Photo: Róbert Hegedüs
Mariann Őry
05/01/2024 09:00
- You are known to the public as a monetary expert, but now you are being interviewed by a geopolitical magazine. Why do you think geopolitical thinking is important?
- It is no longer enough to be a good economist to have a precise understanding of the world economy. Geopolitical processes are crucial in determining changes in commodity markets, world trade, global value chains or financial markets. Geopolitics has also risen to the same level within economic policy as monetary, fiscal or regulatory policy. This is not a new phenomenon, as there have been events with a geopolitical origin but also with profound global economic impact in the past. Examples include the unpegging of the US dollar to gold, the oil price shocks of the 1970s, and the integration of China into the world economy in the 1980s and 1990s. What is new is that the world has become unprecedentedly interconnected in recent decades, so that any geopolitical upheaval can cause major ripples in distant corners of the world. Hungary is among the most open economies in the world. The key to preserving our success and sovereignty is to map these movements properly.
- What geopolitical challenges do the countries of the Eurasian supercontinent face?
- In several regions, trends such as climate change, demography, scarcity of basic raw materials or even water are simultaneously limiting development. This in itself is exacerbating existing conflicts. Meanwhile, the positions of the major powers are shifting from cooperation to competition. The leading powers are working to consolidate and expand their own geopolitical spheres of interest. In the current tense moment, it is important to avoid a Thucydides Trap situation, where the world's economic and power realignment is creating fears that could even lead to wider confrontation. There is a huge potential for cooperation, or even coordination, rather than fragmentation, which is essential to meet the global challenges of the twenty-first century.
- What are these global challenges?
- Global development will be fundamentally influenced by four areas. For the first time in modern history, the major economic powerhouses are facing shrinking demographic trends. Seventeen of the twenty countries with the lowest fertility rates in the world are in Eurasia. Meanwhile, the African continent continues to experience a population explosion, with the continent's population set to rise from 1.4 billion today to nearly four billion by the end of the century. All this will have at least three major consequences: fierce global competition for skilled labour, continuous waves of migration, while budgets and large social welfare systems will come under increasing pressure. Completely new approaches and strategies are needed to ensure that the living standards achieved in Eurasia remain sustainable. Key directions for action are greater efficiency and productivity based on technological progress, alongside support for childbearing. As the demographic outlook is unprecedented, so is the global debt situation. Never before has the world been so indebted. According to IMF data, world debt is nearly two and a half times global GDP. The world economy is built on a system of debt-financed growth and debt repaid from growth, but this system is fragile. It works as long as we can keep injecting new resources into the economic bloodstream. As soon as resources become limited for whatever reason, the system starts to crackle. The signs are the high inflation and highly volatile financial market environment of our time. Interest charges are taking an ever larger slice of budgets, alongside defence spending and the cost of large utilities, while the need to renew energy infrastructure is becoming increasingly urgent. This formula is becoming increasingly difficult to resolve within the financial framework of the twentieth century, and revolutionary changes are needed. Climate change and the green transition are global issues that concern us all. The temperature rise of plus 1.5 degrees Celsius agreed in the 2015 Paris Climate Agreement will be reached by the end of the decade. The question is by how much will it exceed it. Global action to limit climate change has begun, but it is far from enough. We are in the final minutes of the twenty-first hour, where the cost of delay is exponential. Everything from funding systems, regulation and taxation to education must be infused with the idea of sustainability. If there is the will, it is possible to achieve rapid success. In 2019, we received our green mandate from Parliament in the Central Bank Act, and in just a few years we have become one of the world's leading green central banks. Technological advances and the spread of artificial intelligence are superseding all previous growth models. By the end of the 2010s, artificial intelligence was approaching, and in some areas even surpassing, human performance in a number of areas - handwriting and speech recognition, text comprehension, languages. This is a huge opportunity, but also a challenge. The benefits of robotisation must be balanced against the expected negative societal consequences. Technical progress creates jobs, but it also creates destruction. Significant social groups may face a difficult period of adjustment. Economic policy has a responsibility to facilitate this transition.
- What role can the Central and Eastern European region play in this transition?
- Central and Eastern Europe can play a particularly important bridging role in Eurasian cooperation. We are part of one of the largest consumer markets in the world, while our region remains one of the most attractive investment destinations in the world, where Asian investors are now increasingly active. It is a misconception that Europe will be able to solve its economic problems in isolation. We need a strong Eurasian cooperation based on mutual benefits. We need to open up to the East while maintaining our strong links with the West. For Europe, the issue of energy production and storage is a key priority to remain competitive. There are already signs of rapid diversification in energy production, but the issue of energy storage is still unresolved. China is inevitably the world's leading battery power, a technology that must be integrated into the European economic mainstream.
- Asian countries, including China, are also at the forefront of innovation in finance. Which areas are particularly important to you?
- Money is becoming digital. Not only as a form of payment, but the whole process of money creation could be transformed. I see huge potential in the digital central bank money, or CBDC, projects that are already being actively tested in China. The challenges of the twenty-first century cannot be met without a monetary instrument system capable of more efficient and targeted action. Another important area is the application of artificial intelligence in finance, combined with the benefits of big data analysis.
The author is managing editor of Eurasia
