Countries around the world have facing economic headwinds over the past two years at least as strong as during the GFC, if not stronger.
Central banks and governments around the world have rolled out stimulus packages and cut interest rates in response to the impact of the ongoing Covid-19 pandemic. As of June 2020, the global government’s stimulus response to the pandemic exceeded $10 trillion, three times more than the response to the 2008-09 financial crisis.
Most of the world’s central banks also quickly lowered short-term policy rates to lower interest rates and immediately boost cash flow.
Big data analytics and transaction automation have been crucial in helping to make these critical decisions quickly and efficiently, and the past few years provide an important lesson in the importance for governments and central banks to embrace these technologies at the future.
Refinitiv is one of the world’s largest providers of financial market data and infrastructure and a subsidiary of the London Stock Exchange Group.
Refinitiv’s global head of central banks and financial communities, Nuno Neto, said recent market volatility has demonstrated the need for regulators to capitalize on the opportunities of big data analytics and automation.
“No one knew what to expect in the face of the pandemic, and trading volumes have reached new heights. How do you process this information? Do regulators have access to information as a whole? It’s what Refinitiv can provide,” said Neto.
“Once they get that information, it’s about how you store it and analyze it. This is a key element of our intervention. With the right level of financial data and analysis, they can quickly see what is happening in the market and determine what they need to do with monetary policy to intervene.
Central banks have previously been slow to adapt to new technologies, Neto said, with many relying until recently on email, Excel and offline systems. “It’s a significant operational risk, because the time to market becomes quite significant,” he said.
“The public has understood the importance of central banks and how quickly they need to inject liquidity. They must have the tools to do this in a very effective and targeted way. If you have to wait a few days to do it, the situation will get worse each time.
Markets that have moved from manual processes to fully electronic systems have seen the usual two-day auction process reduced to two hours.
“They can schedule everything in advance, the auction starts automatically, the banks get all the information and there is connectivity to back-office systems,” Neto said.
Embracing big data and automation can also help markets be more transparent and open, he said.
“There are a lot of things that sometimes prevent central banks from being more effective. There is a lack of price discovery, a lack of transparency – when markets are opaque there is always room for manipulation or collusion. Having the right technology in place makes that very difficult,” he said.
“It can provide 360-degree connectivity between all stakeholders and reporting market participants with the level of granularity and timelessness they need to make liquidity and market management decisions.”
Central banks have a wide range of critical responsibilities, including monetary and financial stability, market surveillance, and economic stability, and the use of big data analytics and automation can be important in all of these roles.
Many developing countries are also beginning to adopt these technologies, with great success.
Bank Indonesia has introduced Refinitiv Matching, a central limit order book system, to help complete conversational trades and increase market liquidity, efficiency and transparency.
The bank also obtained in-depth trading data using Refinitiv Market Tracker, which enabled it to easily visualize the markets under its jurisdiction and calculate its trade benchmarks.
“With everything going on, it’s so dynamic and central banks and regulators now need to have real-time access to data and leverage technology in ways that they have more impact and try to improve the global financial markets ecosystem. Technology and data go hand in hand,” said Neto.
“One of the few upsides of the pandemic has been the rapid shift to digital. Everyone has had to adapt and rely on technology significantly to ensure they can always be up and running. There had a significant increase in those stakeholders who tend to be slower in terms of adoption.
But simply collecting huge amounts of data is not enough. The real issue is the quality of this data and how it is analyzed to produce more stable markets.
“It’s a question of quality versus quantity, and how to process information in a timely manner to enable key stakeholders to make informed decisions. The challenge is how to get access to reliable data, with the level of granularity, timelessness and precision that it needs,” he said. “Data is becoming extremely relevant to regulators.”
Refinitiv plays a key role in working with central banks and regulators to better understand market needs and provide them with best-in-class integrated data and solutions across every part of the financial ecosystem.
This story was produced as part of a business partnership between InnovationAus.com and Refinitiv.
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