy.
As part of a coalition of seven central banks and the Bank for International Settlements’ Innovation Hub, the Bank contributed to a paper on central bank digital currency (CBDC). This paper sets out some common principles guiding CBDC design and related policies. It also underscores the need for further investigation of the potential benefits of a CBDC for cross-border payments.
Important discussion on central banking with Carolyn Wilkins, @RichardClarida, Philip Lane & Tobias Adrian. In this “low for long” era, central banks must be innovative & bold to update their toolkits & find new ammunition to support the recovery. http://ow.ly/XhF350CtMYZ pic.twitter.com/GLQWxYVDww— KGeorgieva (@KGeorgieva) November 24, 2020
Promoting international cyber security
The Bank continued to participate in a variety of international cyber security forums through organizations such as the G7 and the Bank for International Settlements. These networks were particularly critical this year, helping the Bank share information and discuss the cyber security implications of the crisis with:
- financial sector counterparts
- central banks
- peer organizations
Working with other financial sector authorities in the G7, the Bank also participated in a successful test of the international response protocol for cyber incidents. This protocol helps limit the potential damage caused by an international cyber incident by enabling G7 countries to respond coherently and cohesively.
As well, the Bank contributed to a G7 publication that lays out the important elements for cyber security exercises. These guidelines will shape the direction of future cyber exercises for the sector. Such exercises help the G7 to understand and address the systemic implications of potential cyber incidents.
In 2021, the Bank will:
- continue working with international partners to monitor pandemic impacts, take joint action as needed and promote a sustainable and inclusive global economic recovery
- support the efforts of the next G20 and G7 presidencies (Italy and the United Kingdom, respectively)—in particular, their efforts to make digitalization and climate change more central to the global policy agenda
- encourage its global counterparts to remain committed to key pillars of sound macroeconomic frameworks, such as open trade and central bank independence, and take joint action to reinforce them when necessary
- work with international counterparts to better understand the near- and longer-term impact of digitalization on the global economy and how best to measure the digital economy
- support the implementation of the Financial Stability Board’s road map for cross-border payments