Aligning Central Bank Refinancing Operations with the G20 Agenda

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Since the Pittsburgh Summit in 2009, G20 leaders have repeatedly highlighted inclusive growth and environmental protection as core objectives in their joint declarations. With the widening of economic inequalities and the acceleration of climate change and biodiversity loss, their calls for action have gained further urgency. In this context, G20 leaders have repeatedly pledged to use all available policy levers to target their objectives. Central banks should not be carved out from this imperative.

Targeted refinancing operations (TROs) are a key instrument that central banks can and should use to support the objective of inclusive and sustainable growth and environmental protection post-COVID-19. TROs provide central bank loans to banks at favorable conditions to fund their lending to specific segments of the economy. This policy brief calls for a wider use of TROs by G20 central banks and their alignment with the broader G20 agenda. We argue that central banks must adjust existing TROs accordingly and deploy new TROs when appropriate. To be effective in this endeavor, central banks must implement TROs that provide tangible financial incentives, account for interdependencies with other monetary instruments and rely on transparent rules.