Governments around the world should embrace greater financial globalisation and push back against protectionism, according to an influential central banking group.
In a full-throated defence of globalisation, the Bank for International Settlements (BIS) today said the problems of “adjustment costs and financial risks” do not “justify a backlash” against greater financial links between nations.
Governments must step up their efforts to form deeper international financial links, according to Jaime Caruana, general manager for the Basel-based BIS and a former governor of the Bank of Spain.
In a foreword to the chapter on globalisation in the BIS annual report, he wrote: “Instead of retreating from the ties of global trade and finance, we should reinforce them. Instead of loosening them, we should make them more resilient.”
Since the global financial crisis starting in 2007 anti-globalisation movements have gathered pace on both sides of the political spectrum, most potently symbolised by the election of Donald Trump as US President last year. Trump has repeatedly railed against globalisation, saying it harms the economic prospects of American workers.
However, the focus on the negative effects of globalisation on some sectors and regions ignores its central part in global prosperity, and also ignores the greater disruptive force of new technologies, Caruana said. Governments can also work to mitigate those negative effects, he added.
He said: “We risk forgetting the lessons of the past and taking for granted the gains in living standards, productivity and prosperity achieved over the last half-century.
“It is true that the burden of adjustment often weighs heavily on specific sectors or regions. But sound domestic policies can help those who are negatively affected overcome these obstacles.”
The rise of Trump and other similar politicians has led to suggestions from some economists that globalisation has reached its peak, but the BIS said this was “misleading”.
Standard measures of globalisation such as global balance of payments data fell steeply in the aftermath of the financial crisis, but that represents a “healthy unwinding of unsustainable pre-crisis positions”, the BIS said.