Have the costs outweighed the benefits?

Swiss Re examines the fallout from so-called financial repression

Central banks have helped stabilise financial markets, restore economic confidence and fight the threat of deflation. A decade after the financial crisis, interest rates are still kept at historically low levels, even though the IMF has recently pointed to more robust growth in the world economy.  

In a study entitled, "Financial repression: the unintended consequences," Swiss Re argues that low interest rates are instead helping governments channel funds to finance their debt and lower their funding costs – a set of policies known as financial repression. This is not to say policymakers’ actions to manage the financial crisis didn't generate benefits. They did initially. But today, the advantages of those ongoing actions are outweighed by their costs. And these costs have not only driven down interest earnings on savings for the middle classes, they have also indirectly benefitted society's wealthiest asset-holder individuals.

Swiss Re says financial repression does not incentivise policymakers to tackle urgent public policy challenges and thus advance the structural reform agenda. Furthermore, continued intervention by policymakers calls more generally into question the existence and independence of markets. Central bank financial market engineering is no substitute for economic reforms.

Swiss Re has developed its own index to track financial repression. This publication looks at the unintended consequences of financial repression and stresses why it is so important to unlock the long-term investor asset base for growth-enhancing investments like infrastructure investment.

 


Supporting financial resilience

Re/insurance supports financial resilience by acting as a shock absorber and promoting growth through its core businesses. This is particularly important in a challenging and volatile macro-economic environment.

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