Shifting global economic conditions and tighter financial markets are posing increased risks to financial stability for the G20, the Financial Stability Board (FSB) warned in a letter to the group’s finance ministers and central bank governors.
Ahead of the G20’s upcoming meeting on July 15 and 16, Klaas Knot, the Netherlands’ central bank chief and head of the Basel-based Financial Stability Board, said that a deterioration in economic conditions “may test financial [system] resilience”.
The FSB pointed to a combination of lower growth, high inflation and tighter financial conditions, as major challenges that could “crystallise pre-existing vulnerabilities in the global financial system or give rise to new ones.”
The FSB also said it’s watching for signs that financial strains in global commodity markets are spilling over to the broader financial system.
The FSB was “closely monitoring” possible ricochets from the turmoil. The letter added: “The centrality of key energy, metals and food commodities to the functioning of the global economy means that any disruptions to the financing of producers or traders in these markets could have an outsized impact.”
The organiation noted that it was continuing its work to bolster the resilience of the financial system in several areas, including addressing the economic damage inflicted by the Covid-19 pandemic.
It warned that the financial vulnerabilities that governments sought to address with generous monetary stimulus during the pandemic may now be a problem as both household and government finances are stretched by the deteriorating global economy.
As a result, it said hat, “… the scarring effects from the pandemic have a greater potential to damage future growth.”
The FSB is also also worried about the damage on the traditional financial system by crypto currencies and digital assets which have had a tumultuous time this year. Bitcoin is down 70% from its all time high last November.
The group reiterated its recent public stance that crypto assets and crypto firms need to be regulated, and to adhere to existing legal and regulatory requirements that may apply to their activities.
