Global finance: avoiding risks by updating our understanding of today's mega trends
University of London
School of Oriental and African Studies 5SOAS)
"Identifying and analysing mega trends from the flow of funds requires a long-term research programme as, by their nature, mega trends arise from numerous trajectories which altogether have long-lasting effects that need to be tracked and evaluated over a time period of 10 to 30 years", explains Prof. Victor Murinde. "For example, the economic reforms in China that began in 1978 are still being felt in the world economy today via the recent emergence of China as the world’s second largest economy." "The rise of bitcoin and other cryptocurrencies, new financial instruments, new patterns of trade and investment associated with rapid growth in some African countries… All these will have lasting impacts on the international financial system over the medium to long term", the researcher continues. The research programme will pay particular attention to what is happening in Africa. With the emergence of large cross-border banks from South Africa, Kenya, Morocco and Nigeria, the African continent is emerging as a key player of the global financing stage. "There will be great emphasis on this new phenomenon. We will look at Africa but in a wider context, examining particularly the links with China, India and Russia", Prof. Victor Murinde specifies.
Paving the way for new and strategic policies and practices
Following the global financial crisis of 2008, the international financial system has been seriously challenged. "We used to think of a government bond as a perfectly secure asset, for example, but this assumption was crushed during the global financial crisis", Prof. Murinde points out. Governments traditionally have great importance in regulating the financial system to ensure there are rules to level the playing field and to maintain the credibility of financial transactions. "However in 2008, market failure was followed by regulation failure as well. The regulation machinery broke down and it translated into global financial risk. "Understanding the new rules that govern global finance will help adapt government regulations accordingly to avoid another global financial breakdown", he summarizes. "If we understand and explain the role of economic agents in managing uncertainty and market imperfections, which disrupt stable flow of funds in the global system, then we can move on to the next step: determining what everyone – governments, banks, companies, households –, should do to reduce the risks and ensure inclusive growth".
The research programme will use a flow of funds framework to construct a large database. Building on this database and introducing uncertainty, the Chair will conduct dynamic estimation, simulation and forecasting to identify and monitor mega trends in global finance. "The strong scientific framework that is the flow-of-funds will help us conceptualise how the global financial and economic system operates", Prof. Murinde explains. His programme will thus enable incorporating new and crucial financial drivers, which will shape the world's economy over the next 30 years, into financial and economic theory. The ultimate objective is to lay the grounds for the development and implementation of strategic policies and practices to avoid more devastating financial crisis and to support inclusive finance and sustainable growth.
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