Apprehension over global economy amid market tranquility
In a world grappling with economic and political turbulence, a gathering of 32 participants from six continents recently convened to discuss the current state of global affairs. The meeting, chaired by Lord Norman Lamont, was held under a prevailing atmosphere of cautionary gloom punctuated by intermittent shafts of optimism.
One of the key topics of discussion was the impact of large-scale economic and political perturbations on migration and demographics. It was noted that these factors can both be causes and effects of such disturbances, with the shift from 'peace dividends to war bills' and a flight to 'hard' crisis-proof assets being symbolic of this relationship.
Another significant point of focus was the ongoing technology revolution, particularly the potential of blockchain as a scalable new infrastructure for value exchange. The Guiding and Establishing National Innovation for US Stablecoins Act and the forthcoming Clarity Bill are expected to accelerate blockchain scaling, but concerns about stablecoins facilitating tax evasion, regulatory evasion, and illicit activity were also raised.
The US dollar's supreme world role remains intact, but erosion of trust due to the Trump administration's policies could potentially weaken its long-term value. The economic environment is considered to be quasi-recessionary, and profound fiscal challenges in most states were a cause for concern.
The EU and Asia are moving towards central bank digital currencies, while the US is tilting towards stablecoins. However, a missing framework for interoperability across these systems could pose challenges. The Brics group of countries, led by a development bank with around $50bn capitalisation, is constrained by sanctions on Russia, a lack of systemic integration, and continued reliance on the dollar. The meeting concluded that the Brics group would remain a 'paper tiger' in the absence of deeper coordination.
The world is seen as reverting to a state similar to the end of the 19th century, with the economic environment becoming increasingly volatile. Current politics are failing to deal with these challenges, leading to the fragmentation of the centre-ground and the rise of hard-left and hard-right movements. Geopolitical tensions abound, with institutions such as the WTO, IMF, and United Nations seen as poorly equipped to handle migration, digital trade, or new geopolitical alignments.
Ignazio Visco, the Governor Emeritus of the Bank of Italy, will be giving a lecture on European fragmentation in an uncertain world at the London School of Economics on September 29. Visco, who has a long career in economics, including positions as Chief Economist at the OECD and membership on key financial boards such as the European Central Bank and the Bank for International Settlements, is well-positioned to provide insights on these pressing issues.
David Marsh and Andrea Correa, Chairman and Senior Economist at OMFIF respectively, were also in attendance. The previous incumbent, Lord Meghnad Desai, passed away in July. Despite these challenges, the participants expressed a shared determination to navigate the complexities of the global economic landscape and seek out opportunities for stability and growth.
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