It has been almost exactly 50 years since the collapse of the Bretton Woods system, which introduced a fixed global exchange rate and convertible currencies as a means of promoting post-war recovery and economic growth.
By the 1960s, inflation had been pushed to unsustainable levels, and in 1971, then-US president Richard Nixon announced that the dollar would no longer be pegged to the price of gold. Bretton Woods did not survive the transition.
Half a century on, we are still trying to stabilise the world’s financial systems and rebuild economic resilience, which was upended by the global financial crisis of 2008 and has taken a further hit since the Covid-19 pandemic.
The Swiss Re Institute’s Resilience Index 2021 found that the pandemic had led to an 18 percent weakening in global economic resilience. But what could put us on a firmer footing and help to address structural imbalances?
If the post-war period was kept stable by a gold standard, the future of sustainable growth could be another colour entirely.
Sustainability as an engine of growth
There’s a growing recognition that the push to net zero has the capacity to generate tremendous value through new solutions to the challenge of climate change. Investing in cleaner ‘green’ energy alone represents a $100trn opportunity.
It’s worth reflecting on this in an era characterised by several key imbalances: overreliance on debt financing and central bank intervention, high levels of sovereign debt, income inequality and an uneven economic recovery.
The economic rebound we’re seeing now is cyclical and could be short-lived. So we can’t afford to be complacent. In particular, we need to ensure our resilience to risk, including climate impacts. Failure to keep global warming in check could lead to a 10 percent loss in global economic value by mid-century.
In insurance terms, climate risks are expected to result in a 22 percent increase in global property premiums, or up to $183bn, by 2040 as weather-related catastrophes will likely become both more intense and frequent.
In some key markets like China, France, Germany and the UK, property catastrophe losses are predicted to rise by as much as 120 percent over the next 20 years as a result of climate change.
Forward-looking, long-term thinking
What’s clear is that we cannot expect to return to a pre-Covid world – price levels will be higher than before and inflation pressures will remain due to stimulus, economic boom, supply constraints and loose monetary policy.
We need forward thinking from governments and corporate leaders to create stability.
(Re)insurers have an important role to play here, by engaging in long-term scenario modelling and diversification of risk. They can make societies and economies more resilient by strengthening public-private partnerships to tackle risks like natural catastrophes, cyber and pandemic events. And they can enable sustainable investments and drive growth, both as shock absorbers and institutional investors.
Mapping the big picture
When we look at the new era of economic and climate instability, and the need to redress imbalances, we need to be thinking not just for today, but for the long term.
The world’s waning resilience needs to be a wake-up call for policymakers and the private sector to work together to transform our economies into a more sustainable and inclusive model. If we don’t, then the risk is that there will be more instability down the road.
This leaves us with one option only: we need to act now to avert worst-case scenarios – and pave the way for a stable, sustainable future. And that future is green.