Bank for International Settlements at Frankfurt School

The Frankfurt School Centre for Central Banking welcomed Gaston Gelos, Deputy Head of the Monetary and Economic Department and Head of Financial Stability Policy at the Bank for International Settlements (BIS), to its campus on Monday, 30 June, to present the newly released BIS Annual Economic Report 2025. Jens Weidmann, Professor of Practice in Central Banking at Frankfurt School, opened the event and introduced Gaston Gelos who outlined the three key themes of the BIS report: the global macroeconomic outlook, the growing interconnectedness of the financial system, and the modernization of the monetary system.

Macroeconomic Outlook – A Soft Landing in Question

Earlier this year, the global economy appeared on track for a soft landing, with inflation declining, labour markets stabilising, and financial markets calm. However, the outlook has since deteriorated. The announcement of sweeping U.S. tariffs, a major fiscal expansion, and elevated policy uncertainty have led to downgraded growth forecasts. Indicators of trade and economic policy uncertainty have reached record highs, surpassing even those seen during the COVID crisis. Longstanding structural vulnerabilities – including low potential growth, unsustainable fiscal positions, and the rise of unregulated financial intermediaries – further weaken economic resilience. Demographic shifts, climate change, and geopolitical tensions add to a more volatile global environment. The report underscores the urgency of structural reforms that have been neglected for over a decade.

Three Key Financial Vulnerabilities

Gelos highlighted three critical areas of concern:

1. High public debt: Rising interest payments have renewed concerns over debt sustainability and investor demand for government bonds.
2. Non-bank financial intermediation (NBFI): Hedge funds and private credit funds have gained prominence but remain underregulated and are increasingly interconnected with banks, raising systemic risk concerns.
3. Trade fragmentation: The weakening of global trade relationships threatens economic efficiency and innovation.

In response to these evolving challenges, Gaston Gelos stressed the principle of “same risk, same stringency of regulation”.

Interconnected Financial Conditions – Risk Moves in Sync
The BIS has developed a two-factor model to capture global financial conditions. Its findings show that both short-term interest rates (“level factor”) and credit risk perceptions (“risk factor”) are increasingly synchronised across countries. A key driver is the rapid expansion of the FX swap market, which reached $111 trillion by end-2024. The market’s short maturities heighten liquidity risks, especially during periods of financial stress. The report notes a marked increase in two-way transmission of financial conditions, in particular among advanced economies, making timely domestic policy responses more difficult.

Monetary Modernisation – Towards a Tokenised Future
The third section of the report explores a vision for a future-proof monetary system. Central to this vision is the concept of a unified ledger, integrating tokenised central bank money, tokenised bank deposits, and tokenised government bonds. Through initiatives such as “Project Agora,” the BIS envisions real-time settlement and messaging via smart contracts, replacing the traditional correspondent banking model. Such a system would preserve the strengths of the current two-tier structure while enabling automation, transparency, and enhanced compliance. By contrast, stablecoins fall short on three key dimensions of money – singleness, elasticity, and integrity – making them unsuitable as a core monetary instrument.

“Despite the fragmentation of the real economy, the global monetary and financial systems are more tightly connected. To deal with the challenges to financial stability and monetary policy, central banks and regulators need to stay abreast of the outlined developments.”

Gaston Gelos, Deputy Head of the Monetary and Economic Department and Head of Financial Stability Policy, BIS

The presentation was followed by a lively Q&A session moderated by Emanuel Mönch, Professor of Financial and Monetary Economics, and a concluding networking reception. The event once again highlighted Frankfurt School’s role as a vital platform for dialogue between academia, policy, and financial practice.