Finance is becoming a battleground in geopolitics
It is supposed to be a conference dedicated to deploying finance for social good, traditionally centring on the environment or the global redistribution of wealth. But this year, the Impact2 conference in Paris, where I delivered the keynote speech, had politics and finance centre stage.
And it's no surprise. Much ink has been spilt about Trump's tariffs, the Russia-Ukraine conflict and global financial market turmoil of late. Finance has long since been a silent driver of geopolitical change. But never before has the interplay between the two been so deafening.
As the Kremlin continues to grapple with the crippling consequences of financial isolation, one thing is clear: from Rue de Rivoli to Red Square, finance is no longer just an engine of economic growth. It is a vital tool of statecraft.
Much of the focus in the Russia-Ukraine war has been on the Russian sanctions. The promise of releasing $300 billion of their frozen assets would be much-needed relief to Putin's wartime economy – a strong incentive for peace.
Ukraine's reconstruction, too, will be in large part politics driven by finance. For example, the minerals deal agreed between the US and Ukraine is an investment fund. And much aid that has been donated has been in the form of complex loan structures.
But the financial shifting of political tectonic plates doesn't stop there. For example, the potential thawing of a tariff war between China and America, or threats of potential sanctions on the Iranian regime.
In a world where direct military confrontation between great powers carries immense risk, capital markets are becoming a flash point. Finance is the new battleground in the global tussle for power and influence.
Historically, Britain has been able to punch above its weight because of our world-beating financial institutions. From Lloyd's of London to the City to Canary Wharf, we are a proud nation fuelled by finance. But we no longer have a monopoly. National power is now, more than ever, intertwined with access to and control over these financial systems.
Tanks and aircraft no longer tell the full story
Direct military confrontation is no longer the only option to deter and disrupt malign behaviour. Targeted financial sanctions or restrictions on private lending and investment can serve as an equally strong disincentive. Material capabilities, which include the number of tanks or aircraft a country commands, no longer tell the full story of global dominance.
Finance has become a critical lever of influence, capable of explaining – and even dictating – the shifting balance of power among nations.
Britain and its allies cannot rest on our laurels as others seek to unravel the Western-led financial order on which global prosperity relies. We need to think more thoughtfully, consciously, and strategically about the use of finance, and how we can best use it to confront this century's greatest challenges.
Our country has immensely strong financial credentials, and so we are uniquely well-positioned to make more of finance as a tool of statecraft. More dollars are traded in London than they are in the United States. The City of London's GDP is £110 billion – more than Morocco. And London's insurance market is the largest of its kind in the world.
These endowments and many others, carefully cultivated over centuries of financial prudence, legal certainty and regulatory innovation, are among our nation's greatest strategic assets. They are Britain's unsung heroes and have positioned our tiny island at the heart of decision-making in world politics.
London must continue to be a world-class global financial centre, so we need a global financial strategy that is measured and thoughtful – something that is so far lacking from our current Government. They must beware – these powerful tools may only be effective so long as they are used sparingly.
Free markets, enterprise and innovation are drivers of global wealth. Labour must look past Britain's borders when taxing and regulating our world-beating financial services. So, as much as Rachel Reeves, the Chancellor, may wish to command investment with her pension fund decrees or hike capital gains tax, she should be mindful of the international importance of this sector. There is far more at stake than meeting new fiscal rules.
There are difficult balances to be struck in these times, but they must be struck nonetheless. As Britain confronts global challenges head-on, finance must be seen more as the effective tool in driving geopolitics we can all see that it is. In an era of seismic global change, this is more important than ever.
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