World Bank Voices
Syndicate content

January 2017

Envisioning the global financial system in a decade

Gloria M. Grandolini's picture


4 unprecedented disruptions to the global financial system


Climate change, migration, correspondent banking and cybercrime are putting unprecedented and unforeseen pressures on global financial markets.

They aren’t just disrupting the global financial system, but also affect how we approach international development work.

Let’s examine each trend:
  1. “Greening the financial sector” is the new buzz term to finance a transition toward a climate-resilient economy and to help combat climate change. This topic is now getting a lot of attention from the G20 to the Financial Stability Board. The international community is trying to understand what this transition will imply: how resilient the financial sector is to deal with risks stemming from climate change, and how efficiently the financial sector can allocate financial resources. What we know is that currently fossil fuel subsidies and a lack of carbon tax are hindering the market from shifting financial resources from brown to green.
  2. Globally, an estimated 65 million people are forcibly displaced. Migration, resettlement or displacement, of course, impact where and how to channel aid to those in need. But more importantly, as displaced people settle down -- no matter how temporary or long-term -- to become self-sufficient and thrive, they will need to establish new financial relations. This can be for simple transactions such as receiving aid through payment cards (as opposed to cash) or for sending remittances. Or it can be for something more complex as getting a loan to start a business.
  3. At the same time, as the global banking industry is tightening regulations, large banks are withdrawing from correspondent banking and shutting down commercially unsustainable business lines. This recent phenomenon can have a huge impact in some regions on SMEs and on money transfer operators, which largely handle remittances.
  4. Cybercrime is no longer a sci-fi thriller plot, but a tangible potential risk to both national and international financial markets. The focus on cybersecurity risk has increased along with the proliferation of internet and information technology. Fintech is transforming the financial industry -- by extending access to financial services to people and small- and medium-sized enterprises (SMEs) previously left out of the formal financial system – but is also raising many questions, including concerns about cybersecurity. The same technology advancements that are propelling fintech are also addressing cybersecurity risk. However, there is a need to develop an appropriate regulatory framework in combination with industry best practices. This framework is evolving and regulators are grappling with how and when to regulate.

Inconvenient, apocalyptic, or somewhere in between? Why we shouldn’t be complacent about volcanic eruptions

Alanna Simpson's picture
Also available in: Español | Français

A house destroyed by a volcanic eruption. Yogyakarta, Indonesia. Project: JRF. © Nugroho Nurdikiawan Sunjoyo/World Bank

Volcanic eruptions capture the imagination with their awe-inspiring power, but why don’t they capture the attention of decision makers and development professionals working to build resilient communities? People visit Pompeii in the shadow of Mt. Vesuvius, and see the once thriving community destroyed within minutes from a major past eruption, but it does not resonate with their day-to-day lives. We see spectacular footage of erupting volcanoes in the media, but we rarely think about what it means for communities who live within the reach of the multiple volcanic hazards that can occur during eruptions. 

This wasn’t always the case. For 11 years from 1980, volcanic eruptions were at the forefront of the minds of those working in disaster risk management. At the opening of the decade, Mt. St. Helens violently erupted, claiming the lives of 57 and causing over USD1 billion in damage in the USA. Two years later, El Chichon erupted in Mexico killing at least 2,000. In 1985, a very minor eruption of Nevada del Ruiz volcano triggered a massive deadly mudflow (lahar) that killed 23,000 people in the town of Armero, Colombia. A year later, 1,700 people were killed in their sleep by volcanic gases from Lake Nyos volcano in Cameroon.