Global finance is at a crossroads. Here's what I learned at Davos 2025
The traditional model of US financial primacy - and its influence on global finance - faces growing challenges
Image: REUTERS/Akhtar Soomro
Matthew Blake
Head, Centre for Financial and Monetary Systems; Member, Executive Committee, World Economic ForumStay up to date:
Financial and Monetary Systems
- A rebalancing of economic power, rapid technological transformation and major structural changes in public and private markets are all reshaping global finance.
- The traditional model of US financial primacy faces growing challenges from new financial architectures and digital innovations.
- The ongoing work of the Centre for Financial and Monetary Systems to develop multilateral frameworks becomes more crucial as these changes intensify.
The Annual Meeting 2025 of the World Economic Forum highlighted mounting tensions that are reshaping global finance: a rebalancing of economic power, rapid technological transformation and major structural changes in public and private markets. These pressures are forcing a fundamental reconsideration of how global finance operates and who it serves.
Throughout the week’s discussions in Davos, leaders grappled with an increasingly complex reality: while the US-led financial order remains dominant, emerging economies are gaining influence and building alternative structures. The traditional model of US financial primacy – indicated by US companies’ 60% share of global market capitalization and the dollar’s 60% share of foreign exchange reserves – faces growing challenges from new financial architectures and digital innovations.
With President Trump’s return to the White House, questions about the future of global alliances, fiscal policy and financial regulation take on new urgency. Markets traditionally thrive on predictability, but the current environment demands adaptation to persistent uncertainty. This year’s conversations revealed both confidence in the system’s fundamental resilience and growing recognition that significant changes lie ahead.
The core trends unfolding
1. Current resilience meets new stressors
Despite a series of shocks – a pandemic, geopolitical tensions and inflationary pressures – the global financial system has maintained remarkable stability. Strengthened regulatory frameworks and expedited digitization have improved institutional resilience.
However, this stability increasingly rests on US foundations that are showing potential cracks. With interest costs on US debt now exceeding military spending and debt levels surpassing 100% of GDP, questions emerge about the system’s ability to weather another major crisis. As Harvard economist Kenneth Rogoff noted at the Annual Meeting 2025: “Both parties in the United States seem to think that as a free lunch (…) I think that’s wrong.”
In addition to the long-term sustainability of US debt, another question involves whether the nation has the fiscal space to respond to future shocks, such as climate events or geopolitical disturbances. During the 2008 financial crisis and the pandemic, the Federal Reserve functioned as a global provider of liquidity. Whether it can continue to play that role in the future remains a question for the US and for the rest of the world.
2. Fragmentation risks
In January, the Centre for Financial and Monetary Systems released a report suggesting that extreme fragmentation of the world’s financial system could cost the world 5% of its global GDP. Moreover, these costs would fall disproportionately on “unaligned countries”, such as India, Brazil and Turkey. Many emerging markets and developing economies in Latin America, Africa and South-East Asia could see losses of up to 11% of GDP if forced to align with a single trading bloc.
This trend isn’t merely theoretical: global financial flows dropped by more than 50% in 2022, suggesting fragmentation could already be reshaping market dynamics. Financial institutions are responding by segmenting operations across geopolitical lines, with some considering full separation of their businesses.
3. Technological transformation
A $35 billion investment in artificial intelligence (AI) from financial services during 2023 – projected to reach $97 billion by 2027 – signals the sector’s position at the forefront of technological adoption. Yet discussions reveal important nuances: while AI has enhanced existing practices in risk management, fraud detection and customer engagement; the fundamental reimagining of financial services remains nascent.
Current momentum reflects experimentation and improvements to business-as-usual, rather than fundamental transformation, with firms exploring applications without clear consensus on the ultimate trajectory. Questions persist about algorithmic bias and uneven regulatory readiness, while the uneven distribution of these advances raises concerns about widening gaps between mature and emerging markets.
4. Structural changes in private markets
Over the past decade, private markets have grown substantially, surpassing public markets in size and significance for certain industries. The transformation is especially stark in the US where the number of public companies has fallen by half since 1996. Private businesses backed by venture capital, by contrast, increased nine-fold.
This trend reflects more than just changing preferences; it represents a structural transformation in how companies approach growth and capital access. While this shift enables longer-term investment horizons and reduces quarterly earnings pressure on emerging businesses, it also risks concentrating influence among institutional investors and complicating risk assessments. The dominance of US private equity and venture capital firms in shaping these trends raises questions about market access and power dynamics in global finance.
Assumptions questioned: tensions between concentration and democratization
The past week has revealed a fundamental paradox in global finance. On one side, private markets can generate wealth and concentrate influence among a small group of institutional investors. This concentration can narrow the way traditional avenues – public equities markets – facilitate widespread wealth creation. While private markets can help nurture companies and enable better long-term planning, the growth of these markets can be challenging for retail investors to access and for regulators to oversee.
Meanwhile, technology is simultaneously democratizing finance in unexpected ways. In Thailand, as ‘Topp’ Jirayut Srupsrisopa of Bitkub Capital noted at the Annual Meeting 2025, one in seven people now has a cryptocurrency app on their phone. In the Gulf states, real estate tokenization is opening previously exclusive assets to retail investors. These developments suggest finance could become more accessible even as traditional markets grow more concentrated.
This tension raises critical questions, such as whether technological democratization will offset the concentration of wealth in private markets. What role should traditional financial institutions play in bridging these two trends? The path forward likely requires new frameworks that can harness democratizing technologies while maintaining system stability and protecting retail investors. Conversations at Davos suggested no clear consensus on this balance but that the questions will be central to financial developments of 2025.
Breakaway bets
While consensus views dominated many discussions at the Annual Meeting 2025, several compelling contrarian scenarios emerged which could reshape global finance. While experts regarded them as unlikely, the following developments could have dramatic impacts on the world’s financial horizon:
- European competitiveness revival: despite current stagnation, Europe holds untapped potential for transformation. With $1.5 billion in household savings largely invested abroad or not productively invested, Europe could launch a coordinated push to fuel innovation and sustainability, thereby repositioning Europe as a technological leader. Regulatory reforms to reduce bureaucratic hurdles and incentivize venture investment could spark a dramatic turnaround in European competitiveness.
- China’s deflationary exit: China could emerge from its current deflationary environment poised for more robust growth. Through aggressive domestic, consumer-focused economic stimulus and expanded relationships with trading partners wary of a more transactional US approach, China might emerge as an increasingly assertive force in regional and global markets, striking bilateral arrangements on advantageous terms, and bolstering China’s reputation as an enabler of global integration and stability, while further hastening the internationalization of the Chinese Yuan.
- Expedited crypto integration: cryptocurrencies could mature rapidly into the mainstream financial architecture through unexpected regulatory clarity, rather than remaining a parallel system. This would raise profound questions about central banks’ role in intermediating money supply. Such developments could fundamentally reshape payment systems, asset tokenization and international financial flows.
These scenarios, while not predictions, highlight potential discontinuities that could emerge as power shifts, technology evolves and new financial models take shape. They suggest the need for flexible strategic planning that accounts for non-linear change in global finance.
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The insights from the Annual Meeting 2025 underscore finance’s evolving complexity. While the US-led financial order maintains its central role, emerging powers and technologies are reshaping the landscape. The Centre’s ongoing work developing multilateral frameworks becomes more crucial as these changes intensify.
The challenges ahead lie in preserving financial stability and efficiency while adapting to new realities – technological, geopolitical and regulatory. This demands not just policy coordination but a shared vision for an inclusive financial future. Those who navigate these shifts thoughtfully, while ensuring broad participation in financial innovation, will help define the next era of global finance.
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