Amy and Bob unpack the BIS Report on sovereign debt, NBFIs, and the new dynamics of global financial interdependence
The latest BIS report, Global Finance: Shifting Structures and Cross-Border Flows, examines how the architecture of global finance has transformed since the Great Financial Crisis. The report reveals a marked transition from private sector lending to an era dominated by government financing, primarily through the issuance of sovereign bonds.
One of the key takeaways is the rising influence of non-bank financial institutions (NBFIs)—including pension funds, asset managers, and hedge funds—which now play a central role in global capital markets. These players increasingly rely on foreign exchange (FX) swaps for currency hedging, further entrenching their position in cross-border financial activity.
This shift has intensified the interconnectedness of national economies, creating a more complex and multidirectional transmission of financial conditions across borders. Even large, advanced economies like the United States are feeling the ripple effects. While domestic monetary policy remains a powerful tool, central banks are finding it more difficult to steer financial conditions at home without considering global forces. The report ultimately underscores the urgent need for greater international coordination among policymakers and central banks in this new era of financial interdependence.
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