Opinion

Together with air, water is arguably the planet’s most important natural resource. Functioning water systems are one of the technological pillars of civilisation, which often makes a water crisis a matter of life or death.Today, about 2bn people lack access to safe drinking water, and roughly half the world’s population experiences severe water scarcity for at least part of the year. Our limited freshwater resources are already overburdened by growing populations and water-thirsty economies. By 2030, global water demand will have exceeded the sustainable supply by 40%. As demand for water grows and temperatures rise, water scarcity will threaten more lives and livelihoods – and thus the stability of societies around the world.How can we turn the tide so that water empowers communities, secures our economies, and keeps the planet liveable? As with global public goods such as a clean environment, there is a tendency to focus on the costs of improvement today, rather than on the greater long-term benefits of investing in the preservation of natural resources. The water sector today is underfinanced and chronically short of capacity to meet demand. But if we want to achieve the Sustainable Development Goal (SDG) of ensuring clean water and sanitation for everyone, we must increase current global spending on water fourfold, to more than $1tn per year (1.21% of global GDP). We also must make up for the $470bn we lose every year through flood damage and poor irrigation.By protecting the environment and the climate, every cent invested in the water sector boosts our economies, now and in the future. When the European Investment Bank provided a €200mn ($215mn) loan to Jordan last December to finance a desalination plant on the Red Sea and a pipeline to the capital, Amman, the country’s planning and international co-operation minister, Zeina Toukan, described these projects as crucial for both water security and comprehensive economic development. We all need to adopt similar thinking about how we value and manage water.As with many other challenges, the public sector cannot fill this large investment gap alone. Businesses have an important role to play. According to the CDP, a not-for-profit organisation that collects environmental-impact data, more than $300bn of business value is at risk globally if no action is taken to address water scarcity. Yet it will cost only one-fifth of that total – $55bn – to tackle the problem.If businesses deploy new technologies to reduce their water consumption and to exploit wastewater as a source of energy, heat, nutrients, and materials, they can reduce their environmental footprint and free up more water for use by others. The CDP values such “water-related opportunities” at $711bn, reflecting not just savings on water use but also the growth of long-term potential markets in water-smart technology and the benefits of better community relations. Because water is cheap in most parts of the world, businesses often have little incentive to invest in saving water or in boosting the efficiency of water-intensive production processes.To persuade the private sector to focus on water-system preservation, we first need to start thinking of money spent on water as a real investment, rather than as a cost that can never be recovered. Second, the right value must be assigned to this water in order to create the necessary incentives for users and businesses to use it more efficiently, and for preservation to be economically rewarding. In the case of water, this requires a delicate balancing act, because affordable access to drinkable water and sanitation is a recognised human right – which means it is non-negotiable. Third, global co-operation and new cross-border programmes to mobilise greater investments in water would overcome market failures and prevent water from being politicised and weaponised.This week’s United Nations 2023 Water Conference in New York, the first such gathering since 1977, is a unique opportunity to discuss water security and to tackle the crisis head-on and to acknowledge that water investment is as critical to a sustainable and just economy as is clean-energy investment. We can establish new guidelines for fixing the water cycle and ensuring a more holistic approach to sustainable development everywhere, from the Netherlands and Luxembourg to Nigeria and Laos. And we must find more ways to incentivise water financing from public and private sources that are willing to wait for their investments to bear fruit.Water is what will carry the SDGs across the finish line. We must finally start recognising it as a fundamental part of our investment portfolios, and put it at the centre of our economic policies. — Project Syndicate

The banking crisis this time is different. In fact, it is worse than in 2007-08. Back then, we could blame banks’ sequential collapse on wholesale fraud, widespread predatory lending, collusion between ratings agencies, and shady bankers peddling suspect derivatives – all enabled by the then-recent dismantling of the regulatory regime by Wall Street-bred politicians, like US Treasury Secretary Robert Rubin. Today’s bank failures cannot be blamed on any of this.Yes, Silicon Valley Bank had been foolish enough to assume extreme interest-rate risk while serving mostly uninsured depositors. Yes, Credit Suisse had a sordid history with criminals, fraudsters, and corrupt politicians. But, unlike in 2008, no whistleblowers were silenced, banks complied (more or less) with the post-2008 beefed-up regulations, and their assets were relatively solid. Moreover, none of the regulators in the United States and Europe could credibly claim – as they did in 2008 – to have been blindsided.In fact, regulators and central banks knew everything. They enjoyed full access to the banks’ business models. They could see vividly that these models would not survive the combination of significant increases in long-term interest rates and a sudden withdrawal of deposits. Even so, they did nothing.Did officials fail to foresee herd-like panic-stricken flight by large, and thus uninsured, depositors? Perhaps. But the real reason central banks did nothing when confronted by banks’ fragile business models is even more disturbing: It was central banks’ response to the 2008 financial crash that had given birth to those business models – and policymakers knew it.The post-2008 policy of harsh austerity for most and state socialism for bankers, practised simultaneously in Europe and the US, had two effects that shaped financialised capitalism over the last 14 years. First, it poisoned the West’s money. More precisely, it ensured that there is no longer a single nominal interest rate capable of restoring the balance between money demand and money supply while also averting a wave of bank failures. Second, because it was common knowledge that no single interest rate could achieve both price stability and financial stability, Western bankers assumed that, if and when inflation reared its head again, central banks would increase interest rates while bailing them out. They were right: this is precisely what we are witnessing now.Faced with the stark choice between curbing inflation and saving the banks, venerable commentators appeal to central banks to do both: to continue hiking interest rates while continuing with the post-2008 socialism-for-bankers policy, which, other things being equal, is the only way to stop the banks from falling like dominoes. Only this strategy – tightening the monetary noose around society’s neck while lavishing bailouts on the banking system – can simultaneously serve the interests of creditors and banks. It is also a surefire way to condemn most people to unnecessary suffering (from avoidably high prices and preventable unemployment) while sowing the seeds of the next banking conflagration.Lest we forget, we have always known that banks were designed not to be safe, and that, together, they comprise a system constitutionally incapable of abiding by the rules of a well-functioning market. The problem is that, so far, we had no alternative: Banks were the only means of channelling money to the people (through tellers, branches, ATMs, and so forth). This turned society into a hostage of a network of private banks that monopolised payments, savings, and credit. Today, however, technology has furnished us with a splendid alternative.Imagine that the central bank provided everyone with a free digital wallet – effectively a free bank account bearing interest equivalent to the central bank’s overnight rate. Given that the current banking system functions like an antisocial cartel, the central bank might as well use cloud-based technology to provide free digital transactions and savings storage to all, with its net revenues paying for essential public goods. Freed from the compulsion to keep their money in a private bank, and to pay through the nose in order to transact using its system, people will be free to choose if and when to use private financial institutions offering risk intermediation between savers and borrowers. Even in such cases, their money will continue to reside in perfect safety on the central bank’s ledger.The crypto brotherhood will accuse me of pushing for a Big Brother central bank that sees and controls every transaction we make. Setting aside their hypocrisy – this is the same crew that demanded an immediate central-bank bailout of their Silicon Valley bankers – it bears mentioning that the Treasury and other state authorities already have access to each transaction of ours. Privacy could be better safeguarded if transactions were to be concentrated on the central bank ledger under the supervision of something like a “Monetary Supervision Jury” comprising randomly selected citizens and experts drawn from a wide range of professions.The banking system we take for granted is unfixable. That’s the bad news. But we no longer need to rely on any private, rent-seeking, socially destabilising network of banks, at least not the way we have so far. The time has come to blow up an irredeemable banking system which delivers for property owners and shareholders at the expense of the majority.Coal miners have found out the hard way that society does not owe them a permanent subsidy to damage the planet. It is time for bankers to learn a similar lesson. — Project SyndicateYanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens.

