Author : The BlackSummit Team
Date : March 24, 2022
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Introduction: For this week’s set of Day After summaries, we expand our lens out of Ukraine and into the surrounding area, both spatial and temporal. To begin, we analyze a mounting food crisis exacerbated by the crisis before moving into a discussion of central bank digital currencies. From there, we examine how global economic growth is expected to slow due to the crisis, before concluding with a look at what the EU can do to insulate itself from the worst effects of the crisis.
Ukraine war sparks food shortages in Arab nations as wheat prices soar
Heba Saleh and Emiko Terazono, Financial Times
War in Ukraine sparks concerns over worldwide food shortages
Cyrielle Cabot, France24
Over the last few weeks, fears of a global food crisis have heightened. The United Nations is warning of a “hunger hurricane and a meltdown of the global food system” as several countries, particularly in Northern Africa, begin to report on the disastrous effects the war in Ukraine has had on food supplies and prices. As the Russian invasion of Ukraine continues, crop producers in Ukraine and Russia have been cut off from the rest of the world. Nothing is leaving Ukrainian ports and it is impossible to know how much Ukrainian farmers will be able to produce and harvest in the next few months. Russia’s shipping industry has been thrown into disarray as Western sanctions crack down. Wheat prices have spiked and have remained elevated, pushing up overall food prices in countries where Ukraine is the leading supplier, including in Tunisia, Libya, Syria, Egypt (the world’s largest importer of wheat), and Lebanon. In response, the governments of these countries are attempting to procure more food supplies from other producers in Europe, but this has so far been very difficult, forcing them to take other drastic steps like rationing and imposing export bans on food staples. The Ukraine crisis is also undermining food security in Indonesia (the world’s second largest buyer of Ukrainian wheat), Pakistan, Turkey, and several countries in Central Asia and sub-Saharan Africa. The war in Ukraine has compounded the already devastating effects the Covid-19 pandemic has had on inflation and food security. As the pressure mounts on food supplies and prices, the possibility of public unrest also heightens. While on a military level the conflict in Ukraine has been contained, it is obvious that food security has been dangerously threatened in several areas of the world thanks to Russia’s aggression. As long as Russia continues its invasion of Ukraine, things will get worse.
How Biden’s executive order on cryptocurrency may impact the fate of digital currency and assets
Aaron Klien, Brookings
What a U.S. Digital Dollar Means for the Future of Your Wallet
Misyrlena Egkolfopoulou and Claire Ballentine, Bloomberg
As digital assets such as Bitcoin and NFTs have entered the investing space, the US’s central bank has begun to weigh the implications of a central bank digital currency (CBDC). The Federal Reserve has already released two reports on CBDC but has been hesitant to push development further due to concerns over authorization. A recent executive order from the Biden administration emphasizes the need for digital currency in order to prevent illicit finance (for instance, avoiding sanctions). That order comes as some other countries (most notably China) have begun experimenting with CBDCs of their own. With so much of global finance tied to the strength of the dollar, it is little wonder that the Fed wants to ensure its currency remains competitive. Still, the amount of transparency and access required by a CBDC have made it a difficult issue for many Americans. If America is to pave the way forward for digital currencies, it must take care to ensure its CBDC accomplishes all its goals.
Chris Giles and Martin Arnold, Financial Times
As we saw with the pandemic, some of the most dangerous fallout of the Russia-Ukraine crisis does not come from the crisis itself, but rather from underlying trends whose workings have now been exposed to the light. Inflation across several commodities has further damaged the supply chain, raising prices all along the line. Between inflation, a resurgent wave of Covid-19 in China and Europe, and a general uncertainty as to the outcome of the Russia-Ukraine war, most analysts agree that economic growth is likely to slow down this year, especially in Europe due to its higher dependence on Russian energy. If Europe decides to cut off its Eastern supplier completely, it could quickly enter a recession. America, on the other hand, faces a different problem – one of red-hot growth threatening a wave of ultra-high inflation. While fiscal tools could go a long way to offset GDP losses on both sides of the Atlantic, it is difficult to say if many of the measures being implemented will have a net positive effect, and if so what that effect will be. In any case, the war in Ukraine has demonstrated the fragility of the global trade system in the face of a bad actor.
Jean Pisani-Ferry, PIIE
The war in Ukraine has already dramatically shifted the European Union’s (EU) priorities, and it will shape its policies for years to come. So far, the EU has reacted swiftly to the crisis and has responded with a somewhat surprising amount of unity as energy supplies are severely disrupted and refugees pour in from Ukraine. While the primary, near-term risk to the European economy lies in the supply shocks triggered by rising energy prices, there are several other factors that will affect budgetary priorities and macroeconomic policies. In this article, Jean Pisani-Ferry outlines several recommendations for the EU and what he believes should be done to tackle this multifaceted security crisis:
Pisani-Ferry estimates that the corresponding direct budgetary cost for the EU and its members could come out to be $175 billion, which is about 1.25% of the EU’s GDP in 2022. Prior to Russia’s invasion of Ukraine, decarbonization, digitalization, and resilience investments dominated the medium-term agenda. Now, at the top of this agenda is economic and defense security