Abnormal Times Call for Innovative Measures

Since the beginning of the year, and especially over the past several months, the combination of the COVID-19 pandemic coupled with governments’ necessary responses to save lives, including isolation, social distancing and home quarantine, have triggered the worst downturn since the Great Depression in the 1930s.

Despite living in a pandemic, we saw several countries reopening their economies and are making efforts to recover their employment, work and production levels. However, in the absence of a medical solution (including a vaccine) the strength of the recovery remains highly uncertain.

Since the outbreak of the COVID-19 pandemic, the International Monetary Fund (IMF) has issued its World Economic Outlook (WEO) and its Global Financial Stability Report (GFSR) twice, in April and again in June. In April’s WEO report, the projection of global output in 2020 was brought down substantially to -3.0% from 3.3%. In June’s report, the projection was further revised downward by 1.9% to -4.9%. This shows that the impact of the pandemic on world output is much bigger than we initially thought.

Given that the pandemic is still developing across the globe, there remains tremendous uncertainty surrounding the 2020 annual growth forecast. On the upside, better understanding of the virus and more progress on vaccines and effective medicines, could substantially bolster confidence that we will overcome the pandemic sooner. Larger, more forceful economic and financial policy support could also lead to faster and more complete recovery. In fact, we could be seeing light at the end of the tunnel as the IMF have stated that it will make a “small upward revision” to its 2020 global growth forecast.

However the entity emphasized that the rebound from the recession will be long and bumpy as further waves of infections, a rapid tightening of financial conditions, declining trade, and rising geopolitical tensions could further erode confidence with respect to consumption and investment, leading to deeper downturns or slower growth. Global trade is projected to collapse by nearly 12% in 2020. This is why the IMF is encouraging governments to spend whatever they need to confront the crisis.

Here lies the question, what can one do in such abnormality? Desperate times spur innovative measures. It’s time for governments to think outside the box.

We have all heard of cryptocurrency – a trending topic in recent years. It is a digital asset designed to work as a medium of exchange where an individual coin ownership is recorded in a ledger stored in a computerized database. Similar to this currency, China have started a new concept of digital currency. It is one of the world’s biggest trials as it aims to push to a cashless society. It is important to note that crypto and digital currency are not the same. The creation of digital yuan is not intended to act like a cryptocurrency such as bitcoin. It is created, issued and controlled by the People’s Bank of China, the country’s central bank. It is not looking to replace digital wallets such as Alipay. The idea is to work together with them and other banks.

The concept started as a test run, as the government of Shenzhen carried out a lottery to give away a total of 10 million yuan (roughly around €1.3 million) worth of this currency. More than two million applied for this lottery but only 50,000 won. The winners had to download a digital renminbi (China’s currency) application to receive the digital yuan and spend it at over 3,000 merchants in a particular district of Shenzhen. Local supermarkets and pharmacies are among the participating merchants as well, such as retail giant Walmart. All they needed to do was to download an application on their phone and collect the money. They also prepared some videos and video call service to help those who are not IT literate.

Following this decision, the European Central Bank (ECB) president Christine Lagarde said that the ECB is very seriously looking at the creation of a digital euro. In the virtual meeting, with the IMF, Lagarde said that “the pandemic has caused many structural changes including the way we work, we trade and we pay.”

Lagarde emphasized that the pandemic caused e-commerce to rise by almost one fifth in terms of volumes and sales between February, when the outbreak first hit Europe, and June this year, when many of the toughest lockdown restrictions eased. “There is much more confidence in digital payments and significant change is underway,” she added.

More than ever it is evident that the vaccine is the economy’s lifesaver, and we have to put our trust in pharmaceutical companies as they do extensive research and trials to come up with a medical solution. Some of the vaccine contenders halted testing, as some participants became ill after taking one of the many vaccines currently being tested. Hence this puts a dent to a vaccine timeline. In the meantime, governments are doing their utmost to find middle ground between citizens’ and the economies’ health and come up with a robust plan to get back to pre-pandemic times. This brings volatility in the market which puts investors in a difficult position as to where to invest.

This article was prepared by Matthew Miceli Donnelly, ICIWM, B.Com Banking & Finance & Management (Melit.), B.Com (Hons.) Management, MBA (Melit.), Investment Advisor at Jesmond Mizzi Financial Advisors Limited. This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]