• 20 Sep, 2021 06:00 am

Questions of fluidity

What has really changed in the world of financial IT since the middle of the year?

“Be water, my friend” was a famous piece of advice from the great Chinese-American actor, director and martial arts expert Bruce Lee.

The metaphor suggests that survival and success comes from fluidity - the ability to fill irregular and rapidly changing spaces in a very short period of time.

Fluidity is often demonstrated under pressure, with the result that liquids flow in a direction that would usually be seen as being uphill.

However, in the context of financial IT in general - and the global payments industry in particular - in the third quarter of 2021, what really matters is this: continuous and rapid change to the space that must be filled by the liquid cannot be predicted in advance.

In the Summer 2021 edition of Financial IT, we focused on another metaphor - that of inflation as the “Elephant in the Room”, or a problem that no-one discusses publicly.

We highlighted three aspects of higher inflation. First we argued that- despite what has been said publicly by central bankers prior to that time and more recently - was that higher inflation was inevitable. 

Second, we explained how the global payments industry would contribute to and probably benefit from higher velocity of money.

Most importantly, we noted that - in contrast to the 1970s, for instance - inflation was returning to the world at a time that national economies are integrated globally: this is a scenario that no-one has really experienced.

Over the last three months, the uncertainty has increased.

Indicators of slowing growth in the developed world point to an episode of stagflation (i.e. low or no increase in GDP, but with rises in the general level of prices), yet at a time of labour shortages and upwards pressure on wages.

The new AUKUS pact between Australia, the UK and the United States, to counter Chinese expansionism in East and Southeast Asia highlights increased geo-political risk. (So too does the Taliban’s gaining of control in, and withdrawal of US forces from, Afghanistan).

There has been no clear indication of how the main conundrum in global fixed income markets will be resolved. Central banks’ policies (e.g. through Quantitative Easing, or the creation of money to purchase government bonds and other securities) have suppressed interest rates and yields so that they are negative in real (after inflation) terms. This is a problem for banks and other financial institutions that are compelled to hold bonds and which require positive real returns).

To their great credit, the organisers of Money 20/20 Europe, which will take place in Amsterdam on 21-23 September have recognised that the uncertainty is great and growing.

Events at the conference are organised around five major themes, of which the first and most important is “The What: Creating products you can’t imagine.” 

In different ways, the other four themes support this central question.

In this edition of Financial IT, our contributors explain how they are working towards the delivery of services and products that, until recently, were unimaginable.

In accordance with Bruce Lee’s advice, the payments industry - and other players who are active at the intersection of technology and finance - is getting ready to flow, uphill if necessary, to whatever opportunity presents itself in the next six months.

We wish every success to all who are involved with Money 20/20 Europe.

Andrew Hutchings,

Editor-in-Chief,

Financial IT