The Financial Equivalent of a Vaccine

PRINCETON – COVID-19 is dramatically widening a global divide that was evident long before the current crisis. Only some countries have been able to cover the costs of the pandemic and lockdowns with large fiscal measures, owing to support from central banks that are buying up large quantities of government debt. Most other countries are facing rising borrowing costs and thus cannot afford a robust fiscal response. Indeed, current borrowing terms have split the world into financial haves and have-nots – or, rather, cans and cannots. If this division persists, it may derail globalization entirely.

Rich countries can expect a long period of exceptionally low interest rates, even though government debt has soared at a pace unrivaled in peacetime. Increasingly, central-bank money is being considered not so much a liability as a variety of equity constituting citizens’ stakes in a given national endeavor. Such an approach would generate a new vision of what citizenship itself entails, and of how money can hold a community together.

But that option is unavailable to the have-nots. For example, when Turkey tried to respond to COVID-19 with a flood of cheap credit, its currency collapsed, forcing it to reverse course by hiking interest rates. After trying to make access to cheap credit central to his political doctrine, President Recep Tayyip Erdoğan has had to backtrack in order to restore credibility.