BIS Warns of Deepening Global Economic Fault Lines Amid Trade Wars, Debt Surge, and Dollar Decline

The Bank for International Settlements (BIS), often referred to as the central bank for central banks, has warned that growing trade tensions and geopolitical instability are exposing deep weaknesses in the global financial system. In its latest annual report, BIS highlighted that the U.S.-led trade war and shifting economic policies are dismantling the long-standing international economic framework. Agustín Carstens, the outgoing head of BIS, emphasized that the global economy is at a pivotal juncture marked by uncertainty and waning public trust in key institutions.

Central Bank Tensions, Trade Protectionism, and Mounting Global Risks Challenge Economic Stability Worldwide

Amid these challenges, Carstens addressed tensions between central banks and governments, exemplified by U.S. President Donald Trump’s criticisms of Federal Reserve Chair Jerome Powell. Rather than condemning the remarks, Carstens noted that friction is a natural aspect of their relationship and is “almost by design.” This comment came ahead of a looming July 9 tariff deadline set by Trump, capping months of geopolitical unrest that has further unsettled markets and economies worldwide.

The BIS report pointed out that rising protectionism is worsening a long-term decline in global economic and productivity growth. Other compounding issues include aging populations, climate change, and fragile supply chains, all of which have made the world economy more susceptible to shocks. Additionally, the post-pandemic inflation surge appears to have reshaped public perceptions of price volatility, adding another layer of complexity for policymakers attempting to manage expectations and restore economic confidence.

Rising Debt, Dollar Weakness, and BIS Profit Amid Global Economic Uncertainty and Instability

One of the report’s major concerns is the continued rise in public debt levels, which reduces governments’ flexibility to respond to crises. Carstens warned that unchecked military spending could push debt even higher, threatening fiscal sustainability.

At the same time, BIS economic adviser Hyun Song Shin highlighted a significant 10% drop in the U.S. dollar since the beginning of the year—its steepest first-half decline since the 1970s. Though not yet alarming, Shin noted that investor hedging activity might be contributing to the slide, and it remains unclear whether this signals a deeper move away from U.S. assets.

Beyond its assessment of global financial conditions, the BIS reported robust financial performance, with a net profit of SDR 843.7 million ($1.2 billion) and a record total comprehensive income of SDR 3.4 billion (\$5.3 billion). The bank also noted that currency deposits had reached all-time highs.

Additionally, the BIS reiterated its warnings about the rapid expansion of stablecoins, an issue it had highlighted in an earlier section of its report. Carstens concluded by emphasizing the importance of the BIS maintaining its highest credit rating as it continues to operate in an environment marked by growing economic division and unpredictability.