Pinky Negi, an Indian teacher with two master’s degrees, loved her old job at a public school in the Himalayan foothills. But then she did what millions of Indian women do every year — gave up her career when she got married and had children.“The idea of not earning pinches me the most when I have to ask for the smallest of things,” said Negi, who briefly tried home tutoring before the birth of her second child led her to give up work altogether.“Even if I have to ask my husband, it is still asking someone else,” she told the Thomson Reuters Foundation in New Delhi at an office of the Self-Employed Women’s Association (SEWA), a union group that helps women find work.Negi’s experience is common in India, where women have been dropping out of the workforce even at a time of strong growth in Asia’s third-biggest economy.The country is set to become the world’s most populous as the United Nations forecasts its population to touch 1.43bn on April 14, overtaking China on that day.Economists say that means India, which is home to the highest number of working-age people, must not only create more jobs to keep its world-beating growth on track, but also foster employment conditions favourable to women.Less than a third of Indian women are working or actively seeking work, data shows, despite progress such as better educational attainment, improved health, falling fertility rates and more women-friendly labour policies.There are numerous reasons for the shortfall, researchers say, from marriage, child care and domestic work to skills and education gaps, higher household incomes, safety concerns and a lack of jobs.Policy changes that could rectify these problems — such as improved access to education, child care or flexible work setups — could boost the number of working women and add hundreds of billions of dollars to India’s gross domestic product (GDP) by 2025, a 2018 report by the McKinsey consulting firm found.“The absence of women from the labour market reduces productivity and leads to income inequality,” said Mayurakshi Dutta, a researcher at Oxfam India, which attributed the low labour force participation of women to gender discrimination in terms of wages and opportunities in a 2022 report.According to the World Bank’s latest data, women represented 23% of India’s formal and informal workforce in 2021, down from nearly 27% in 2005. That compared with about 32% in neighbouring Bangladesh and 34.5% in Sri Lanka.India’s labour and women’s ministries did not respond to requests for comment.Federal government data shows the female labour force participation rate (FLFPR) rose to 25.1% in 2020/21 from 18.6% in 2018/19.The economic survey from earlier this year said current measuring tools were inadequate for accurately gauging the FLFPR, tending to under-report the proportion of working women.For example, it found that data did not reflect women’s unpaid work such as running a household, farming or income-saving activities such as collecting firewood, cooking and tutoring children.“Women have to take care of homes and we find it difficult to find full-time jobs. If I had support (at home), I would have liked to work too,” said 35-year-old Beena Tomar, who does part-time home-based needlework.Investing in the care economy can reduce the unpaid care burden, and also create jobs in the care sectors that are major areas for women’s employment, gender specialist Aya Matsuura and Peter Buwembo, a labour statistician, at the International Labour Organisation (ILO) said in emailed comments.Improving access to quality education, training programmes and skills development is vital to boosting employment opportunities for women and girls, said Oxfam’s Dutta.Employers should also provide gender-sensitive policies such as access to social protection, child care, parental leaves, and provision of safe and accessible transport, she added.Last year, Prime Minister Narendra Modi asked states to use systems such as flexible working hours to retain women in the labour force, saying the country could achieve its economic goals faster if it made use of “women power”.Researchers point to public programmes like the government’s skills development scheme, which trained more than 300,000 women in 2021/22, as promising initiatives.But they say more needs to be done, especially for women still feeling the economic impacts of the Covid-19 pandemic.Most Indian women are in low-skilled work such as farm and factory labour and domestic help, sectors hard-hit by Covid.While the economy has rebounded since then, it has failed to restore jobs for women, who were more likely to have lost their jobs than men and less likely to return to the workforce, a report by the Centre for Sustainable Employment at Azim Premji University found.Bhawna Yadav is one of them. The 23-year-old was a make-up saleswoman at a Delhi mall before the first lockdown in March 2020, when she had to move in with her in-laws in northern Haryana state after she and her husband lost their jobs.While he moved back to Delhi after restrictions lifted, she stayed behind.“I had no job to go back to despite many calls to different companies ... Plus, my husband and in-laws were against it because I was pregnant,” the mother-of-two said by phone from Baroli village.She said her in-laws dismissed her career ambitions, telling her “being a mother is a job” or “your husband is earning”, and suggesting instead that she work as a farmhand.“It infuriates me. I’m qualified to do more ... They don’t realise how much I miss my old life - the freedom, my friends, colleagues, and having my own money,” she said.Sona Mitra, principal economist at Delhi-based IWWAGE, which works to boost the FLFPR, said women’s particular career ambitions are too often dismissed in a labour market that has failed to create the jobs women want.“They don’t want to work in agriculture nor do they want to work as domestic workers. They want some other types of jobs which are going to respect them, give them dignity and recognise them for their abilities and their educational degrees ... Where are those jobs?,” said Mitra.She said this often led to underemployment and poor earning capacity among women.Negi, the school teacher, who is in her 30s and has a master’s in Hindi and English, said she had repeatedly been offered low-skilled, low-paid roles when she had tentatively tried to return to work.That left her feeling demoralised, leading to an 11-year career break that has started to strain household finances.Today, she is looking for teaching jobs with flexible hours in schools close to her home.“A woman has to handle everything - home and outside. There are no exceptions for us,” said Negi.“But I feel my routine will get better if I get back to work ... the more you go out, the more people you meet, the fresher your mind gets.” — Thomson Reuters FoundationWomen coal loaders pose for a picture in Jharia coalfield, India, on November 10, 2022.

