• ‘Dr Doom’ highlights global financial risks
Veteran expert says China can learn from the mistakes ofWestern economies as it plays an increasingly influential role
Another issue is the difficulty in balancing financial institutions’ responsibility for providing the public with credit and entrepreneurial drive, which is still very much an unresolved issue forWestern banks.
Kaufman sees US President Donald Trump’s attemptto dismantle the strict financial regulation within the DoddFrank Act, replacing it with new policies to encourage economic growth, as dangerous.
“I think it’smuchtoo early todothat. We still have vivid memories of 2008,” he says.
The Dodd-Frank Act, which was created as a response to the 2008 crisis with a focus on restraining banks from risk-taking and improving consumer protection, was considered the largest financial regulation overhaul since the 1930s.
Meanwhile, Kaufman says China’s increasing participation in the global financial markets has huge implications for capital market participants and politicians globally.
He names China’s financial market liberalization, renminbiinternationalization and the country’s accumulation of large foreign reserves as key examples.
“The Chinese currency has become an important currency in the financial markets of the world; therefore its movement is looked at more carefully. As China opens more, that will improvethe flow ofmoney globally,” he says.
The renminbi’s advance toward reserve currency status was significantly endorsed by its joining of the IMF’s SDR basket of currencies in October. As of April, China’s foreign exchange reserves stood at more than $3 trillion.
China has increasingly opened its domestic market to foreign participation in its onshore capital markets. For example, the Shanghai-Hong Kong Stock Connect established in 2014 allowed international investors to trade shares listed in China’s domestic stock exchanges through Hong Kong, which is treated as an offshore financial market.
China last year also took several crucial steps to liberalize its domestic bond market for international institutional investors, and it expects a stronger overseas appetite due to diversified needs, especially when Chinese bonds become increasingly included in overseas bond indexes.
“China also plays an important role in the capital flows among nations,” he says, adding that China-US relations are becoming increasingly important. He anticipates there will be more potential for cooperation.