Financial repression is not new topic, but the striking amount of new debt taken on by governments to support their economies in the wake of the COVID-19 crisis has made the issue ever more relevant. Financial repression occurs when governments channel funds to themselves that in a deregulated market environment would go elsewhere. It usually aims to provide cheaper loans to companies and governments, reducing their burden of repayments by lowering returns to savers. Policies involved can include capital controls, caps, and preferential tax treatment.

One form of financial repression is accessing funds from ‘captive audiences’ such as pension funds, banks, and insurance companies-which are compelled in some fashion to channel funds toward government at low interest rates. The topic is included in the latest World Bank Macro Financial Review, and a new World Bank report does a deep dive into pension issues specifically.

The tools for implementing financial repression today are somewhat different from decades ago. (Figure 1) In an era of cross-border capital mobility, interest rate caps and large-scale capital controls are expected to be less effective. Policy makers today may be more inclined to enroll pension funds-as well as insurance companies and banks-as captive audiences in lieu of more traditional repression methods.

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