FinanceGlobal Economy

Finding solutions to global challenges

As 2023 comes to a close, it is clear that the ‘permacrisis’ hailed by political and economic commentators earlier this year is still very much at play.

An evolution of the ‘polycrisis’ – a term widely used last year to describe the simultaneous occurrence of several significant crisis’ in recent times – the ‘permacrisis’ is the acknowledgement that this period of global instability is proving to be more enduring than we had hoped.

Indeed, with increased geopolitical tensions, regional conflicts and economic fragmentation, the global economy in 2023 has been sailing in choppy waters, with high interest rates and sluggish growth being felt all the way from trading floors down to consumers.

We have also seen powerful pan-global trends shift our landscape. In the technology space, the stratospheric rise of AI sparked new possibilities for businesses and new concerns for regulators, while the crypto and digital assets sector struggled to overcome controversies. Elsewhere, record-breaking temperatures supercharged the efforts to fund the fight against climate change.

This shifting regulatory, political, and economic landscape brought challenges to companies and regulators. Looking forward, the role of International Finance Centres (IFCs) must be to find crossborder solutions that enable companies to overcome these challenges.

The British Virgin Islands (BVI) is well-versed in navigating complex global issues. For over 40 years, the international business and finance centre has remained a neutral centre point for crossborder transactions, investment and trade, bringing together world-leading practitioners and regulators to find solutions to challenges and identify new opportunities.

From climate initiatives to digital finance, the BVI is responding to these global changes in a forward-looking and innovative manner, navigating the fast-shifting landscape to remain steadfast in its commitment to facilitating global growth.

Last month, European Central Bank President Christine Lagarde warned the audience at the European Banking Conference that there was increasing signs that the global economy is “fragmenting into competing blocs.”

This issue of economic fragmentation has been a much-discussed topic this year, as geopolitical tensions, sanctions, and weakened supply chains have resulted in trends such as ‘friend-shoring’, as nations increasingly diversify their supply chains and reduce dependency on certain nations.

How geopolitical shifts are changing the shape of globalisation was a topic explored earlier this year in a report commissioned by BVI Finance: Beyond Globalisation: The British Virgin Islands’ Contribution to Global Prosperity in an Uncertain World. Authored by Pragmatic Advisory, the report laid out the value of the BVI to the world’s economy and the role it plays in bringing clarity during a period of caution.

Central to the report was the recognition that the increasing economic integration we became accustomed to in recent decades has stalled, and explores three potential scenarios that will play out: weaker internationalism where globalisation continues but at a much slower pace and with more political obstacles to navigate; bloc economy, which will see economic and regulatory integration between countries based on diverging geopolitical alliances; and economic nationalism where countries reverse globalisation and become more protectionist, which in turn creates political obstacles.

We can see examples of all three occurring within our global community. A notable example of the formation of a bloc economy was seen at the BRICs Summit in August, which saw the five-nation BRICs group of emerging economies expand their membership and, for the first time, present themselves as a viable alternative to the G7 which can represent the real priorities of the developing world.

However, there has also been positive signs that this bloc economy will not be as divided as some commentators presumed, with positive meetings between United States President Joseph Biden and Chinese Premier Xi Jinping just last month, confirming the nations shared understanding of the benefits of continued globalisation.

Irrespective of the scenario, what is certain is that there will remain a need for IFCs, such as the BVI, to support crossborder trade and investment.

Analysis in the Beyond Globalisation report found that BVI business companies hold US$1.4 trillion of assets, equivalent to 1.5 per cent of global GDP. These holdings facilitate crossborder investment through physical, corporate, and financial assets, enabling real investment in essential infrastructure projects and industries.

This impact is felt across the world; investment mediated by the BVI supports around 2.3 million jobs worldwide, with China (including Hong Kong) accounting for one million and around 400,000 in Europe and North America. Analysis also revealed that the economic activity and incomes generated by these 2.3 million jobs contributed to over US$13.8 billion annually to government treasuries worldwide.

The global impact of BVI’s financial centre is a result of a wide breadth of services offered. From incorporation, through to mergers and acquisitions, public listings, privatisation, digitalisation, restructuring, litigation, insolvency, and liquidation, the centre can cater to the needs of companies through every step of their business and investment journey.

The global reach and appeal of the BVI can also be attributed to its track record on financial regulation. As geopolitical events alter the regulatory environment, the BVI remains committed to achieving, the highest standards in tax information exchange, transparency, and anti-money laundering (AML) measures, working closely with international governments and bodies in a co-ordinated response to challenges. Through this, the BVI is ensuring that companies have access to the global economy, even in times of economic fragmentation and financial shifts.