The war of the chatbots is gaining momentum with the artificial intelligence (AI) arena buzzing with activity like never before. If OpenAI unleashed nothing short of a tech revolution with its GPT-3-powered AI bot, ChatGPT, as a free public beta on November 30, 2022, and notched up 100mn users in two months, the pressure prompted rival Google to unveil its chatbot Bard on February 6, 2023. Other companies such as Microsoft to Adobe, Snapchat and Grammarly have rushed to show off and release similar generative AI capabilities in their own products.ChatGPT is now taking the next leap, expanding its capabilities. If it was restricted to drawing information from its training data, which ran until 2021, last Thursday OpenAI announced a gradual roll out of plugins, in a move that significantly expands the chatbot’s functionality. The first wave of plugins, now available in alpha to select ChatGPT users and developers, allow ChatGPT to tap new sources of live data from the web, including third-party sources such as Expedia, Kayak and Instacart.“Though not a perfect analogy, plugins can be ‘eyes and ears’ for language models, giving them access to information that is too recent, too personal, or too specific to be included in the training data,” OpenAI said on its website. For instance, ChatGPT can now pull up answers to questions such as how the box office sales of this year’s Oscar winners compare to those of other movies released recently. This new functionality is served up thanks to the browser plugin, which shows the sources the generative AI service is drawing information from before it spits out an answer.“Plugins are very experimental still but we think there’s something great in this direction,” OpenAI co-founder Sam Altman wrote in a tweet Thursday. “It’s been a heavily requested feature.” Indeed there are marked imperfections in the results that services like ChatGPT produce. OpenAI’s own research has shown that a chatbot with access to the internet is a risky prospect. For instance, it can have a tendency to quote unreliable sources or, as OpenAI points out, “increase safety challenges by taking harmful or unintended actions, increasing the capabilities of bad actors who would defraud, mislead, or abuse others.”But the proponents of these AI services have been focusing on the benefits. A video posted to Twitter by OpenAI co-founder Greg Brockman on Thursday demonstrates how to use ChatGPT’s Instacart plugin to assist with meal planning. The video shows ChatGPT recommending a chickpea salad recipe and then ultimately adds the required ingredients to Instacart for purchase with just a few prompts. A video posted on Expedia’s Twitter account shows how to leverage the Expedia plugin to essentially turn ChatGPT into your AI travel agent, helping travellers book flights and hotels. This is something ChatGPT previously couldn’t do, although it could identify places and create an itinerary. “You can install plugins to help with a wide variety of tasks. We are excited to see what developers create!” Altman wrote on Twitter.Google is still lagging behind in this round of the AI war, as indicated last week by CEO Sundar Pichai when he said that Bard, despite testing by thousands of people, might still have a lot of problems. “As more people start to use Bard and test its capabilities, they’ll surprise us. Things will go wrong,” he wrote in a memo to employees, as reported by CNBC. Until now, Google has kept interactions with Bard limited to hand-picked testers, including about 80,000 Google employees, according to Pichai. But on Tuesday the company announced it was rolling out beta testing to thousands of users in the US and the UK who join the waitlist, with languages other than English to be added over time. The battle continues.

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Ramadan is upon us amid exceptional and unprecedented global economic condition with waves of inflation hitting the globe, accompanied by a record rise in commodity prices at the global level, in addition to disruption in supply chains and an increase in financing and borrowing costs, as well as other factors that put pressure on household budgets.While there were expectations that the holy month will lead to a slowdown in growth in Arab and Islamic countries and will negatively affect production processes in them as a result of reducing work hours, experts polled by Qatar News Agency (QNA) contradicted those expectations.Experts emphasised that there is no correlation between the month and the occurrence of a slowdown or the rise in prices and inflation. On the contrary, Ramadan is an opportunity for recovery, as it contributes to revitalising economic growth.On the impact of Ramadan on the economies of Muslim and other countries and on the prices of commodities, experts agreed that many investment and industrial companies make huge profits as a result of the increased demand for their products during the holy month.Despite the waves of stagnation and recession that the world previously witnessed, especially in Europe, Islamic companies and restaurants continued to work well, with an increase in demand for halal food. Ramadan created commercial activity in Western countries and other countries with Muslim population. Professor of Accounting at Qatar University Rajab Abdulla al-Esmail explained that consumption rates in Ramadan are very high. Afterward, there is Eid which revives the movement of the markets and increases sales compared to regular days and months.Al-Esmail added that it is very natural for the rate of consumption to rise during Ramadan, but there is a tradition of wrong consumption habits, adding that a balance between income and actual needs, away from extravagance and waste, is required.In light of the current global conditions and the accompanying events that also put pressure on economies and the pockets of families, al-Esmail stressed the importance of distinguishing between necessary and luxury needs, while avoiding extravagance.The Qatar University Professor explained that two people receiving the same salary every month might have a difference in the standard of living due to disparity in managing expenses and indebtedness. Bank loans burden families so they should be avoided as much as possible, especially if they are spent on consumerism; thus, adjusting financial capabilities and investing in real estate and others is necessary in order to adapt to emergency economic crises after retirement. Investment provides good income, which contributes to improving the quality of life in the future.On the impact of Ramadan on price hikes and inflation, he pointed to the alternatives available in the local markets and the various options at different prices, adding that our local market is open, prices are available electronically, and it is possible to compare them. All these things push merchants to present their best promotional offers to attract customers, throughout the holy month, which increases the competitiveness of the markets.Chairman of Qatar Consumers Complex Companies Ali Hassan al-Khalaf said that it is customary to prepare for Ramadan early, adding that purchasing activity usually increases this month, and the entire market is booming in light of the prosperity of life.He added that spending doubles in Ramadan and the demand for goods increases, which is very natural. Ramadan is an economic season as purchases vary from one individual to another and goods are exchanged as gifts.Regarding prices, he pointed to what the authorities are doing in terms of organising and monitoring the movement of about 500 basic commodities, which contribute to the stability of their prices throughout Ramadan, adding that price increase may appear to be a ‘healthy’ phenomenon as it is necessary for the merchant, encouraging him to bring more commodities, while it is considered normal for the consumer as more commodities mean lower price.Regarding the perception of slow movement and weak production in Ramadan, he said it is not true, especially as everyone is waiting for the month because the commercial activity flourishes and grows during it, contributing to lowering prices due to the large quantities of goods coming to sales outlets. This applies to all commodities, including vegetables and fruits, which cannot be stored in the first place, he added.Financial analyst Walid al-Fuqaha believes that Ramadan comes this year in light of exceptional economic conditions, which the world has not witnessed in 40 years, adding that the holy month is usually associated with increased consumption and spending, driven by a group of cultural and religious factors, but disruption of supply chains may raise the prices of food and beverages, which are the most important components of the consumer price index.He added the focus is on consumer behaviour. From a psychological point of view, events lead to the emergence of emotional contagion, which is people’s tendency to adopt the feelings and behaviours of those around them, as consumer behaviour is affected by cultural factors, customs, marketing campaigns, advertising, and competitions of merchants and suppliers, which put pressure on the consumer’s behaviour and changes it significantly within a short period, in comparison to the volume of marketing campaigns per day, in light of the development of electronic marketing methods, which may eventually affect price levels and lead to an imbalance in supply and demand during the month.To address this, al-Fuqaha believes that consumers can take effective steps in managing spending, avoiding waste, setting a budget for purchase, avoiding impulsive buying, and choosing local merchants who offer fair prices and transparent business practices.In terms of control practices, he stressed their importance in maintaining the stability of markets and prices, emphasising the importance of developing promotional plans for consumers and providing programmes to engage in more responsible and sustainable consumption patterns, by sharing food, urging community service, and participating in social responsibility programs during the month.He called for a better understanding of consumer psychology during festive seasons and religious occasions, such as the month of Ramadan, to develop effective strategies and plans that promote sustainable development, increase transparency and accountability in pricing and inventory management, with the need to adopt initiatives that motivate companies that implement responsible practices towards society.He highlighted the profits achieved by companies, as their revenues and gains multiply during the holy month as a result of the increased demand for their products, as Ramadan is an engine for markets and a catalyst for their general performance. For example, the US witnessed the worst inflation wave in 1983, and Europe also witnessed in recent decades many waves of stagnation and deflation, such as the mortgage crisis and others, but Islamic companies and restaurants continued to work well, accompanied by an increasing demand for halal food. This is proof that Ramadan brings about a qualitative commercial activity in the countries where Muslims live, and not an economic slowdown as some believe. (QNA)

