Deep changes are ahead. We have the dubious distinction of experiencing the biggest economic crisis since the Great Depression. The initial disruption measured by indicators of financial distress was as severe as the Great Depression of the 1930s (IMF 2009a). The crisis resulted from an unsustainable buildup of credit, much of it driven by imprudent private investment. Now policymakers have to sort t the mess. Many citizens struggle. If history is any guide, it will take quite some time to get back to normal and the “new normal” may look rather different from the world we were used to during recent decades.
It is hard to drop acquired habits and thoughts. Most discussions about the future of finance remain stuck in patterns of the recent past. At the same time pieces on the future are often about what should ideally happen rather than what might actually happen. This essay opens up the toolbox for considering radically new futures for finance. It lays out key considerations about timeframes, facing advanced economies, myths permeating the discussion, features of economic “Realpolitik” and the major jokers that will shape outcomes. Two scenario sketches provide a taste of potential changes.
The scenarios are constructed to create two different operating environments for financial institutions so as to allow debate about how their strategy might need to adapt in the different worlds. Obviously, other scenarios could be constructed, not least one including a major shooting war in the Far East. Yet, the purpose of these scenarios is simply to argue that the world today contains the seeds for the emergence of very different financial systems over the coming decades.
To download the PDF version of the working paper click here.