The Global Financial and Monetary System in 2030

The global financial and monetary system is at a crossroads.
A decade after the onset of the global financial crisis, the
world economy is showing signs of recovery. Growth in
2017 was broad-based, accelerating in about 75% of all
countries. Boosted by a recovery in investment, global
trade growth has rebounded from its low point in 2001. The
improved economic outlook, in an era of low interest rates,
has boosted equity valuations and growth prospects for
2018 and 2019 are also robust.
However, significant challenges remain. Based on per capita
numbers, growth in almost half of emerging economies
lagged behind advanced economies, and up to a quarter
of developing countries have seen declines. In addition, the
labour share of income continues to decline globally, as
returns to capital increasingly contribute to global incomes.
Thus, achieving inclusive growth remains the paramount
objective.
The world community has agreed to the UN Sustainable
Development Goals (SDGs), which are part of a broader
2030 Agenda with specific milestones related to sustainable
development. By any yardstick, the scale of what needs
to be achieved is exceptionally large, and the urgency
of needed changes is exemplified by the weight of
demographics and urbanization in the developing world.
The global objectives of inclusive and sustainable growth
place extraordinary demands on investment in infrastructure,
much of it in countries that historically have not attracted
much international capital for this purpose.
The SDGs have to be met at a time when the international
monetary and financial landscape itself is going through
dramatic transformation: (1) new economic poles are
emerging; (2) power is moving away from public institutions
to non-state actors; (3) accelerating technological changes
are disrupting existing business models, threatening the
future of jobs but also providing new opportunities that
were unimaginable a decade ago; and (4) demographics
are shifting. All this is happening in a political atmosphere
still tainted by the financial crisis of 2008 and decades of
increasing inequality within most societies.
In meeting these challenges, the global financial system has
to balance two seemingly opposed forces: decentralization
and integration. To prevent excessive systemic disruption
and fragmentation, the international financial architecture will
need to adapt.
Value to society
The financial system facilitates the efficient allocation
of capital and in doing so gives access to savings and
financing solutions through safe payments systems. It offers
financial protection and the sharing and diversification of
risks. Broad and reliable access to financial services is
essential for a resilient real economy and social cohesion.
The promise
Successfully harnessing the two opposing forces of
decentralization and integration can reinvigorate the global
financial system and provide universal access to financial
services to fund real economic activity, manage wealth, and
diversify risks. Enhanced financial inclusion could facilitate
a downhill flow of capital and a reduced reliance on debt
financing. A well-functioning financial system is our best
hope to solve the global structural transformation challenge.
Decentralization
1. The US dollar loses its pre-eminence
Today’s centralized global monetary and financial system –
featuring a dominant US dollar – mutates into a world with
multiple reserve currencies and financial powers of influence,
mirroring the shift from the British pound to the US dollar
as the reserve asset. As economic importance traditionally
leads financial and monetary pre-eminence, the euro and
renminbi are likely to gain importance alongside the US
dollar and increasingly meet the world’s demand for the
reserve currencies and safe assets.
2. Decreasing use of paper money
Digital money – issued privately or by central banks –
and decentralized ledgers proliferate with implications
for monetary and financial policy-making. In countries,
where changes are rapid, the growing fintech industry is
providing specialized financial services using a range of
digital innovations, including those that supply credit and
payments services to households and businesses through
online platforms. Acceptance and adoption of cryptocurrencies
will continue to spread. These developments
will bring together markets, institutions and infrastructure
in a multi-polar, complex and interconnected world, which
will challenge the conduct of monetary policy and have
implications for financial stability.
3. Traditional bank business models will be challenged
Fintech will transform traditional banks and insurance
companies, with the emergence of newly decentralized
entities providing liquidity and new financial services
in a disintermediated way. The development of new
technologies will create new asset classes that directly
match savers and borrowers and foster risk mitigation
through the commoditization of financial data but also lead
to more fragmentation and dislocations.

Fuente: weforum

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