Financial Globalisation Beyond international trade, financial globalisation has also expanded tremendously. Cumulative global bond and equity market flows are now more than 80 times larger than that in the year 2000 and far exceeded trade flows. There is no doubt that financial integration, if properly managed, can catalyse a more efficient allocation of productive capital and know-how transfers, with the intended benefits. However, financial globalisation has also been accompanied by highly-volatile short term portfolio flows, which frequently led to major disruptions to emerging economies’ financial markets. At the extreme, global financial flows can lead to the build-up of domestic vulnerabilities, such as currency mismatches, external indebtedness and broader financial imbalances. When financial globalisation becomes in itself a source of shock, financial markets can be easily overwhelmed. In Malaysia, two-way capital flows have increased by almost three-fold in the aftermath of the Global Financial Crisis. Similar to other emerging economies, we have also experienced several episodes of sharp capital flow reversals. Supported by firm macroeconomic fundamentals, our deep and broad financial markets were able to intermediate these flows in an orderly manner. The experience of emerging economies in dealing with capital flow volatility underscores the need to always keep our “own house in order”. While this is necessary, it is not sufficient. Often, we have seen how external developments that are beyond our control, such as the Taper Tantrum and trade tensions, could trigger periods of sharp capital flow volatility in emerging economies with severe consequences. There are “innocent bystanders”.

Policy configuration will need to be pragmatic and premised on the risk that is being managed. Indeed, macroprudential policies have been found to be effective in managing financial cycles and associated risks, such as excessive credit growth and asset price inflation. Nevertheless, sizeable shifts in capital flows could cause disorderly financial market conditions and excessive exchange rate movements. In pursuit of preserving stability, policymakers must therefore be able to avail ourselves to a broad range of policy toolkit. Globalisation of Human Capital Lastly, I will briefly touch on what globalisation means for the average person in today’s economy. Being skilled alone is no longer a guarantee of employment. With offshoring of jobs, workers are now competing in a fluid workplace, against a global workforce. A job that is available locally today can be effortlessly transferred to a different country tomorrow. Essentially, the increasingly dynamic nature of work underscores the importance for workers to constantly adapt, re-skill and up-skill. A global workforce also means that borders no longer limit the search for preferred jobs. In fact, globally, 258 million people, almost the size of Indonesia’s entire population, are living in a country that is not of their origin. Another aspect is the intensification of globalisation of information. Technology has brought the world into the palm of our hands. Last year, 3 in every 4 persons were active on a social media platform. In fact, if Facebook were a country, with 1.5 billion active users, it would be the largest country in the world today.