Istanbul:Bank of England Governor Andrew Bailey discussed the resilience of the global financial system and highlighted new long-term challenges such as lower growth, repeated supply shocks, and evolving market structures.
According to Anadolu Agency, Bailey addressed these issues during the Istanbul Economic Forum, an event organized by the Central Bank of the Republic of Türkiye. The forum gathered central bank governors and high-level policymakers from around the world to tackle global economic policy challenges.
Bailey noted that the global financial system has withstood recent periods of uncertainty without major disruptions in liquidity or trading conditions. However, he warned of significant uncertainties impacting the world economy, including conflicts in the Middle East and vulnerabilities in sovereign debt markets and asset valuations.
He expressed concerns about the rapid expansion of artificial intelligence financing, which, despite potential growth benefits, also introduces new risks. Bailey emphasized that weaker potential growth and frequent negative supply shocks, such as those from the Covid pandemic and the invasion of Ukraine, have disrupted economic supply capacities.
The governor pointed out that these supply shocks have pushed inflation and output in opposing directions, complicating monetary policy. He stressed the importance of central banks making forward-looking judgments and updating them as new evidence emerges to prevent temporary shocks from leading to persistent inflation.
Bailey highlighted that strong banks and solid corporate balance sheets are crucial for policymakers to address crises without causing financial collapses. He also observed that lower growth and repeated supply shocks have strained public finances and increased pressure on governments to provide support.
Furthermore, Bailey noted changes in global government bond markets, with leveraged investors playing a larger role than traditional long-term investors. This shift, he explained, has increased the capacity to absorb government debt but also introduced greater fragility, as deleveraging in one market can quickly spread to others.
He called for policies that pursue sustainable growth and maintain credible monetary and fiscal frameworks. Additionally, Bailey underscored the potential of artificial intelligence and robotics to drive scientific discovery and enhance prosperity if deployed safely.
In conclusion, Bailey emphasized the need for financial markets to enhance their resilience to absorb future shocks without exacerbating them.