We cannot live without water, but it is a finite resource whose supply we have been taking for granted.The World Meteorological Organisation estimates that nearly 3.6bn people struggle to get enough water to meet their needs for at least one month every year, and it forecasts that 5bn people – more than half of humanity – will be facing the same plight by 2050.But this is not just about getting enough to drink, wash with or to water crops. Extreme weather events sometimes bring too much water all at once.Floods, hurricanes and other water-related events take lives and destroy homes, livelihoods and infrastructure. The United Nations says says almost three-quarters of all natural disasters were water-related between 2001 and 2018.Our global water system is in crisis. Despite safe water and sanitation being a human right, billions of people lack access to these essentials for life, according to the United Nations.Recently, the UN hosted Water Conference – the first in almost 50 years, which was a watershed moment for UN Sustainable Development Goal 6: ensuring the sustainable management of water and sanitation for all.It coincided with the World Water Day, which is marked annually on March 22 to raise awareness about the importance of freshwater and advocate for the sustainable management of freshwater resources.At current rates, some 1.6bn people will lack safely managed drinking water. 2.8bn people will lack safely managed sanitation and 1.9bn people will lack basic hand hygiene facilities.Since the late 1970s, when the last Water Conference took place, the world has been focused on the business of rapid growth and development.Water was available, and its quality and supply was predictable, allowing us to raise families, build cities and factories, prevent the spread of disease, boost farm yields and bring more land under cultivation.But a growing global population – predicted by the UN to reach 8.5bn by 2030 – coupled with economic development and changing consumption patterns means the demands on our water resources are far greater than 50 years ago.Natural resources crises, including for water and food, come within the top 10 biggest risks facing humanity in the coming decade, in the World Economic Forum’s ‘Global Risks Report 2023’.It cites one UN estimate that places the gap between water demand and supply at 40% by 2030, with a “dramatic and unequal increase in demand between countries”.As we continue to over-deplete, mismanage and abuse this vital resource, water is becoming more scarce, more polluted and contested at an unprecedented rate and scale. And as global warming continues to take effect, ordinary weather is becoming a thing of the past, exacerbating our water crisis, with some regions more affected than others.Wind and rainfall conditions have become more extreme and harder to predict. This is affecting water availability and supply.It is clear we need to rethink our approach to how we can best allocate and value water. We need some clear thinking about how to improve the governance of water supplies to ensure everyone has access to water to drink and wash and meet other needs.

No two crises are alike. That is true of recent financial upheavals – the Asian financial crisis of the late 1990s, the dot-com crisis of 2000, and the global financial crisis of 2008-09. It is also the case with crises sparked by geostrategic shocks, such as wars, pestilence, famine, and pandemics.Today, we are witnessing a potentially lethal interplay between these two sources of upheaval: a financial crisis, reflected in the failure of Silicon Valley Bank, and a geostrategic crisis, reflected in the deepening cold war between the United States and China. While the origins of each crisis are different, in one sense it doesn’t really matter: The outcome of their interaction is likely to be greater than the sum of the parts.The failure of SVB is symptomatic of a far bigger problem: a US financial system that is woefully unprepared for the return of inflation and the concomitant normalisation of monetary policy. SVB risk managers were in deep denial of such an outcome, and the bank was brought down by sharp losses on its unhedged $124bn bond portfolio, triggering a classic bank run by fearful depositors.Depositors, even the hotshots of America’s startup culture, can hardly be blamed for not doing the due diligence on complex financial institutions they entrust with their assets. That task falls to the Federal Reserve, which, sadly, blew it again. Starting with reckless monetary accommodation that perpetuated a dangerous string of asset bubbles – from dot-com and housing to credit and long-duration assets – and continuing with the misdiagnosis of post-Covid inflation as “transitory,” the Fed has now made a supervisory error of monumental proportions: It fixated on large banks and overlooked smaller regional banks like SVB, Signature, and First Republic, where accidents were waiting to happen.This is particularly disheartening in the aftermath of the post-2008 implementation of a new supervisory regime. “What if” stress tests for banks quickly became the gold standard for minimising the risk of financial contagion. The first stress test in early 2009 effectively marked the trough of that crisis, because it revealed that newly capitalised major banks could withstand the worst-case blows of a sharp deepening of an already wrenching recession.Over time, however, stress tests became an exercise in mindless repetition. Big banks built ample cushions of financial capital that all but ruled out systemic failure in the event of a major recessionary shock. A string of Treasury Secretaries, Fed chairs, bank CEOs, and even presidents were unanimous in boasting of a US financial system that was in excellent shape. From time to time, the Fed would use the annual stress test as a warning to a few institutions to improve their risk-management practices or strengthen their capital adequacy. It largely worked like a charm – until now.We should have seen the latest twist coming, because the stress test suffered a major flaw: It had turned into an asymmetrical risk-assessment exercise, examining the performance of large systemically important banks in the event of “hypothetical severe recessions.” The Fed staff modelled simulated impacts of sharp declines in global GDP, soaring unemployment, and plunging asset markets – shocks that were presumed to be accompanied by renewed disinflation (flirting with outright deflation) and falling interest rates.Of course, this hypothetical shock – which the Fed calls a “supervisory severely adverse scenario” – is precisely the opposite of the interest-rate shock that hit SVB. In its February 2023 stress test, the Fed conceded that it needed to start thinking more broadly about different shocks, and it allowed for the possibility of a new “exploratory market shock” – still a recession, albeit one accompanied by higher inflation. But, buried in terse language near the end of the latest stress-test report, the Fed noted that any firm-specific exploratory results wouldn’t be available until June 2023. And there was no indication that such results would be published for smaller regional banks. Too little, too late.So, what does this have to do with China and the escalating Sino-American conflict? For the past 20 years, a group within the senior ranks of the Chinese leadership has argued that America is in a state of permanent decline, providing an opening for China’s global ascendancy. This view gained support in the aftermath of the US-made global financial crisis, and most assuredly will gain even more support as the SVB crisis hits a new segment of the US financial system.A rising China could hardly ask for more. At a time when the Western financial system is once again suffering from self-inflicted impairment, the imagery of Russian President Vladimir Putin and Chinese President Xi Jinping embracing each other in the Kremlin as “dear friends” pretty much says it all. China apparently views a cold war and the carnage in Ukraine as a small price to pay to strengthen its push for geostrategic hegemony.There is an important footnote to China’s view of a declining America. While Mao alluded to it in broad terms – a US “paper tiger ... in the throes of its deathbed struggle” – this argument was first fully articulated by Wang Huning in his 1991 book America Against America. Based on Wang’s firsthand observations while living in the US, the book was a scathing critique of America’s social, political, and economic decay.Wang is hardly an innocent bystander to China’s new assertiveness. He was the chief ideological adviser to Xi Jinping’s two immediate predecessors, Jiang Zemin and Hu Jintao, and has played a similar role for Xi in the exposition of “Xi Jinping Thought” as China’s new ideological anchor. And Wang, one of only two holdovers who remained on the top seven-man leadership team (the Standing Committee of the Politburo), has also just been named Chairman of the Chinese People’s Political Consultative Conference. The demise of SVB only cements Wang’s stature.In the end, it pays to ponder Chinese etymology. In Mandarin, weiji has the dual meaning of danger and opportunity. From SVB to Wang Huning, that’s precisely the point of the increasingly worrisome interplay between another US-made financial shock and a sharply escalating Sino-American cold war. A rising China is taking dead aim at crisis-prone America. – Project Syndicate* Stephen S Roach, a former chairman of Morgan Stanley Asia, is a faculty member at Yale University and the author, most recently, of Accidental Conflict: America, China, and the Clash of False Narratives (Yale University Press, 2022).

