Global Economic Observer (Jun 2019)
Challenges for the Global Financial System
Abstract
According to the governor of the Bank of England, Mark Carney, the global financial system is currently lagging behind the evolution of the global economy, facing asymmetric concentrations of financial assets in advanced economies relative to economic activity. As the world re-orders, this disconnect between the real and financial is likely to reduce, and in the process other reserve currencies may emerge. By 2030, seven of the world’s top 10 economies will be current emerging markets, according to the latest report by Londonbased multinational banking and financial service company Standard Chartered. On the other hand, global tensions caused by economic sanctions and trade conflicts triggered by Washington have forced targeted countries to take a fresh look at alternative payment systems currently dominated by the US dollar. The global importance of the Chinese yuan seems destined to rise, according to strategists and economists who say flows in the currency will grow over the long term if Beijing continues to gradually open its financial system. The yuan will be increasingly driven by capital account flows, and not just trade-related flows. Looking for a proper anchor of value for the international monetary system is becoming also an issue of a paramount importance. Gold is seen by an increasing number of players as a natural anchor of value and some are already preparing themselves to that by increasing their gold reserves. Holding physical gold is definitely the best hedge against a crash of any paper currency but nevertheless, we need a trustful worldwide monetary and financial system.
