Hungary Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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We are living in exceptional times. Global GDP per capita has almost tripled in the past 50 years. Thanks to this remarkable growth, hundreds of millions of people have escaped poverty and joined the global middle class.

However, growing welfare brings unparalleled challenges. To ensure growth, mankind is using up an unprecedented amount of natural resources. Growth has a huge 'price tag', not only with respect to the natural environment but also in finance. Global debt is rising steadily. Meanwhile, our societies are experiencing momentous changes. The demographic boom is creating overpopulated and younger areas, as well as depopulated and ageing ones. Inequalities have reached dangerous levels, causing considerable social tension.

At the same time, the world has irreversibly entered the most tumultuous technological revolution in its history. The consequences are unpredictable. The concept of sustainable development has to be redefined once and for all. Sustainable growth can no longer simply be described by GDP. The impact of our economies on the natural environment, social cohesion and access to funding needs to be addressed comprehensively.

The challenges of the 21st century can be classified into three broad categories: technology, money and geopolitics.

Digitalisation is already part of our everyday lives. The spread of robots and AI will transform the economic order and data will become the most important raw material. Over time, machines may expand not only our physical capabilities but also our mental capacities, which may open up extraordinary perspectives for development on the one hand, but may further erode social stability on the other.

The transformation of finance has been accompanied by previously unimaginable phenomena. Inflation has practically disappeared from the developed world. Negative real interest rates have become commonplace, while nominal yields have a negative sign. Central bank measures previously considered unorthodox are becoming part of traditional instruments. Fintech firms are challenging banks not only in specific market segments but in their main businesses. More and more market players are actively looking for the currency of the digital age. The new solutions may fundamentally change our idea of money. It is vital that this process be governed by the state, and especially central banks, which efficiently represent long-term public interests, rather than giving free rein to short-term private interests.

The geopolitical environment is also being radically altered. The world's economic focal point is shifting eastwards. In this respect, the increasing importance of the closer economic relationship between Europe and Asia can be crucial. Urbanisation may gain even further momentum, with megacities vying to become the backbone of the global economy. Globalisation is also being transformed: achieving an efficient flow of raw materials, goods and capital, were the key goals, but, skilled labour has increasingly become the focus of fierce competition worldwide. At the same time, the fight for widespread access to and use of data is just around the corner.

In the light of the above, it is not an exaggeration that we are on the brink of a new age. The search for the right solutions calls for highly open minds and the shattering of taboos. Old textbooks cannot provide answers to the exceptional challenges of the 21st century. Our duty as economists is to make the transition to the new age as smooth as possible and to ensure that challenges are turned from obstacles into opportunities.