Economists, pundits, institutions and investors often talk about the global financial system. When stocks go up and trade thrives, they applaud its contributions to prosperity; when the markets crash and stocks dip, they blame its inhuman scale or its untrustworthy manipulators. But anyone who has attempted to diversify their portfolio with foreign stocks or acquire another nation’s bonds quickly comes to the same conclusion: The global financial system isn’t a single entity. “The system,” singular, is really “The systems,” plural.
How do the pieces of the global financial system interact? Not always as well as might be hoped, as exemplified by the economic uncertainty brought about by the COVID-19 pandemic. In times of flux, investors diversify their portfolios across different asset classes to protect their investments. However, access to these diverse asset classes is often stymied by the barriers that exist across markets.
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