What’s Changing in the Global Financial Order?

I was at a very interesting session on ‘The New Global Financial Order’ at the UNESCAP Asia Pacific Business Forum last week, and something that one of the speakers said struck me. He remarked,

“This was a financial crisis more than an economic crisis. It should never have happened. Money was originally only a medium of exchange and for accounting that exchange. But…over time, money became a storer of value. Just like gold did in the past, people started keeping money, hoarding money, and money became scarce. People started making money from money. And now we have a huge degree of financialisation in the economy”

During the course of the discussion, we ended up talking about some big trends that are shaping the world of finance.

One is the rise of the Renminbi, the Chinese currency. RMB is now 4th highest traded currency in the world, and China is lobbying for it to be included in the basket of currencies in the IMF’s Special Drawing Rights (SDR). Moreover, China’s new bilateral trade agreements are being linked to RMB, bypassing the USD.

Another trend we talked about is the simultaneous disintermediation and disruption in financial markets today. For one, there is disintermediation away from the US. In some countries disintermediation away from traditional big banks towards smaller ‘local’ banks seen to have customer interests stronger at heart..

Meanwhile, the disruption comes from something that is starting to be at the heart of disruption everywhere – big data. Big data will transform how banks operate; for instance being able to take KYC checks (‘Know Your Customer’) to the next level. Targeting products would also be enhanced. We even talked about how in advanced stages of KYC, a bank could know what type of customer is more likely to have a mistress, and predictive analytics would show how spending patterns would change.

We also talked about the rise of bitcoin and other virtual currencies; the future of electronic and mobile finance, the prospects for Ali Pay (the Alibaba equivalent of PayPal), where FinTech would go next, and whether cashless and careless payments with NFC technology like Apple Pay would truly become mainstream.

One of the issue I brought up was whether regulatory and supervisory agencies, like Central Banks and Financial Services Authorities, would adequately keep up with a rapidly changing landscape. Whether they will understand these products and how they help (and indeed potentially hurt) consumers, and regulate smartly, without snuffing out innovation. There are also concerns of privacy, and indeed equity, which we didn’t get to, but would certainly be interesting to explore.

Will innovation in financial markets make finance more inclusive or more exclusive?

And on the first trend, will the disintermediation away from the US amidst the rise of the RMB simply mean a shift from/and an over-dependence on/dominance of one large country to another large country, or will it truly mean a multipolar financial world?

Cover image: the logo of AliPay.com, the third-party online payment portal by Chinese e-commerce giant Alibaba.

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