The theme of the Asian Financial Forum that started on Monday — “Powering the Next Growth Engine” —  is most timely, and there are two messages behind it about the need to identify the next growth engine and how to power it.

We need to work together so the 21st century will bring inclusive prosperity, peace and sustainable development. Interestingly, while to many people finance represents a fast track to wealth, it is also a powerful instrument that can make or break prosperity and sustainability.

A recent focus of attention, of course, has been the strength of the US dollar (USD). The USD index, historically, has hovered between 75 at around the time of the global financial tsunami in 2008 and 160 in 1985 before the Plaza Accord. A very strong USD is a nightmare for many developing countries, which have dollar debt. A surge in the value of the USD makes repaying this debt, including the interest, very difficult and could cause a financial crisis, such as occurred in 1997-98, when Asia was hit by the Asian financial crisis, during which the USD Index rose from 80 to 100, or by 25 percent, in just a couple of years. Typically, overvaluation of a currency is driven by short-term capital movements. This round of USD appreciation is very much a result of attractive yields in US Treasuries. US government bonds have always been considered a safe asset, but monetary tightening measures taken by the Federal Reserve took many banks off guard. As a result, Silicon Valley Bank (SVB) collapsed in 2023. It had acquired too many US Treasury bonds whose market value plunged as yields surged. Mark-to-market accounting meant that the bank had to write off a large chunk of its assets, leading to technical insolvency. USD-denominated US government Treasury bonds are safe and liquid. Who would have imagined that investing heavily in these bonds could lead to the SVB’s collapse?

There has always been a debate between those who support regulation and those who support deregulation. The debate on more versus less regulation is however misleading. The problem is never a matter of more regulation or less regulation. The key to good regulation is identifying the right regulation and effective implementation. Those who oppose regulation would portray it as always bad, but financial markets certainly need regulation. In the 1980s, the savings and loans crisis took place because of fraud. The disaster ultimately resulted in a taxpayer-funded bailout and regulatory reforms in 1989. The US Government Accountability Office published a report in 2015 observing that, “In the 1980s thrift and banking crises and the 2007-2009 financial crisis, regulators could have provided earlier and more forceful supervisory attention to troubled institutions.”  But every time regulations are introduced, there are those who want to reverse those regulations.  

Powering the next growth engine requires finance and financial innovations, but what is really needed is the wisdom to design and introduce the right and necessary regulations and the will to commit to enforcing them. We do not want more regulations than necessary, but every time after a major crisis, there is the inclination to overregulate. Overregulation stifles innovation and costs the economy. This triggers a drive to deregulate. Once again, unfortunately, excessive deregulation can lead to another crisis. The world today cannot afford such instability

Powering the next growth engine requires finance and financial innovations, but what is really needed is the wisdom to design and introduce the right and necessary regulations and the will to commit to enforcing them. We do not want more regulations than necessary, but every time after a major crisis, there is the inclination to overregulate. Overregulation stifles innovation and costs the economy. This triggers a drive to deregulate. Once again, unfortunately, excessive deregulation can lead to another crisis. The world today cannot afford such instability.  

Apart from the failure of regulators to prevent crises, the world today faces a huge threat to stability, and that is geopolitics. Geopolitical risks are now the biggest threat to inclusive prosperity, peace and sustainable development that derails the ongoing drive to achieve the United Nations’ sustainable development goals. They are:

No poverty: Complete eradication of poverty in all of its forms everywhere.

Zero hunger: End hunger, promote agriculture, and provide food for every person.

Good health and well-being: Ensure health and provide care for everyone regardless of their age.

Quality education: Ensure quality education that is equitable and inclusive.

Gender equality: Eradicate gender-based discrimination and empower all women.

Clean water and sanitation: Ensure and develop appropriate water supply and waste disposal systems.

Affordable and Clean Energy: Provide access to affordable, reliable and modern energy.

Decent work and economic growth: Provide constant and inclusive enhancement of economic activities.

Industry, innovation and infrastructure: Develop resilient infrastructure and enhance creativity.

Reduced inequalities: Further decrease and eradicate existing inequalities.

Sustainable cities and communities: Develop cities and communities that are inclusive, safe, resilient and sustainable.

Responsible consumption and production: Promote patterns of consumption and production that are sustainable.

Climate action: Make urgent efforts to combat climate change and its effects.

Life below water: Protect and manage the oceans, seas, and marine resources.

Life on land: Conserve and promote the sustainable use of land-based ecosystems.

Peace, justice and strong institutions: Support the achievement of peaceful and constructive solid societies.

Partnerships for the goals: Revamp and strengthen global partnerships for sustainable development.

I have argued in this column that the Global Development Initiative, the Global Security Initiative and the Global Civilization Initiative belong to neither China nor President Xi Jinping. The sustainable development goals were proposed prior to President Xi’s announcement about these initiatives. All the above indicate that a shared human destiny is a fact. Let’s hope that the leaders in finance who have assembled in Hong Kong will help bring about a less uncertain world.

The author is an adjunct research professor at Pan Sutong Shanghai-HK Economic Policy Research Institute and Economics Department, Lingnan University.

The views do not necessarily reflect those of China Daily.