Last year, the Nobel Prize in Economics went to two economists who study the dynamics of bank runs, as well as to former US Federal Reserve Chair Ben Bernanke for his work analysing how central banks have dealt with some of history’s worst banking crises, such as those in the Great Depression of the 1930s. Half a year later, we are witnessing another bank run whose contagious effects could destabilise economies, trigger recessions, and impose high costs on taxpayers.Banks play a double role in the economy, taking short-term deposits and savings and then using those savings to lend money over the long term in the form of mortgages, business loans, and other investments. A run occurs when enough depositors come to fear that a bank may go bust, taking their savings with it. They all run to the bank to withdraw their funds, but because the bank has deployed those funds toward the other services it provides, it becomes insolvent. Having witnessed such runs, US president Franklin Roosevelt’s administration (followed by others around the world) created insurance schemes to alleviate depositors’ fears that they would not get at least some of their money back following a run.But we now have a technological solution that could end bank runs forever. A country’s monetary authority could introduce a central bank digital currency (CBDC) and provide all depositors (taxpayers) with interest-bearing accounts at the central bank. Such a system would eliminate many barriers to financial transactions by making the broader payments system more fluid.This system would not be anything like the Wild West of cryptocurrencies and speculative pyramid schemes that have cropped up in recent years, nor would it be socialised banking. There are already plenty of fintech companies (Revolut, Wise, N26) offering sleek apps and innovative services that enable instantaneous smartphone payments to other users who bank with competing operators. These same financial operators could access CBDC balances held by the central bank and compete for customers by minimising transaction costs.Of course, traditional banks also compete; but they do it worse and at a scandalous cost to customers. If the interbank rate charged by the central bank is 3%, your traditional bank offers you at best 1% on a deposit, taking the other two percentage points as profit. Traditional banks can exert monopoly power because there is no instantaneous clearance for payments. In the United States, it generally takes at least two working days for a money transfer to enter your bank account. And making matters worse, traditional banks’ excessive risk-taking transforms your risk-free deposit into a risky investment when the bank cannot meet your withdrawal request.With an interest-bearing CBDC, a bank run is impossible. As the lender of last resort, the central bank could issue as much money as needed if depositors wanted to withdraw their money simultaneously. And, owing to fluid, instantaneous transfers between users, competition would deliver a 3% return on those deposits. Other than traditional banks, who could possibly oppose this solution?To be sure, traditional banks are crucial for the financial system because they create value by making loans. They monitor whether households that apply for mortgages are solvent, and whether business loans will be used for profitable investments. Because lending is always risky, even the most competitive bank will charge a spread on a loan. The same 3% interbank rate at which the bank can obtain funds today may result in a 5% interest rate for a mortgage, or a 9% rate for a risky investment by a tech startup. Some institution, such as a bank, is needed to evaluate and price these risks.But, because banks can profit by playing with depositors’ money and relying on the government to bail them out, they tend to assume too much risk. That is why academics and regulators have long argued that banks should be subject to higher capital requirements. When they cannot use households’ savings to finance risky investments or rely on government bailouts, their risk-taking will be sharply reduced.A CBDC would bring market discipline to the banking sector. Traditional banks would be forced to focus on picking profitable loans, and they would close most of their network of retail branches. Likewise, the credit-card oligopoly that hijacks our credit-less payment system would melt like snow in the sun. In its place, we would get a fluid payment system operated by a network of competitors offering access to your CBDC account. In today’s economy, households would receive 3% on deposits that are safely shielded from bank runs.A CBDC is not imminent, though. Central bankers are scared to slaughter the cash cow of the traditional banks, under the pretext that doing so will lead to the collapse of the banking sector. The private bank lobby will strongly oppose digital innovation and seek to maintain its dominant position at the cost of the stability of the financial system.Still, we may see CBDCs introduced sooner than anticipated. If one major economy takes the plunge, others will be forced to follow suit or risk seeing their currencies be eclipsed. That is why the Canadian central bank has already signalled its readiness to introduce a CBDC if the US decides to launch its own. If China tries to dominate international transactions with its digital renminbi, other central banks certainly will be prompted to follow suit.Whoever takes the first major step in disrupting the banking sector, it cannot come soon enough. We already have the tools to end bank runs and ensure financial stability. All we need is the will to use them. – Project Syndicate* Jan Eeckhout is Professor of Economics at Universitat Pompeu Fabra and author of The Profit Paradox: How Thriving Firms Threaten the Future of Work (Princeton University Press, 2021).

