The globalisation of risk

inSight

01 May 2003

The globalisation of risk

The spread of atypical pneumonia is just one of a number of examples of how risk has spread across the world through globalisation.

One way of looking at the outbreak and the spreading of atypical pneumonia across the world is that it is another facet of globalisation - the globalisation of disease. Trade and financial liberalisation have led to the globalisation of markets, which require and promote intensified interaction between people from different jurisdictions, whether as investors or consumers of goods and services. While such interaction generates transactions that benefit the interacting parties, the risk is that each party will then be exposed to the alien elements, if any, that are present in the other party. You may think that this theory is far-fetched and only for movies, but it is conceivable, for example, that an unintentional injection of certain foreign substances in domestic animals may have caused a benign virus to mutate and become fatal when contracted by human beings.

This type of risk can never be predicted, let alone managed. Human knowledge of the beings on earth and their behaviour is very limited. Very few predicted that financial globalisation could have led to debilitating financial turmoil for some. But I am sure, like the financial turmoil induced by financial globalisation, we can learn from it and find a way to contain, manage or even prevent it from recurring. One lesson from the financial turmoil is that while financial globalisation involve participants that are global, they operate in markets that are regulated by domestic rules and standards. There was a relative absence of global standards to govern international finance conducted by participants from jurisdictions at different stages of financial sophistication. There has been thus a great deal of effort to reform the international financial architecture through, among other initiatives, the promulgation of global standards for financial markets that have the aspiration to attain a global status. Progress has, nevertheless, been slow and, in the meantime, there has inevitably been some back-pedalling in financial globalisation as financial controls have re-emerged and financial liberalisation slowed in some jurisdictions.

I am totally out of my depth insofar as the globalisation of atypical pneumonia is concerned. But I do wonder whether there is not an urgent need to push hard for the globalisation of health standards. The same philosophical elements considered in the reform of the international financial architecture seem relevant; for example, international surveillance, transparency, harmonisation of reporting standards, etc. This is obviously for the World Health Organisation, working with the health authorities of the jurisdictions concerned, akin to the role played by the International Monetary Fund and other international financial institutions.

Globalisation may involve other risks that we are not yet aware of or have not yet focussed our minds on. Crime may be one. I am not predicting the globalisation of crime in an unprecedented form as destructive as atypical pneumonia. I am in no position to do so, except to say that financial globalisation, helped along by the advance of information technology, is fertile ground for the globalisation of financial crimes or the proliferation of crimes in global finance. This was one reason why we in the HKMA have been so keen in the promotion of real time gross settlement of financial transactions in our time zone in the major currencies of the world. One may not have the luxury to wait for a few hours after one pays over the domestic currency before one receives payment in foreign currency in a foreign exchange transaction. A piece of financial infrastructure that enables finality of settlement real time, payment versus payment, and an audit trail, must be helpful in the prevention of financial crimes. It is a pity that there has been more hesitation than I would like to see on the part of users in taking advantage of the facility.

We probably need a re-assessment of the risk of globalisation on all fronts. Readers interested in a review of recent (lack of) empirical evidence on the beneficial effects of financial globalisation for developing economies may wish to get on to the web-site of the International Monetary Fund and read a recent research memorandum on the subject dated 17 March 2003. There is some food for thought there, but only on financial globalisation, not on the globalisation of disease or crime or any other potentially dangerous or beneficial area. We know very little, don't we?

 

Joseph Yam

1 May 2003

 

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