Op Ed

This Op-Ed by Maria Ramos and Achim Steiner was originally published by Project Syndicate

Digitalization provides a historic opportunity to reset private and public finance in order to help achieve the United Nations Sustainable Development Goals. And the COVID-19 crisis is the ideal moment to seize it.

JOHANNESBURG/NEW YORK – Today’s unprecedented COVID-19 crisis has prompted billions of people to work, socialize, and consume digitally. This shift creates a historic opportunity to unlock the potential of digitalization to finance more inclusive, sustainable development.

Digitalization is transforming every aspect of finance. More than one billion people worldwide now use mobile payment platforms, which have turned mobile phones into financial tools. Digital finance is leveraging big data and artificial intelligence to underpin advances in cryptocurrencies and crypto-assets, peer-to-peer lending, crowdfunding, and online marketplaces. Algorithms are silencing noisy stock-exchange floors, with many equity trades in the United States now executed in the absence of any human input

Investment in financial technology (fintech) is powering this transformation. In 2018, fintech attracted a record $120 billion in venture-capital funding, or one-third of the global total. And financial investors are pouring tens of billions more dollars annually into enabling digital technology.

The pandemic has provided a major boost to these developments. Digital money transfers are enabling governments to provide immediate financial support to citizens. Crowdfunding platforms have mobilized resources for medical supplies and emergency relief. Algorithmic lending is accelerating life-saving funding for small businesses. Similarly, e-commerce platforms are enabling people to buy now and consume later in order to support local businesses and protect employment.

But such inspiring examples barely scratch the surface of what is both urgently needed and possible. The world is awash with literally trillions of dollars. This is ultimately the people’s money, earned and borrowed and then spent, saved, invested, and handed to governments to use on their behalf. Too often, however, these funds do not flow to what people need and want. Inequality was already increasing before the crisis and is now accelerating. Moreover, the financial sector is not effectively channeling money and savings to address longer-term development challenges such as climate change and biodiversity destruction.

Digitally driven transformation can better align finance with people’s needs, as reflected in the Sustainable Development Goals (SDGs). In November 2018, United Nations Secretary-General António Guterres established a task force comprising leaders from the financial, policy, and development communities to identify ways of harnessing digitalization to finance the SDGs. The panel (which we co-chaired) has now completed its deliberations and presented its final report to the secretary-general, having engaged with thousands of individuals and institutions across dozens of countries.

The task force’s core conclusion is that the power of digital transformation provides an extraordinary opportunity to reset private and public finance in ways that can help to achieve the SDGs. Its call to action seeks to engage market participants and policymakers, including central banks and development-finance institutions, in implementing the task force’s agenda of practical recommendations.

This agenda identifies five systemic opportunities for digital technologies to improve the social and environmental impact of financial flows, and recommends ways to advance each of them.

For starters, digitalization can play a critical role in ensuring that global capital markets, which currently have a value of about $185 trillion, take greater account of social and environmental risks and outcomes. Second, big data and algorithmic analytics can accelerate the provision of the $5.2 trillion in annual financing required by developing countries’ small and medium-size businesses, which are the source of much of the world’s employment.

Third, new digital pathways, from mobile devices to blockchain-enabled oversight of infrastructure investment, can enable citizens to channel more of their annual savings, which have tripled in the last two decades to over $23 trillion globally, into investments in clean energy, transport, and health care. Furthermore, governments in developing countries, which collectively spend almost 20% of global GDP on behalf of their citizens, could save an estimated $220-320 billion annually by digitalizing payments. Finally, rapidly growing online consumer spending supports greater data-driven messaging to encourage alignment with environmental and other societal goals.

Our proposed agenda recommends steps to tackle many of these problems. At the national level, governments need to invest in digital infrastructure, expand access, protect citizens and their data, and align evolving digital-finance ecosystems with broader sustainable-development planning. In addition, governments need to cooperate internationally to ensure that global governance of fintech is both more inclusive and responsive to broader development imperatives.

The task force’s ambitious and practical recommendations have come at just the right time. By enabling digital finance to flourish, the world can both meet the challenges and opportunities arising from the current crisis and address longer-term development needs.