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The traces of the flow of world money: beyond borders

  • The United States is one of the most active markets in the flow of global wealth
  • The deposited Chinese funds increased by 721% in three years until June 2017
  • The increase in foreign flows has challenged regulation with the boost of technological developments and the expansion of capital collection systems

Stricter controls on the movement of capital, precautions with respect to domestic economic policies and greater expectations in relation to international markets stimulate large cross-border money flows through funds and alternative investment models.

According to FlexFunds and despite the paradox of protectionism that has been revived in developed economies, globalization has led markets towards the opening of borders and a changing flow of resources. Today, wealth is in constant movement on the planet through non-bank funds that include "individual, corporate and government deposits".

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Money now moves at a record rate. An analysis of the data from the Bank for International Settlements (BIS) confirms that foreign non-bank deposits "increased by 97,000 million dollars in the year to June 2017 in the 29 locations that provide detailed reports", according to the report The Wealth Report . Just in that list appears the United States as one of the most active markets in the flow of global wealth, not only as a point of origin but also as a destination for international investments, as revealed by the figures in the study.

On the other hand, it is explained that Chinese funds deposited increased by 172,000 million dollars, which is equivalent to 721% in three years until June 2017. While "deposits held by Russian non-bank entities increased by 6,000 million of dollars, an advance of 21%, "he says.

The expansion of alternative investment vehicles

These continuous flows of money have led to the creation of alternative investment vehicles around the globe, ranging from options for securitization of assets to new private funds that come to boost business ideas, the development of sectors or the modernization of the financial apparatus .

Markets like Colombia have seen a great growth, where "the funds that are operating in the country added in two decades commitments of capital that surpass the 28,000 million dollars", according to a report of Portfolio on Colombia, in which a study is cited of the firm EY and ColCapital.

Securitization, an instrument that converts an illiquid asset into a bond that is issued in the capital market and generates returns to investors, also contributes to the dynamics. New funds interested in generating profitability from enterprises with scalability potential or particular industries that grow at a good pace in a country, are easily distributed through securitization.

After the global financial crisis of 2008 and the strengthening of control mechanisms, securitization has become an attractive financing option and diversification of the investment portfolio regardless of the size of the organization.

A recent analysis of Portafolio, for example, explains that "in 2006, the football team Arsenal FC raised 260 million pounds through a securitization scheme following the example of Newcastle, which in 1999 obtained 55 million pounds thanks to the 'securitization' of its box office. This money was used to pay existing debts and build the new team stadium. "

The trend shows that the international flow of wealth continues its progressive course and manages to overcome the porous regulation of markets, despite attempts to place greater emphasis on fiscal control in particular cases that do require it. "Some investors seem willing to stay out of reach of regulations. USA UU and Taiwan are a minority of the major economies that have not committed to the CRS (Common Reporting Standard), "adds The Wealth Report.

This financial movement beyond borders is a challenge for most markets, in a scenario in which diverse mechanisms coexist for the accumulation of wealth such as cryptocurrencies, the disruption of "Fintech" and the ease with which You can securitize assets or create investment funds. All are elements that have contributed to these movements of money at a frenetic pace in recent years.

The Wealth Report states that countries such as China have tried to put a control on investments beyond their borders and therefore since July 2017 banks "must report on any client that deposits or withdraws more than $ 10,000 in foreign currency in a single day, and since the beginning of this year, the government limited annual withdrawals abroad of Chinese bank accounts to $ 15,400. "

Other alternatives consist of imposing taxes and strengthening fiscal rules to have greater control over operations as they are already doing in Australia, New Zealand or the United Kingdom. However, through the CSR initiative, promoted by the Organization for Economic Cooperation and Development (OECD), the aim is to create homogeneous control mechanisms for this type of operations involving international funds.

It can be concluded that the increase in foreign flows has challenged regulation with the promotion of technological developments and the expansion of capital collection systems, while at the same time providing great opportunities for the development of economies.

SUBMITTED BY Funds Society