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Terms of Reference
The last decade was dominated by recovery from the great financial crisis (GFC) of 2008. The coming decade will be shaped by the need to recover from the much greater global economic impact of the coronavirus pandemic. Three other major trends will also combine to influence the world, which the global financial system connects:
- climate action will likely become globally urgent as extreme weather events increase and the catastrophic risks become clearer. For the next four years at least, it will be a first rank priority for the Biden Administration.
- necessary cooperation between the US and China on climate will be coupled with increasingly intense geopolitical competition.
- technology will continue to remake the economy and the world of work, whilst technological competition, especially on AI, cyber and bioengineering, will be one of the main fields for American and Chinese superpower rivalry.
The GFC saw finance cast as the villain, with society seen as paying a harsh cost for Wall Street’s lack of caution. In funding the recovery from the pandemic and supporting climate action, finance has an opportunity to be one of the heroes of the decade in driving a recovery and green shift that gets the world back on track. At the same time, finance will have to adapt to both technology and a world split by Chinese and American rivalry. How can the global financial system best cope with these pressures and deliver both a strong recovery and climate action?
Is there appetite for a leading role amongst finance actors, a willingness to do the work and to bear the costs? Will financial companies see this as part of their core values? Is ESG (Environmental, Social and Governance) now embedded as part of company purpose or just a passing trend with lots of ‘green washing’ underway? What would be the roles for governments, central banks, regulators, fintech and others? What are the implications for global financial centres such as London and New York? What are the personal implications for those leading institutions and working in them?
Recovering from the great pandemic: government and the private sector
In contrast to 2008, finance itself has weathered the crisis in good shape and many people and institutions have made gains. Markets have remained resilient and rebounded strongly. There is more than a hint of bubble around technology but, for now, things are relatively good.
Main Street is in a different situation. Governments have taken advantage of ultra-low interest rates to deliver unprecedented relief and fiscal stimulus packages, but this will not be enough to save whole sectors of economies if the pandemic persists, despite the advent of effective vaccines. A high productivity but low employment recovery will see Wall Street further pull away from an ailing Main Street. Inequality and calls for government intervention and aid will intensify as people suffer. At the macro level, rising interest rates would see government debt become hard to sustain very rapidly. Meanwhile, rising inflation would reduce the burden of the debt.
What are the options for governments, central banks and financial institutions to fund the recovery ahead? Where is the greatest potential for private sector growth? What does finance need to do to stop government stepping in more forcefully? To what extent will Bidenomics focus on equality? In the UK, how far will the Conservative government pursue ‘levelling up’? Will the EU’s financial role continue to expand, becoming more French in approach than German? When will it be safe to allow zombie companies, propped up by government support, to go under? Are we at ‘peak government’ or is there more to come?
Tackling climate change
Special Presidential Envoy for Climate Action, Secretary John Kerry, has spoken repeatedly, including at Ditchley in February 2021, on the need to galvanise global capital to support a transition to a green economy, noting the 13 trillion US dollars sitting in net negative interest accounts. Kerry argues that the transition needed is not a cost but an opportunity for a new industrial revolution to deliver unprecedented prosperity as the digital revolution did from the 1990s onwards. What will the transition to a more sustainable economy mean for the global financial system, financial centres like London, and financial institutions? How can finance help lead this transition and combine it effectively with general economic recovery from the impact of the pandemic?
Managing geopolitical tension with China
President Biden has made clear that the US will continue to compete aggressively with China on defence, economic opportunities and geopolitical influence, whilst looking for opportunities to cooperate on climate. Companies and countries are also going to be looking closely at more resilient and diversified supply chains, which will likely mean greater costs and thus rising prices. How will the geopolitical competition between the US and China play into recovery from the pandemic and impact on the economy and the financial sector? Will the EU and US agree a common western approach to China or is the new EU-China Investment Treaty a taste of things to come? Will China’s march to become the world’s first economic power be accelerated by the pandemic and its aftermath and what will that mean, for example for the dollar as global reserve currency and instrument of American power?
The march of digital technology has been accelerated greatly by the pandemic and the development of technologies such as AI, electric and autonomous vehicles, quantum, bioengineering and in space will be further catalysed by American and Chinese efforts for dominance and efforts elsewhere to keep up and create competing platform companies. It is highly possible the bitcoin bubble will burst but the merger of technology and finance is likely to intensify as digital payment and digital identity become yet more entwined. Should we expect to see state-backed digital currencies and what will this mean? How will the concept and practice of money continue to evolve and what will be the implication for private and government financial institutions? What does the merger of an exchange like London and a data company such as Elsevier tell us about the future operation of markets? Conversely, will increasing government regulation and litigation curb innovation? How will regulation need to evolve to cope with the merger of finance and digital services and global availability of such?
Brexit and the future of the UK as a financial centre
What will the impact of the UK-EU Trade Agreement have on the role of the UK as a global financial centre and its relationship with New York, the EU and the Indo-Pacific? How can London best sustain its global role? What does the government need to do and not do? Should the UK be looking for equivalence with the EU or focus on increasing connectivity and synergies with finance centres in North America and the Indo-Pacific? What are the implications for regulation?
The future of capital and stock markets
Building on technological changes, what role will capital and stock markets play in the future forged by these pressures? How will we see exchanges and different types of market evolve? Can we expect the EU to make any progress on capital markets or will it remain dependent on the UK and other financial centres outside of the EU? How can increasingly complex and interconnected markets be effectively regulated?
We cannot yet know for sure what events will dominate the next few years. The Middle East remains unstable. Terrorism is still a serious risk. More pandemics are on the cards as human populations encroach on the natural world. A cyber crisis is a possibility. The US and China could miscalculate. How resilient is the global financial system to sudden shocks? What can we do to increase its general resilience?
For the middle part of the conference we will split into working groups to look at these issues through four different but overlapping lenses:
Group A: The future of the UK as a financial centre after Brexit. What does the convergence of these threats and opportunities over the next few years mean for the UK and its relationship with New York, Europe and other financial centres around the world?
Group B: Climate change action and pandemic recovery. How can finance be a hero of the decade in accelerating both recovery from the pandemic and climate change action? What is the future of quantitative easing and other big government interventions in the global economy?
Group C: Balanced regulation in the digital age. As the provision of finance merges with digital services, then what does this mean for regulation and how it is conducted? How do we ensure regulation does what is necessary but does not stifle innovation or investment in the very transitions we are trying to achieve, for example towards a green economy? Similarly, as the centre of gravity of the global economy shift eastwards, then how will regulation need to evolve? Who will hold regulators to account in the absence of a well-functioning multilateral system?
Group D: How can global finance become resilient and internationally well-regulated to face shocks without stifling innovation and investment? How does resilience need to evolve? Are the measures put in place after the 2008 financial crisis still the right ones and keeping pace with the impact of technology? What are the remaining neglected threats to global financial stability (now that pandemics are firmly on everyone’s minds)? Does resilience lie in more formal centralised structures or more distribution of authority across the system?
[Note that Group D is scheduled to meet at a time that will allow participants from the Americas, Asia and Oceania to come together. Participants in other time zones are welcome to join but are not expected to do so.]
This conference, named for its inauguration at the Mill Reef Club in Antigua in 2019, will bring together an influential group of financial and political leaders along with technologists, social commentators and other experts.
The Ditchley Foundation positions itself at the crossroads of government, business and technology and convenes leaders and experts from the fields of politics, business, academia, the media and the tech world to look at such questions.