The worry about cross-border capital flows
They are growing fast and they pose a threat to stability
WHEN GLOBALISATION was at its zenith, huge rewards flowed to those who squeezed out redundancies in the world’s supply chains. Only when the pandemic struck—when lockdowns in Asia threatened the supply of goods to the world—was it clear how fragile the system could be. The world’s financial supply chains are just as crucial, but even less well understood. A similar shock may lie in store.
Since the global financial crisis, flows of capital across borders have risen unabated. In 2020 the stock of cross-border financial assets reached $130trn, an increase of almost 60% since 2007. Measured relative to world GDP, at 153%, they now exceed the peak just before Lehman Brothers collapsed.
This article appeared in the Leaders section of the print edition under the headline “A good idea, until it isn’t”
From the January 13th 2022 edition
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