The Food & Forex dinner on 11 September and the Forward Financial Thinking Forum on 12 September, organised by the Luxembourg Financial Markets Association (LFMA), offered the financial community an opportunity to discuss the forces shaping the market as well as the chance to network.
Paolo Sironi, global research leader in banking and financial markets at IBM, Institute for Business Value, talked about reinventing financial services on platform economies, while Bart Joris, head of FX sell-side trading, proposition management at LSEG, focused on streamlining workflows and FX market evolution. The forum closed with Alastair Newton, former diplomat of the British Foreign Service, who discussed geopolitics and economics.
LFMA president Vincenzo Giunta highlighted some key takeaways from the conference for Delano.
Tech innovation is not enough, new strategies are needed
For Sironi, technological innovation is not enough to achieve a sustainable financial performance. Instead, financial institutions must future-proof existing business models if they wish to reap the benefits of digitalisation in platform economies.
Banks exert market power when they excel in information (core banking) and communication (interfaces), continued Sironi. Investments in technology correspond to a shift in banks’ economic models from core banking margins (payments, lending) towards embedded finance frameworks, and from product fees towards advisory fees (investing, insurance).
In addition, contextual banking strategies allow banks to service clients when and where needs arise, said Sironi. Embedded finance leverages modular core banking, while secure hybrid cloud technology can promote highly dynamic and frictionless ecosystem interactions.
Finally, conscious banking strategies allow banks to demonstrate “value for money,” concluded Sironi. Investing in trusted and transparent advisory processes allows the integration of shrinking product fees with economically sustainable relationship fees.
Using less to achieve more: AI and innovation
The FX market has been slower than some of the other asset classes (e.g., equities) to embrace the benefits of automation due to the size of the market, said Joris. Market participants recognise that the efficient use of data across the FX ecosystem enables the best possible execution, transparency, benchmarking and speed of execution.
Moreover, innovation and AI allow data to be used intelligently to benefit not only individual firms but their clients and the FX market as a whole, argued Joris. But relationships remain key in the trading community. AI is meant to augment traders/sales, not replace humans.
More value for less effort: this is what AI brings, said Joris, who added that we are aiming for seamless workflows and reducing friction in the trade lifecycle.
Geopolitics are now driving economics
Whereas economics was largely driving geopolitics for the first 15 years or so of the 21st century, we are now decisively in an era where the reverse is true and is likely to remain so for the foreseeable future, said Newton. And although history remains a useful guide to that future, as Yale’s Odd Arne Westad wrote in “Foreign Affairs” earlier this year, it’s dangerous to assume that individual governments will continue to make decisions within the same parameters as they have historically.
The US’s abandonment of the old Washington Consensus and the proposed new Washington Consensus, rooted in significant part in the Biden administration’s politically inspired drive to bring manufacturing back to the US heartlands, is a prime example of this, argued Newton. The same can be said for US technology sanctions which, contrary to Washington’s repeated claims, are not narrowly targeted, but knowingly aimed at hobbling China’s economy as a whole as America struggles to protect its global primacy in a multipolar world.
Xi Jinping and structural challenges in China
Similarly, in China, Xi Jinping is increasingly turning his back on Deng Xiaoping’s economic agenda in favour of self-sufficiency in the face of the threat of more geopolitically driven embargoes by the US and its allies, continued Newton. Decision-making in Beijing will continue to be made not principally in accordance with economic rationale but consistent with his overarching aim of sustaining the Chinese Communist Party’s (CCP’s) grip on power in perpetuity.
Jinping’s push for Brics expansion should not, therefore, be seen as economically motived; rather, he is looking to establish a rival to the G7 in which autocrats feel comfortable. Promoting and bolstering Chinese-style governance internationally helps bolster its credibility domestically, said Newton. Thus, the ongoing debate about the “Japanification” of China is nonsensical. Despite some superficial common ground–real estate collapse, non-performing loans (NPLs)–the differences between the two greatly outweigh any similarities.
Despite the current headwinds in China’s economy (some of which are self-inflicted for international and/or domestic political reasons), the long-term structural challenges are much more worrisome, even putting to one side Sino-US tensions, added Newton.
Preparing for the possibility of a second Trump term
Newton concluded with a few points on Russia’s continued full-scale invasion of Ukraine, commenting that his prediction from last September of a protracted and gruelling war in Ukraine is increasingly correct. He added that Putin’s best hope of something he could call “victory” is almost certainly now a second Trump term in the US.
The probability of this coming about is far from negligible–maybe 40%. The right wing in the US is already geared up in anticipation, argued Newton. The rest of the world is not–and needs to prepare against this eventuality now.