Banks are divided over how to account for carbon emissions linked to their capital markets business, sources told Reuters, with some riled by a proposal that 100% would be attributed to them rather than to investors who buy the financial instruments.An industry-wide methodology was due to be announced in late 2022, but four sources with direct knowledge of the process said this has been stalled by the row over how much of the carbon emissions associated with a deal should be booked by each bank.Reaching an agreement is seen as a crucial step for the financial industry as pressure grows on it to do more to help with the transition to net-zero, with a study by UN scientists this week urging a rapid phasing out of fossil fuels.Without a methodology in place, investors are being hampered in tracking the carbon footprint of individual banks, which is an increasingly important part of their shareholder remit.Most banks are yet to reflect the emissions associated with the deals they do, which are known as “facilitated emissions”, in their targets, making it hard to track their progress towards pledges to reach net-zero emissions by 2050.At present, many banks’ pledges to reduce emissions refer solely to their financed emissions.But between 2016 and 2021, 57% of the financing provided by Europe’s largest 25 banks to the top 50 companies expanding oil and gas production was through capital markets underwriting, according to ShareAction, a responsible investment NGO.“Facilitated emissions is the way some of the heaviest emitting sectors are financing their operations, and while banks don’t have as much influence as they do over lending, they still have influence,” said Dan Saccardi at Ceres, a non-profit organisation focused on sustainable capital markets.Morgan Stanley, Barclays, Citigroup, Standard Chartered, HSBC and Britain’s NatWest are among the members of a working group discussing the next steps as part of the industry-led Partnership for Carbon Accounting Financials (PCAF).NatWest, supported by climate activist groups, is happy with 100% of facilitated emissions being attributed to the banks behind capital markets deals.The bank says an alternative proposal of 17% derived from the Basel Committee on Banking Supervision’s methodology for assessing Global Systemically Important Banks is problematic.Tonia Plakhotniuk, NatWest Markets’ Vice-President, Climate & ESG Capital Markets, said that 17% risked “a mismatch” because investors would not account for the remainder themselves.It is a “very subjective assessment to measure the role of an underwriter,” she said, adding that “more outreach, research or analysis” was needed to reach an agreement.Those favouring a lower share argue that unlike corporate loans, a bond or equity sale is a single transaction and banks have less leverage to get clients to change their behaviour.“100% is clearly too high. We will have to meet somewhere in the middle but I don’t know where,” an executive at a major bank involved in the talks told Reuters.Evan Bruner, a spokesperson for PCAF, said the group continued “to work toward a final method” but did not have any updates on progress.A few banks have begun using their own methodology.This includes Barclays, which apportions 33% of the capital markets financing to the bank and the rest to investors.Until banks agree on a compromise, experts say lenders could look to book more business as capital markets rather than loans. – Reuters

Two organic compounds essential for living organisms have been found in samples retrieved from the asteroid Ryugu, buttressing the notion that some ingredients crucial for the advent of life arrived on Earth aboard rocks from space billions of years ago.Scientists said on Tuesday they detected uracil and niacin in rocks obtained by the Japanese Space Agency’s Hayabusa2 spacecraft from two sites on Ryugu in 2019. Uracil is one of the chemical building blocks for RNA, a molecule carrying directions for building and operating living organisms. Niacin, also called Vitamin B3 or nicotinic acid, is vital for their metabolism.The Ryugu samples, which looked like dark-gray rubble, were transported 155mn miles (250mn km) back to Earth and returned to our planet’s surface in a sealed capsule that landed in 2020 in Australia’s remote outback for analysis in Japan.Scientists long have pondered about the conditions necessary for life to arise after Earth formed about 4.5bn years ago. The new findings fit well with the hypothesis that bodies like comets, asteroids and meteorites that bombarded early Earth seeded the young planet with compounds that helped pave the way for the first microbes.Scientists previously detected key organic molecules in carbon-rich meteorites found on Earth. But there was the question of whether these space rocks had been contaminated by exposure to the Earth’s environment after landing.“Our key finding is that uracil and niacin, both of which are of biological significance, are indeed present in extra-terrestrial environments and they may have been provided to the early Earth as a component of asteroids and meteorites. We suspect they had a role in prebiotic evolution on Earth and possibly for the emergence of first life,” said astrochemist Yasuhiro Oba of Hokkaido University in Japan, lead author of the research published in the journal Nature Communications.“These molecules on Ryugu were recovered in a pristine extra-terrestrial setting,” Oba said. “It was directly sampled on the asteroid Ryugu and returned to Earth, and finally to laboratories without any contact with terrestrial contaminants.”RNA, short for ribonucleic acid, would not be possible without uracil. RNA, a molecule present in all living cells, is vital in coding, regulation and activity of genes. RNA has structural similarities to DNA, a molecule that carries an organism’s genetic blueprint.Niacin is important in underpinning metabolism and can help produce the “energy” that powers living organisms.The researchers extracted uracil, niacin and some other organic compounds in the Ryugu samples by soaking the material in hot water and then performing analyses called liquid chromatography and high-resolution mass spectrometry.Organic astrochemist and study co-author Yoshinori Takano of the Japan Agency for Marine-Earth Science and Technology (JAMSTEC) said he is now looking forward to the results of analyses on samples being returned to Earth in September from another asteroid. The US space agency Nasa during its OSIRIS-REx mission collected samples in 2020 from the asteroid Bennu.Oba said uracil and niacin were found at both landing sites on Ryugu, which is about a half-mile (900m) in diameter and is classified as a near-Earth asteroid. The concentrations of the compounds were higher at one of the sites than the other.The sample from the site with the lower concentrations was derived from surface material more susceptible to degradation induced by energetic particles darting through space, Oba said. The sample from the other site was mainly derived from subsurface material more protected from degradation, Oba added.Asteroids are rocky primordial bodies that formed in the early solar system. The researchers suggest that the organic compounds found on Ryugu may have been formed with the help of chemical reactions caused by starlight in icy materials residing in interstellar space.

When a bank fails, attention inevitably turns to its regulators. Who was asleep at the wheel? Who failed to spot the warning signs? The failure of Silicon Valley Bank (SVB) is no exception.In the United States, these questions are often directed at many different agencies, since the system is complex and hard for outsiders to understand. So, the conclusion is often an inverted form of John F Kennedy’s famous observation after the Bay of Pigs fiasco, to the effect that “success has many fathers, but failure is an orphan.” American bank failures often have several fathers – all disclaiming paternity.Congress will get its teeth into the SVB collapse before too long, and we will learn more. In the meantime, a few facts are clear. SVB was exempted by the Trump-era Regulatory Relief Act from enhanced supervision. This means that it did not have to submit to stress tests, for example, which should have exposed its vulnerability to a sharp rise in interest rates. The United Kingdom’s stress test includes a five-point rise in interest rates, which would have revealed – and perhaps prevented – SVB’s maturity mismatch. Moreover, a five-year exemption from the Volcker rule, which prohibits proprietary trading by banks, allowed SVB to invest in venture capital funds. As its website proudly proclaimed: “There are many ways to describe us. Bank is just one.”SVB’s main regulators were the US Federal Reserve Board, acting through the Federal Reserve Bank of San Francisco, the Federal Deposit Insurance Corporation (FDIC), and, as a state-chartered bank, the California Department of Financial Protection and Innovation, whose name hints at a problematic mix of oversight and promotion. The department’s commissioner is a lawyer with a background in sports organisations.We know two other possibly relevant facts. When SVB acquired Boston Private Bank in June 2021, the Fed predicted that the merged entity “would not pose significant risks to the financial system in the event of financial distress.” Clearly something had changed since then. And the San Francisco Fed had good insight into SVB’s affairs, since SVB’s CEO was on its board until the bank failed.Of course, it would be simplistic to claim a causal link between the oddities of the US regulatory system and the problems of any individual bank. But it is instructive to look at what the main actors in the last financial meltdown thought about the regulatory structure through which they were obliged to work.In his memoir Stress Test: Reflections on Financial Crises, Timothy Geithner, who was President of the New York Fed and later US Treasury Secretary, noted that “our current oversight regime, with its competing fiefdoms and perverse incentives encouraging firms to shop around for friendly regulation, was an archaic mess.”In his own reflections on that turbulent period, Hank Paulson, Geithner’s predecessor as Treasury Secretary, argued that the US needed “a better framework that featured less duplication and that restricted the ability of financial firms to pick and choose their own, generally less strict, regulators in a practice known as regulatory arbitrage.” Here was a rare example of bipartisan agreement.The Dodd-Frank financial reforms, enacted in the wake of the 2008 crisis, did very little to address these structural problems. The Office of Thrift Supervision was merged into the Office of the Comptroller of the Currency, and a new Consumer Financial Protection Bureau was created – adding a further acronym to the alphabet soup. But the rest of the system so disliked by Geithner and Paulson was left intact.Former Fed Chair Paul Volcker continued the fight for simplification until his death at the end of 2019. In 2015, the non-profit Volcker Alliance published a searing indictment of the system and drew up an outline of a more coherent structure.The key elements were straightforward. The Fed would have beefed-up overarching responsibility for financial stability, and the Financial Stability Oversight Council, which has rapidly rotating membership from all the assorted bodies involved in financial regulation across the country, would be cut back sharply and put under the Fed’s control. And the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) would be merged in that restructuring. (The US is the only country where cash securities and their derivatives are regulated by different entities.)The Volcker Alliance also recommended establishing a new Prudential Supervisory Authority, an independent agency which would incorporate all the prudential functions now carried out by the Fed, the Office of the Comptroller of the Currency, the FDIC, and the SEC and CFTC, which currently oversee broker dealers and indeed money market funds. The result would be “a simpler, clearer, more adaptive, and more resilient regime that would have a mandate to deal with the financial system as it exists now and would be capable of keeping pace with the evolving financial landscape.”Sadly, Volcker is no longer with us and able to push for reform. But, wherever he is, he may be allowing himself a sad smile about recent events. They amount to further proof that the US system is dysfunctional. The US authorities currently are fire-fighting, and we must all hope they succeed. But, when the short-term crisis is over, they might dust off Volcker’s report. Its analysis reads well today and the recommendations are clear and workable, as one would expect from someone who oversaw the current regulatory thicket for a dozen years. The system still doesn’t work well, and it needs to be fixed before it reveals its shortcomings again. — Project SyndicateHoward Davies, a former deputy governor of the Bank of England, is Chairman of NatWest Group.

