Fletcher on Finance

International financial markets have been in a state of flux due to a variety of factors, including war, cyberattacks, political unrest, and the COVID-19 pandemic. TFN recently caught up with Fletcher experts to discuss what they describe as “a global polycrisis” and its recent effects on the U.S. dollar, cybersecurity, and compliance.

Michael Klein, William L. Clayton Professor of International Economic Affairs on the strength of the U.S. dollar:

The U.S. dollar reached a 20-year high in the DXY index in mid-July, a 13% appreciation since the beginning of the war between Russian and Ukraine. There are a number of reasons for this. The U.S. is viewed as a safe haven so an increased demand for American assets, particularly Treasury bonds, during times of global instability drives up demand for dollars, leading to a dollar appreciation. This flight to safety, coupled with the perception that the war in Ukraine will have fewer adverse effects on the U.S. economy as compared to those of the Euro area, the United Kingdom and Japan, as well as the aggressive stance of the Federal Reserve to combat inflation, contributes to the U.S. dollar’s strength.

A strong U.S. dollar has an impact on economies across the globe and will have important consequences both domestically and internationally. Thus far, there have been no calls for government efforts to weaken the dollar. History suggests this practice is often futile and illustrates a “tail wagging the dog” scenario, in which the main variables of concern–like inflation and growth–are sidelined.

Josephine Wolff, Fletcher Associate Professor of Cybersecurity Policy on cybersecurity and the future of compliance:

 Cybersecurity threats will remain a challenge in the future. Finance professionals will experience standard cyberattacks, such as ransomware, fraud, and data breaches, but also compliance challenges in a rapidly evolving data protection and privacy regulatory landscape.

The proliferation of new cybersecurity and digital privacy laws in Europe, China, Brazil, India, and others, has left many companies scrambling to determine how to ensure that their data and networks meet new requirements for security, processing, algorithmic analysis, and outside audits.

Finance professionals have long been at an advantage in this domain because this sector is already so heavily regulated. As a result, they have been able to pivot more easily to incorporate new regulations than firms in the tech sector. However, as many financial firms try to develop their machine learning capabilities and as more countries are thinking about how to regulate artificial intelligence, compliance will become increasingly complicated and technical, presenting new challenges for risk and IT security teams across organizations.

 About the Contributors:

• Professor Klein is the Executive Editor of Econofact, a non-partisan publication designed to bring key facts and incisive analysis to the national debate on economic and social policies. Written by leading academic economists from across the country, it is published by the Edward R. Murrow Center for a Digital World at The Fletcher School at Tufts University. Follow Professor Klein on Twitter at @MKleinEF and Follow Econofact @econofactorg.
• Professor Wolff is an associate professor of cybersecurity policy at The Fletcher School at Tufts University. Her research interests include liability for cybersecurity incidents, international Internet governance, cyber-insurance, cybersecurity workforce development, and the economics of information security. Follow Professor Wolff on Twitter at @josephinecwolff and look out for her new book, Cyberinsurance Policy, out next month from MIT Press.

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