Global Financial System Challenges

The Bank for International Settlements (BIS), known as the central bankers' central bank, has raised alarms about trade tensions and geopolitical issues affecting the global financial system.

• Agustín Carstens, the outgoing head of the BIS, noted the disruption of the established economic order due to US-driven trade wars and policy changes.
• The global economy is entering a phase of "heightened uncertainty and unpredictability," challenging public trust in institutions like central banks.

Key Economic Concerns

• Rising protectionism and trade fragmentation are troubling trends, worsening the decline in economic and productivity growth.
• Factors such as population ageing, climate change, geopolitics, and supply chain issues contribute to economic volatility.
• Post-Covid inflation has influenced public perception on pricing.
• High public debt levels increase financial system vulnerability to interest rates, reducing governmental crisis management capacity.

Currency and Financial Market Insights

• Hyun Song Shin, BIS's economic adviser, highlighted a significant 10% drop in the dollar since the year's start, noted as the largest in the free-floating exchange rate era.
• No clear evidence of a "great rotation" away from US assets; however, hedging by non-US investors is impacting the dollar.

BIS Financial Performance

• BIS reported a net profit of 843.7 million IMF SDR ($1.2 billion) and a total comprehensive income of SDR 3.4 billion ($5.3 billion).
• Currency deposits at BIS reached new highs, emphasizing the importance of BIS's creditworthiness.