The global financial system must adapt to better serve the economy, the UN trade body said
The financial system risks undermining global trade if it fails to adapt to economic needs, and developing countries are likely to suffer the most, the UN Trade and Development Agency said.
The UNCTAD report presented in London said that shifts in financial markets now drive global trade almost as much as real economic activity, with financial conditions increasingly determining global trade flows and shaping development prospects around the world.
“Trade is not just a supply chain. It is also a chain of credit lines, payment systems, currency markets and capital flows,” UNCTAD Secretary General Rebeca Grynspan said in a press release.
UNCTAD said global growth is expected to slow from 2.9% in 2024 to 2.6% in 2025 due to increased financial volatility as well as geopolitical tensions.
More than 90% of global trade relies on bank financing, with dollar liquidity and cross-border payment systems remaining critical to international trade.
“The deep dependence on financial channels makes trade closely linked to global financial and monetary conditions,” the report said. “Shifts in interest rates or investor sentiment in major financial centers can affect trading volumes around the world.”
The report states that although developing countries are expected to grow faster than developed countries, they face higher financing costs, volatile capital flows and increasing climate-related risks, which are factors that limit the fiscal and investment space needed to sustain growth.
The dollar remains at the center of global finance. While this offers stability amid uncertainty, it also ties developing countries to financial cycles that have no power to influence them, the agency said.
UNCTAD calls for reforms to harmonize trade and finance and ensure long-term stability, including modernizing trade rules, reforming the international monetary system to limit currency breakdown and capital flow volatility, and strengthening capital markets to expand affordable long-term financing.
“What does true resilience require? An integrated policy framework that recognizes the links between trade, finance and sustainability,” said Grynspan. “Fundamentally, we cannot understand commerce isolated from finance.”
Source: Reuters
