The scenario of global economic and financial catastrophe has dissipated, and confidence seems to be recovering. One piece of evidence that the “free fall” of the world economy may have stopped is the evolution of growth projections for the year (Figure 14). After the sharp deterioration post-September 2008, the downward revision to the growth expected for this year has moderated in magnitude significantly in most of the economic zones. In Japan, which has suffered one of the most intense revisions in the past few months, the latest forecast revised upwards the expected growth for 2009. GDP growth for 2010, which had posted small but systematic falls since September, is showing stability in the latest forecasts. Combined with this, perceptions regarding investors’ appetite for risk seem to be picking up. Sovereign premiums have declined, capital flows to emerging economies are returning, interest rates on Treasury bonds are increasing in many economies and the various expectations indicators are signaling some degree of recovered confidence. Extreme pessimism is withdrawing, but we cannot expect an accelerated recovery. The confidence crisis is one piece – an important one – of the explanation of the synchrony and strength of the shock that occurred at the end of last year. However, the distortions that motivated this confidence crisis will have persistent effects, even after the confidence is fully recovered. The loss of confidence explains the sharp and sudden downfall of the global economy, as well as its propagation to the other countries.

We have to avoid shifting from a dollar-dominated system to a confrontational non-system with, for instance, a dollar world opposed to a renminbi world. We can all agree that such a fragmentation would generate instability, notably creating the risk of runs from one currency to another. iii Competitive currency devaluations between the two world wars created such instability, when the dollar and the pound were competing for leadership. Fragmentation might also lead to the development of separated payment systems with limited interoperability. And it could harm the GFSN (as reserves could be less convertible) with, consequently, a misallocation of capital. Another current concern is China’s reluctance to join the international community cooperative debt treatment process, the Common Framework. Finally, we all hope that the sanctions and other measures taken in an emergency situation will be withdrawn after a peaceful settlement of the geopolitical situation. In addition to this public – or geopolitical – fragmentation, there is a risk of “private” fragmentation through the disorderly development of crypto-assets, among which the somewhat misnamed “stablecoins”. As demonstrated by the turmoil on financial markets in recent weeks, they are possibly very unstable. We have long stressed the risks of such speculative investments. But it’s not enough: this must be taken as a powerful wake-up-call for a global regulation, which is urgently needed. MiCA on the European side paves the right way. Crypto assets could disrupt the International Financial System if they are not regulated, overseen and interoperable in a consistent and appropriate manner across jurisdictions.