The speed at which depositors fled Silicon Valley Bank this month — withdrawing $42bn in 24 hours — has left authorities confronting a new risk: the social media-driven bank run.Gone are the days when lines of people outside banks served as the defining image of a lender on the brink. In today’s turbocharged digital age, customers can withdraw cash through a few taps on their phone.Reports on social media during the week of March 6 that some venture capital firms, including influential investor Peter Thiel’s Founders Fund, were advising companies to pull cash from tech-focused SVB snowballed into a stock rout and sent customers scrambling for the exit. Authorities shut SVB on March 10.Switzerland’s Credit Suisse, which on Sunday had to be rescued by archrival UBS in a government-engineered takeover following a collapse in investor confidence, knows only too well the dangers of social media. Last year it breached liquidity requirements at some of its entities after an unsubstantiated social media report sparked client exits.“The fact that people can communicate so much more quickly ... (has) changed the dynamic of bank runs and perhaps changed the way we have to think about liquidity risk management,” said Todd Baker, a senior fellow at Columbia University’s Richmond Center.Billionaire hedge fund manager William Ackman warned a few days after SVB’s collapse that “no bank is safe from a run” in a world with online bank accounts and social media unless the government gives depositors an explicit guarantee of “complete access” to all of their cash.Regulators know they are battling against the potential for bank runs to unfold faster than ever, although how they can specifically address the risk of Twitter-fuelled panic is unclear.In the US, the decision to insure all bank deposits after SVB was shuttered surprised many. Experts said it showed authorities were sufficiently concerned about depositors withdrawing cash from other lenders.“It’s possible that the issue is that deposits have never moved so fast and that is what formed the basis of this decision — the outflows at SVB were without equivalent,” said Nicolas Veron, senior fellow at the Peterson Institute for International Economics in Washington.Some in the banking industry play down the risks of another SVB-style downfall.They point to SVB’s unique vulnerability to a social media-driven bank run, given its highly concentrated customer base of technology and venture capital entrepreneurs who mingled in the same circles.“This was a centre of influence, and that was concentrated in this ecosystem, unlike it is in other areas,” said Randell Leach, chief executive officer of California-based Beneficial State Bank.Still, some depositors across the globe are taking no chances even when they believe their bank is fundamentally sound.One biotech investor in Germany who banked with Credit Suisse and spoke before Sunday’s rescue deal said he had shifted his personal deposits to another institution even though he thought Credit Suisse was a “good bank.” SVB had shown how quickly deposits can disappear, the investor said.Dan Awrey, a law professor at Cornell University, blamed the fallout from SVB on an “absence of a communications strategy.”Between the Friday morning SVB collapsed and the end of the weekend regulators should have explained the bank had a unique business model and other lenders were not as risky, he said.Failure to do this caused depositors elsewhere to worry their funds were in danger, exacerbating stress in the system, Awrey said.“All of that was just lacking between Friday morning and Sunday in a way that allowed the Twittersphere to really take hold of the information dynamic and the narrative,” he added.Other US regional banks have since come under pressure, with First Rebublic Bank’s share price diving 47% on Monday on concerns about its liquidity.The SVB saga and nonstop social media speculation could eventually lead to banks providing round-the-clock service, including on weekends, said Jez Mohideen, CEO of Laser Digital, the cryptocurrency arm of Japanese bank Nomura.Regulators will also need to monitor social media and develop a set of protocols to guide how they respond, according to Patricia McCoy, a law professor at Boston College.“They need to be looking for any signs of unsubstantiated rumours, panic starting to mount on social media, and they’ve got to do it around the clock,” she said. — Reuters

When a market liquidity and/or funding liquidity crisis occurs at a moment when inflation is above-target, tension between the objectives of central banks – price stability and financial stability – is inevitable. In such cases, I believe that financial stability must come first, because it is a precondition for the effective pursuit of price stability.But this does not mean that the central bank should cease or suspend its anti-inflationary policies when threatened with a banking crisis or similar systemic stability risk. The conflict between the objectives of price stability and financial stability should be manageable by using the central bank’s policy rate to target inflation, and by using the size and composition of its balance sheet as a macro prudential policy tool to target financial stability. Credible communication is essential to achieve both objectives.Financial stability in a large advanced economy is not materially impacted by a 50-basis-point increase in the risk-free short nominal rate of interest. It is impacted by the interrelated liquidity and credit risk premia and the vanishing would-be purchasers and lenders in illiquid financial markets – when credit rationing rules the roost. The Bank of England (BoE) got this right last year when, during a period of monetary-policy tightening brought on by then-prime minister Liz Truss’s incoherent policies, it engaged in temporary purchases of long-dated UK government bonds and postponed quantitative tightening through Asset Purchase Facility gilt sales.The asset purchases, which lasted from September 28 until October 14, were needed to counter material dysfunctionality in the longer-dated gilt markets. At its first Monetary Policy Committee meeting following the purchases, on November 3, the BoE signalled its continued commitment to the inflation target by raising the policy rate by 75 bps, from 2.25% to 3%. Two further 50 bps rate hikes followed on December 15 and February 2. The prudential nature of its temporary asset purchases would have been even clearer if they had been sterilised.The European Central Bank (ECB) also got it right this month when it raised its policy rates by 50 bps, despite the financial kerfuffle that had blown over from the United States following the insolvency of Silicon Valley Bank (SVB). Headline HICP (Harmonised Index of Consumer Prices) inflation in February was 8.5%, with the core HICP inflation rate (which strips out volatile energy and food prices) at 5.6%. The ECB addressed the financial-stability concerns by stating that its “policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.” Moreover, “the Transmission Protection Instrument is available to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across all euro area countries.”What will the Federal Reserve do at its upcoming meeting? I believe that the financial stability concerns following the demise of SVB and Signature Bank were addressed effectively by ensuring that all deposits in these two badly managed institutions would be made whole. De facto, this means that all deposits in US banks are henceforth insured. This no doubt contributes to moral hazard, because incompetent or reckless bank management will not be punished through a loss of informed depositors. But it is the unavoidable price of ruling out the systemic threat posed by bank runs. Moral hazard was contained by letting the banks go bust and exposing the shareholders and unsecured creditors (and presumably even secured creditors if the losses are large enough) to whatever the banks’ mismanagement cost.But this prudential response was not optimal, because the new Bank Term Funding Program created by the Fed, which offers one-year loans to banks with the collateral valued at par, should have been made available only on penalty terms. With market value well below par for many eligible debt instruments, the lender of last resort has become the lender of first resort – offering materially subsidised loans. The same anomaly (valuing