Global economy at crossroads amid rising risks, warns Central Bank watchdog
The world economy has entered a “pivotal moment” marked by mounting uncertainty, fractious geopolitics, and rising trade tensions, according to the annual report by the Bank for International Settlements (BIS), often called the “central bankers’ central bank.”
Agustín Carstens, the outgoing head of the BIS and former governor of Mexico’s central bank, said the current global landscape is testing public trust in economic institutions, including central banks themselves.
“We are entering a new era of heightened uncertainty and unpredictability,” Carstens said, warning that these forces threaten to undermine the foundations of the global financial system.
The report, released just ahead of the anticipated July 9 deadline for trade tariffs announced by U.S. President Donald Trump, highlights how recent geopolitical upheaval has exposed deep vulnerabilities in the global order. Carstens emphasized that rising protectionism and economic fragmentation are accelerating an already long-standing decline in productivity and growth worldwide.
The BIS also pointed to a sharp drop in the U.S. dollar, which has fallen about 10 percent since the start of the year. According to Hyun Song Shin, the BIS’s chief economic adviser, this marks the dollar’s steepest six-month slide since the 1970s, when free-floating exchange rates began.
While some economists speculate this could signal a long-term shift away from U.S. assets, a so-called “great rotation,” Shin urged caution.
“We haven’t seen anything that would give us cause for alarm,” he said, attributing the decline partly to short-term hedging by non-U.S. investors holding American Treasuries and other assets.
Beyond currency volatility, the BIS painted a sobering picture of a world economy increasingly vulnerable to shocks. Structural issues such as aging populations, climate change, and supply chain instability compound financial fragility.
Additionally, the recent spike in inflation following the COVID-19 pandemic appears to have changed public expectations about future price movements.
A particularly alarming trend highlighted in the report is the surge in global public debt, which is reducing governments’ ability to respond to future crises. Carstens noted that rising military expenditures could further strain fiscal balances.
“This trend cannot continue,” he said, stressing the need for more disciplined public spending.
When asked about President Trump’s criticism of U.S. Federal Reserve Chair Jerome Powell—specifically calling him “stupid,” Carstens responded.
“It is to be expected at certain points in time that there will be friction,” he remarked, suggesting that tension between political leaders and central banks is almost “by design.”
Despite global turbulence, the BIS reported strong financial performance, with a net profit of 843.7 million Special Drawing Rights (SDR)—approximately USD1.2 billion. Total comprehensive income reached a record SDR 3.4 billion ($5.3 billion), and currency deposits at the institution also hit a new peak.
“It is important that the BIS has the highest creditworthiness out there,” Carstens said, reinforcing the institution’s role as a bastion of stability amid global economic flux.
In an earlier part of its report, the BIS issued a stark warning about the explosive rise of so-called “stablecoins,” digital assets pegged to fiat currencies, which it said could pose risks to financial stability if left unchecked.
As the world confronts an era of shifting power dynamics, the BIS urged policymakers to remain vigilant, collaborate closely, and act decisively to strengthen the resilience of the international financial system.
