The Bank for International Settlements (BIS) has warned in its latest assessment of the state of the world economy that rising trade tensions and fractured geopolitics are exposing deep vulnerabilities in the global financial system, as the world enters a "new era of heightened uncertainty and unpredictability". The Bank for International Settlements (BIS) is an international financial institution supports central banks' pursuit of monetary and financial stability through international cooperation, and to act as a bank for central banks, according to the definition on its website. Agustín Carstens, the outgoing BIS general manager, said the US-led trade war and shifts in global policy are weakening the post-war economic order. "We are at a pivotal moment," Carstens said, adding that public trust in institutions, including central banks, is being tested. The BIS annual report published on Sunday, cited by Reuters, comes ahead of the July 9 trade tariff deadline set by US President Donald Trump and follows six months of geopolitical upheaval. Carstens played down recent frictions between Trump and Federal Reserve Chair Jerome Powell, calling government-central bank tensions "almost by design". The report flagged protectionism and trade fragmentation as particularly concerning, warning they are compounding long-term declines in productivity and growth. It also pointed to rising public debt as a mounting risk, limiting governments' ability to respond to crises. "This trend cannot continue," Carstens said, noting that increased military spending may accelerate the problem. Hyun Song Shin, the BIS's chief economist, highlighted the US dollar's 10 per cent drop since the start of 2025—the steepest first-half decline since the early 1970s. While there is no clear evidence of a long-term shift away from US assets, Shin said recent moves by non-US investors hedging exposure to Treasuries likely contributed to the slide. "We haven't seen anything yet that would give us cause for alarm," he added. The BIS, often described as the central bankers' bank, also reported a record total comprehensive income of 3.4 billion IMF Special Drawing Rights ($5.3 billion) for the year. Attribution: Reuters Subediting: M. S. Salama