IFCs make a significant contribution to the global economy and will be vital in facilitating crossborder business and investment in this period of challenged economic integration

The threat of climate change is undoubtedly amongst the biggest challenges facing our global economies and societies. So much so, that the search for climate solutions is inspiring global collaboration even in times of geopolitical fragmentation.

This is evident in the recent COP28 Conference in Dubai whereby representatives from almost 200 countries came together to discuss how international action can be harnessed to tackle climate change and environmental degradation.

As an island-nation, this is an issue that hits close to home for the BVI. Our Caribbean region is of particular risk from tidal patterns, heavy rainfall, and extreme weather. Furthermore, extreme weather events threaten the local tourism industry, and the jobs which rely on it. The region has a unique vulnerability to climate change that inspires a commitment from the IFCs in the region to lead on mitigating these risks and driving real global change.

One of the ways this is being progressed is through the Bridgetown Initiative. Led by Barbados Prime Minister Mia Mottley, the initiative calls for the reform of existing institutions to finance climate resilience and the Sustainable Development Goals (SDGs).

Focusing on debt restructuring and climate financing, the initiative is steeped in the principle that a more equitable and fit-for-purpose global finance system must be created to allow developing nations to invest in their future and protect their nations from the effects of climate change, of which they are particularly vulnerable to.

It is also a recognition that the richer, developed nations who are responsible for the majority of carbon emissions and environmental degradation must also be responsible for financing the solutions.

The popularity of ‘green finance’ and ‘blue finance’ – a new financing structure to support projects focused on the sustainable use of ocean resources – is growing, and IFCs are at the forefront of this shift. For example, the BVI has established one of the first Climate Change Trust Funds in the Caribbean, allowing it to receive funding for climate-related projects and to explore how it can maximise the impact of funding.

The Caribbean region is emerging as a leader in the fight against climate change and, by harnessing its decades of knowledge and expertise in finance and investment, the BVI is in a unique position to act collaboratively with its neighbours and drive effective and innovative change on a global level.

Another shift seen in the financial sector over the last 12 months is how to respond to, and move forward from, events in the digital assets and crypto sector.

The collapse of FTX in November 2022, the subsequent trial and conviction of former Chief Executive Sam Bankman-Fried for fraud and conspiracy, and last month’s guilty plea to criminal charges of cryptocurrency exchange Binance founder Changpeng Zhao were some of the most discussed business stories of the last 12 months. For many, the events served as a cautionary tale for under-regulated financial activity.

Digital assets and cryptocurrencies may have had a challenging year, but they are still considered a hugely promising step for the financial services industry. In fact, the total addressable market of digital assets is expected to be worth between US$8 trillion and US$13 trillion by 2030, and with major financial institutions such as BlackRock filing new applications with the US Securities and Exchange Commission for a crypto exchange-traded fund (ETF) in the last month, there are signals that the confidence in the sector is rebuilding. The FTX collapse, rather than being a death-kneel for the industry, is proving to be a stimulus for much-needed deeper regulation.

As we look to 2024, the BVI is exploring just that. Already a global leader in digital assets, with a world-leading regulatory environment and innovative ecosystem, the jurisdiction is committed to progressing the sector and embedding regulation into financial processes.

For example, since the Virtual Assets Services Providers (VASP) legislation went into effect in February this year, the BVI Financial Services Commission, the regulator, has received more than 60 applications from entities and businesses in the digital assets space eager to be established and regulated in the jurisdiction.

Creating a new legal framework for the registration and supervision of individuals engaged in virtual asset services, the new legislation has further enhanced the reputation of the BVI as a trustworthy home for digital assets.

Also, according to a report from PwC, the BVI overtook the United States as the second most popular location for crypto hedge funds to domicile last year, second only to the Cayman Islands. With the steady increase in applications in 2023, we expect its share of the global market to continue to rise.

In this uncertain climate, it can be useful to heed the sentiment of Heraclitus and remember that there is nothing permanent except change. It is how we respond to this global change that will determine future success and growth.

In 2024, the BVI will continue to remain resilient and agile, responding rapidly to challenges and embracing the new opportunities that innovation and technology provide.

IFCs, such as the BVI, make a significant contribution to the global economy and, as outlined in our report: Beyond Globalisation: The British Virgin Islands’ Contribution to Global Prosperity in an Uncertain World, will be vital in facilitating crossborder business and investment in this period of challenged economic integration.

This will be critical as the global community seeks to push forward on key issues such as regulation and climate change and the BVI will remain at the forefront of driving collaboration in these key areas.