Question

With reference to the role of the financial system in economic development, especially in the current Covid-19 pandemic circumstances, discuss your understanding of the following: 6.1. The role that a typical central bank such as the South African Reserve Bank will play and the steps it has taken in terms of helping to lighten the financial debt burden of, for example, repayments on development loans and to help stimulate and secure ongoing economic development.

Answer 1

The Covid-19 pandemic has disrupted the global economy. During a pandemic like Covid-19, it is important to harness all possible means, especially through fiscal and monetary measures, to reduce the economic impact of the crisis like situation. The current global situation is for sure may lead to a recession. However, there are a number of measures that government as well as a central bank can take up in order to reduce the financial burden and there by secure ongoing economic development. Some of them are as follows:

1. Reducing interest rates paid by central banks
2. Buying more government bonds, which creates more liquidity in the economy.
3. Economic stimulus packages and quantitative easing.
4. Encouraging financial institutions to lend more, especially to the adversely affected firms
5. Lending freely to banks, other financial institutions and even non-financial institutions with sufficient collateral
6. Push commercial banks to extend credit to firms and households, where cash-flow has disrupted due to the pandemic
7. Increasing the limit for investing in FPIs and FDIs
8. Short-term moratorium on loan repayments
9. Relaxing norms regarding default debt
10. Credit support to importers and exporters.

The pandemic however is forcing the economists, central banks and the government alike on how to handle the situation in the best possible manner, with new and innovative measures and hence be able to reduce its impact on the economy and its people.