collateral at par) now applies to loans at the discount window.At the end of 2022, US banks had about $620bn of unrealised losses on securities they planned to hold to maturity. Raising the policy rate will most likely further depress the market value of long-duration securities. So be it. We don’t know how much of this duration risk was hedged by the banks (and who the counterparties to such hedging are). But we do know that bank losses (in orderly markets) due to mistaken investment decisions are part of the healthy Darwinian mechanism that sustains a market economy, as is the orderly resolution of bankrupt institutions. The central bank must be ready, as lender of last resort and market maker of last resort, to discharge its financial-stability responsibilities should illiquidity, bank runs, or other market failures pose a systemic threat.With core personal-consumption-expenditures inflation still at 4.7% in January, the Fed should raise its policy rate target zone by 50 bps at its upcoming meeting. But I fear it may stop at 25 bps, owing to an erroneous concern about the financial stability implications of a larger rate hike. Financial stability in the US is best served in the short run by the Fed standing ready to intervene as lender and market maker of last resort. In the medium and long run, the original Dodd-Frank regulations, repealed for small and medium-sized banks in 2018, should be reimposed, and perhaps limits on banks’ proprietary investment activities should be restored – or maybe fractional reserve banking should be abandoned altogether. More assertive and competent supervision wouldn’t hurt, either. — Project SyndicateWillem H Buiter, a former chief economist at Citibank and former member of the Monetary Policy Committee of the Bank of England, is an independent economic adviser.

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The world is becoming accustomed to the drip-drip of catastrophic headlines following each new climate-driven disaster. Increasingly frequent and severe heatwaves are causing wildfires in California and widespread coral die-offs in Australia. Unprecedented floods have wreaked havoc in Pakistan, Germany, China, and New Zealand. Drought in the Horn of Africa is causing famine for millions. And this list could go on.The common element underlying all these cataclysms is water. From the forced shutdown of nuclear reactors in France to the heavy snowfall that covered large swaths of North America in December, or the recent cholera outbreak in Lebanon, we are witnessing the symptoms of a mounting global water crisis – either too much, too little, or too dirty.Yet water remains mostly absent from global discussions. While concerns about the geopolitical order, climate change, and the Covid-19 pandemic have understandably been in the spotlight, water is rarely discussed outside the context of humanitarian responses to local, national, or transboundary floods or droughts. This is a major blind spot: In the World Economic Forum’s 2023 Global Risks Report, nine of the ten biggest risks for the next decade have a water-related component.For at least the last 5,000 years, human communities and civilisations have deliberately regulated water in order to survive. Even today, many people see water as a gift from God – or, in more secular terms, as a key part of a universal cycle that demands our respect and appreciation. However, in most places where water is “controlled” through dams and pipes, and made safe and available around the clock, we have come to take it for granted. And when concerns about access to safe water or exposure to extreme weather events are raised, they are generally ignored or treated as a low priority.This apathy is no longer tenable. The injustices associated with water-driven disasters are growing, and the global water cycle itself is changing. Human freshwater use has exceeded blue-water capacity (rivers, lakes, and aquifers), creating huge risks for everyone and the planet’s ecosystems. Around 20% of global water consumption for irrigation now comes from overuse of groundwater sources, and about 10% of the world’s food trade comes from non-renewable groundwater.Climate change is amplifying these challenges. Global warming increases demand for water as temperatures rise and as water requirements for food increase with the decline in relative air humidity. By 2070, two-thirds of the world’s land mass will experience a reduction in terrestrial water storage, and the land area subject to extreme hydrological droughts could more than double to 8%. Southwestern South America, Mediterranean Europe, and North Africa are all projected to suffer unprecedented and extreme drought conditions by 2050.The UN 2023 Water Conference in March – the first such gathering in almost a half-century – must mark a turning point in our relationship with water and the water cycle. Only by fundamentally re-examining our relationship with water, revaluing its many uses, and treating it as a local and global common good can we achieve a safe and just future.As the lead experts at the Global Commission on the Economics of Water, we see three areas that require transformation. First, we must consider the entire water cycle and how it is connected with biodiversity, the climate, human well-being, and ecosystem health – all key factors in socioeconomic and ecological prosperity. That means “connecting the dots” and promoting resilient relationships between water and food, water and energy, and water and the environment.Second, water and the water cycle must be governed as global common goods. The ongoing proliferation of water crises calls for a new economic framework based on a systems approach to the water cycle, societies, and economies. We must develop a better understanding of existing “lock-ins” (including property rights, bilateral treaties, and corruption) and other structural challenges that impede water reallocation for the common good.Moreover, an inclusive interdisciplinary framework – with a portfolio of new instruments and metrics – is needed to manage the systemic risks associated with the water cycle and its alteration by humans. Creating such a framework must begin by acknowledging water’s central role in driving economic, sociocultural, and environmental change.Lastly, we must bring everyone into the decision-making process – starting with marginalised communities – to develop new strategies for properly valuing water. When nature and freshwater are not valued in the marketplace, we still pay a price for their misuse, which increases dramatically when we cross planetary boundaries.The UN 2023 Water Conference offers a unique opportunity for the world to respond effectively to a critically important but neglected issue. Confronted with the world water crisis, we can either embark on a sustainable and just pathway or carry on with business as usual. The survival of human civilisation as we know it demands that we make the right choice. — Project Syndicate*l Quentin Grafton is Professor of Economics at the Crawford School of Public Policy at Australian National University.*l Joyeeta Gupta is a member of the Faculty of Social and Behavioural Sciences at the University of Amsterdam.l Aromar Revi is Director of the Indian Institute for Human Settlements.5bn people will face water shortage by 2050According to the first of a series of United Nations reports on the impact of climate change on water resources released last year, around two-thirds of the global population, or five billion people, will encounter water shortages for at least a month by 2050.The World Meteorological Organisation report assessed river flows, floods, and droughts on all continents. The findings are a mixed bag, but the report warns that water security will become increasingly uneven worldwide.The Great Lakes region of the United States is in better shape, while Brazil’s Rio São Francisco basin faces a challenging future. Climate change’s impacts are frequently experienced through water, including more extreme and frequent droughts, erratic seasonal rainfall, and more severe flooding, with cascading consequences for economies, ecosystems, and everyday lives.WMO Secretary-General Petteri Taalas said that there is inadequate knowledge about the distribution, quantity, and quality of freshwater resources, and the 36-page report aims to fill that gap and provide a succinct overview of water availability worldwide