Carstens calls this a pivotal moment for world stability
The Bank for International Settlements (BIS) has issued a stark warning about the fragility of the global financial system, citing rising trade tensions and geopolitical turmoil as key risks. Outgoing BIS General Manager Agustín Carstens said the world economy is at a “pivotal moment,” entering an era of “heightened uncertainty and unpredictability” that is undermining trust in institutions, including central banks.
The report comes just ahead of U.S. President Donald Trump’s July 9 tariff deadline and follows months of market volatility and political disruption. Carstens emphasized that U.S.-led protectionist policies are fracturing long-standing global economic frameworks and compounding productivity stagnation.
Geopolitical risks, debt, and inflation perception rising
The BIS report underscores that rising public debt, aging populations, climate change, and fragile supply chains are weakening the global economy’s resilience to shocks. Carstens warned that current debt trajectories, especially with increasing military spending, are unsustainable: “This trend cannot continue.”
The post-pandemic inflation surge has also shifted public sentiment on price expectations, leading to less tolerance for inflation volatility and increasing pressure on central banks to maintain credibility.
Dollar drop not yet a global asset rotation
Hyun Song Shin, the BIS’s chief economic adviser, addressed the dollar’s recent 10% slide — its worst first-half drop since the 1970s. While some speculate that central banks are rotating out of U.S. assets, Shin downplayed the idea: “We haven’t seen anything that would give us cause for alarm.”
He did note that short-term moves appear driven by hedging from non-U.S. investors holding Treasuries and other American assets, but the long-term implications remain uncertain.
BIS calls for caution as global outlook darkens
Carstens maintained a neutral stance on Trump’s frequent attacks on Fed Chair Jerome Powell, describing government-central bank frictions as “almost by design.” However, the BIS’s broader concern lies in eroding institutional independence, especially as central banks face political pressure to align with nationalist policies.
The BIS also reiterated concerns about the risks posed by stablecoins, adding to its earlier warnings. Financially, the institution reported record earnings, including SDR 3.4 billion ($5.3 billion) in comprehensive income and a record in currency deposits, emphasizing its strong credit standing.
