Digital Finance, COVID-19 and Existential Sustainability Crises: Setting the Agenda for the 2020s

Abstract

This paper examines how the digital financial infrastructure that emerged in the wake of the 2008 Global Financial Crisis is being tested and leveraged to meet some of the financial, economic and health challenges presented by the COVID-19 pandemic. The origins of the 2008 crisis and the current crisis are different: the 2008 crisis was a financial crisis that spilt over into the real economy, while COVID-19 is a health and geopolitical crisis spilling over into the real economy. As such, COVID-19 – a pandemic and an existential sustainability crisis – requires different approaches. This paper explores the role of digital finance in this context on two levels. At the macro level, it identifies how digital finance has been used to address areas of systemic risk and underpin wider financial stability. At the micro level, it illustrates how digital financial tools can address a range of emerging challenges particularly relating to recovery. COVID-19 experiences are driving forward a range of efforts to build better infrastructure to address future crises, in particular interoperable electronic payments systems (including central bank digital currencies and other forms of sovereign digital currency), sovereign digital identification (particularly in the context of market integrity and non face-to-face transactions), and use of technology for regulatory, supervisory and compliance purposes, At the same time, we argue that digitization generally and of finance in particular driven by the COVID-19 crisis – while providing effective tools to support the response – have also raised new challenges, particularly around forms of TechRisk arising from control and use of data from both state and non-state actors. Looking forward, these are among the most significant challenges for policy, law and regulation in the 2020s.