Globalisation Is Alive And Well. Here’s Why.
There was a time in the not so distant past when globalisation was considered to be inevitable, exponential, immutable. The global financial crisis has undermined that idea, and then some.
Global economic integration faces multiple headwinds as it continues its long, slow march onward. Almost three times as much money crossed borders before the crisis in 2007 than in 2016. But with the right investment from private and public stakeholders, the future is brighter than it might first appear.
A thick cloud of uncertainty seems to hang above the global political and economic system right now. Banks – especially those based in Europe – are retreating into the economic safety of their domestic markets. Politicians are pursuing populist agendas centred on protectionism for the sake of boosting employment statistics – the economic nationalism of the Trump administration is a case in point. Regulators are clamping down on multinational companies who exploit tax loopholes and subvert anti-trust law in far-flung jurisdictions.
And yet, behind the clouds of inflammatory political rhetoric, corporate risk adversity and regulatory scrutiny, globalisation is adapting, leveraging new technologies and worldviews in order to survive, perhaps even thrive.
Financial markets have never been more interconnected. McKinsey Global Institute recently released a report arguing that the world’s financial system is more resilient today than it was a decade ago, and that a more stable and sustainable form of integration is asserting itself. Consider that cross-border lending is often the first form of capital to abandon a country in a crisis. The $12.4tn that circulated the globe in 2007 was unsustainable, based on a savings glut in emerging markets and record oil prices – no wonder that gargantuan figure had corrected to $4.3tn in 2016. The news that cross-border lending has been shrinking relative to long-term direct investment and on-the-ground commitments in new markets is broadly positive.
It would seem that financial globalisation is alive and well, it just doesn’t grab the headlines like developments in the real economy of trade and capital flows. It should. Because financial globalisation has the potential to act as a driver of increased activity on the ground.
We are still building the plumbing that will enable the financial system to work more efficiently for the people. Everywhere we look, we can see examples of this infrastructure being constructed and wired into the global economy. The rise of alternative finance as opened up access to funding for individuals, start-ups and established companies. The advent of AI-driven robo-advisors is making personal finance more accessible and affordable for those who wish to plan for the future. And the explosion of new cryptocurrencies built on the blockchain is changing how people conceptualise and use money across borders.
These developments are no longer the domain of tech geeks and VCs. They are real, significant and already deeply entrenched within the global financial system. Fin-tech is not a fad – it’s part of the furniture. So much so, that six of the world’s largest banks have joined forces to create a new form of digital cash intended for clearing and settling financial transactions over blockchain. This currency will be convertible into cash at central banks, cutting the time, cost and capital required in post-trade settlement and clearing. This development alone has the potential to revolutionise banking.
At Origin, we’re playing our part. In its report, McKinsey states, “new digital platforms, blockchain, and machine learning may create new channels for cross-border capital flows and further broaden participation. Banks need to harness the power of digital and respond to financial technology companies.” We agree. In fact, this is the reason why we built Origin, a platform that brings issuers and dealers together in a global marketplace, reducing friction and enabling counterparties to transact for the benefit of each other. The path towards progress is never linear, but the progress of globalisation is certain and on-going, and it’s one that we’re very happy to be a part of.
* * * * *
This article was created in association with Origin Markets, directly connecting dealers and issuers in the primary marketplace for the first time.