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Berlin | 01.12.2016

Weidmann: Globalisation isn't a zero-sum game

Federal Finance Minister Wolfgang Schäuble and Bundesbank President Jens Weidmann today kicked off Germany's G20 presidency in Berlin. In their remarks, each underlined the importance of open markets for the global economy.

Federal Finance Minister Wolfgang Schäuble and Bundesbank President Jens Weidmann today kicked off Germany's G20 presidency in Berlin. China, which had previously presided over the "Group of Twenty", passed the symbolic baton to the Federal Republic of Germany at an official event attended by the Chinese Ambassador to Germany, Mr Shi Mingde.

Dr Schäuble expressed his thanks to China for the excellent work done during its presidency which Germany, he said, would aim to continue. From today until the end of November 2017, Germany will set the agenda for the "Group of Twenty" (G20), the main informal forum for economic cooperation among the most important industrial countries and emerging market economies.

Returning to nationalism and protectionism not an option

Dr Schäuble used his speech to underline how crucial it will be to find global solutions for global challenges. "We will only overcome the problems we face in today's world by continuing to work together," he stressed. "The G20 is more important than ever". In Schäuble's words, globalisation has to be better designed if it is to benefit people and combat the growing sense of mounting inequality between rich and poor. Free trade worldwide and open markets were the key to achieving that goal, he reasoned, stating that "a return to nationalism and protectionism is certainly not an option".

Bundesbank President Jens Weidmann's speech before several hundred delegates from the G20 member states echoed Dr Schäuble's call for open markets. "Globalisation isn't a zero-sum game," he emphasised, noting that international trade improves everyone's welfare. This belief, he said, had united the G20 in the wake of the economic slump brought on by the financial crisis.

Mr Weidmann acknowledged that a growing number of people have been questioning the merits of open markets and cross-border trade, but said it would be wrong to ignore how closely economies are connected. He voiced his hope that the G20 will stand firm in its commitment to open markets and fair competition, that reforms stimulating growth and employment will be embraced, and that governments will strive to put their fiscal house in order on a sustainable basis.

Weidmann called for the G20 to discuss ways of making financial stability less vulnerable to high levels of government debt, reminding his audience that banking regulation continued to encourage banks to overinvest in sovereign debt. That, he noted, created a problematic doom loop between banks and sovereigns. He also hailed the merits of GDP-indexed bonds, which, if designed cleverly, could play a part in reducing the risk of sovereign default. In GDP-indexed bonds, coupon levels track the movement of a country's gross domestic product (GDP).

Highly promising innovations

Mr Weidmann's speech also covered the digitalisation of the financial sector, which will be one of the priority issues during Germany's G20 presidency. "Digitalisation offers scope for financial market incumbents to harness cost-efficiency gains. But the fiercer competition it creates in what is already a challenging setting represents an additional challenge," he said.

The Bundesbank president was especially upbeat about the technological side of financial innovations, saying how a number of highly promising innovations have emerged that boast some practical benefits which were currently still impossible to fully fathom. One example he mentioned was distributed ledger technology, which is the platform used by bitcoin, the virtual currency, but is equally suited for transferring rights of ownership for other fungibles such as securities.

Promoting financial inclusion

Mr Weidmann noted that tech-savvy consumers in developed economies were not the only parties which stood to benefit from technological advances in the financial sector. "The digitalisation of financial services opens up huge opportunities especially in less developed economies," he explained, highlighting the example of Kenya, where the number of people with an account has risen from 42% in 2011 to 75% in 2014. Weidmann made a point of explaining how financial inclusion stood to promote economic growth and reduce inequality, but he noted that it would only work if financial literacy levels were increased as well.

Taking a favourable view of the digitalisation of financial services

In Mr Weidmann's view, digital financial innovations, like the digital financial sector as a whole, need to be subject to smart regulation. "You can't base a business model on a gap in the regulations," he said. Efforts to take stock of different regulatory approaches will therefore rank as a priority issue during Germany's G20 presidency.

Regulators today, Mr Weidmann remarked, have a decisive stake in shaping tomorrow's world of digital financial services. "We should grasp this as an opportunity and take a favourable view of the digitalisation of financial services without losing sight of the inherent risks," the Bundesbank president stated.

Additional information

Jens Weidmann on the Basel III negotiations

Dr Jens Weidmann

"While the Basel Committee's negotiations in Santiago de Chile over the past few days have brought the different positions even closer together, with a great many open questions being wrapped up, it was not possible to reach an agreement. We shall therefore continue to work towards bringing the negotiations to a conclusion by the beginning of January, when the Group of Governors and Heads of Supervision are scheduled to convene, because regulatory uncertainty can also impair the proper functioning of the banking sector.

A successful negotiating outcome should, first, further reinforce financial sector resilience, but it should, second, also be regionally balanced and not cause the Basel regime's risk-oriented approach to be eroded."