The Geopolitics Effect on Banking.
By Angelos Tsigkopoulos
Founder & CEO, Diorasis Group
Publisher, The Decision Maker magazine
Keynote Speaker at The International Negotiations Conference, NegotiCON 2025
Publisher's note
I remember my banking times with Citi International Personal Bank (IPB), in London, Canary Wharf, fourteen years ago in 2011, every time that I have to reiterate that Banking is more than just a financial system; it is a complex web interwoven with geopolitical influences and strategies.
I used to educate my investors rather than just selling them a financial product, unlike those bankers who were responsible for the subprime mortgage market that brought Lehman Brothers down and produced the global economic crisis in 2008, by selling mortgages to customers who did not meet the criteria to get the amount of the mortgage they were given.
I always believed that a fully-informed investor contributes to a healthy global banking system. My favourite opening line during my discussions with my investors was, "as countries vie for economic power and stability, the banking sector plays a pivotal role in shaping international relations, and vice-versa. Actually, historically speaking, it is rather true to say that International Relations and Political developments, affect global markets at a point where you can earn enough today and see you driving a Ferrari but send you driving a bicycle the very next day".
I still remember my argument with the Citi analysts when they produced a paper in July 26th 2012, being short on the Euro, while the announcement of Mario Draghi, the then President of the ECB, about the intentions of the ECB about the future of the Eurozone, was still pending. When Mario Draghi stated, "ECB will do whatever it takes to save the Euro", the Euro gained 1,03% against the US Dollar, almost immediately and that is a perfect example of how political developments can affect the financial markets.
In this light, we shall explore the intricate geopolitics of banking, examining how political tensions affect financial institutions, global markets, and the economies of nations.
The Intersection of Banking and Geopolitics
The connection between geopolitics and banking is a dynamic and intricate relationship influenced by trade agreements, sanctions, foreign investments, and regulatory frameworks. Banking acts as a tool for nations to project power and influence in the global arena.
Countries with strong banking sectors can significantly impact the global financial system. The United States, for instance, benefits from the U.S. dollar being the world’s primary reserve currency. This status gives the American banking system a unique influence, enabling the U.S. to dictate terms in international trade, affecting countries' economic policies around the globe. In fact, about 60% of all foreign exchange reserves are held in U.S. dollars, highlighting its dominance.
Given these connections, it's clear that banking transcends finance. It is deeply linked to national strategies and policies. Shifts in banking can have significant geopolitical ramifications, impacting bilateral relations and international collaboration.
The Role of Central Banks in Geopolitical Strategy
Central banks are central figures within a country's banking structure and are influential players in the geopolitical landscape. Their monetary policies can shape domestic economies and global markets alike.
In times of economic crisis, central banks, such as the Federal Reserve in the U.S. or the European Central Bank in Europe, often implement monetary policies that can spark international effects. For example, when the Federal Reserve raised interest rates by 0.75% in 2022, it led to a significant strengthening of the dollar, ultimately affecting trade balances and investment dynamics for countries relying on exports.
The implications of central bank policies are substantial. Loose monetary policies might result in capital flowing into emerging markets, boosting investment and development. In contrast, tight policies could hinder countries dependent on outside investments, threatening their economic stability.
Sanctions and Their Impact on Banking
Sanctions serve as a powerful tool in international relations and often focus on national banking sectors. Economic sanctions can severely disrupt a nation's financial operations and limit its participation in global markets.
For instance, sanctions against Iran have significantly restricted its banking operations, limiting trade opportunities and forcing the country to seek alternative financial pathways. A study revealed that these sanctions reduced Iran's oil exports by over 90% in 2019, which had far-reaching consequences not only for Iran but also for countries that traditionally traded with it.
The consequences of sanctions can create uncertainty in global markets. They affect investment decisions and economic forecasts. Some countries, sensing vulnerability, may develop parallel banking systems to navigate around established international financial rules. This trend indicates adaptability in the face of geopolitical challenges.
Emerging Markets and the Geopolitics of Banking
As established powers grapple with modern geopolitical challenges, emerging markets like China and India are gaining prominence in the banking realm. These nations are not just expanding their financial systems; they are also actively shaping the global economy.
China's Belt and Road Initiative exemplifies how geopolitics aligns with banking ambitions. By financing infrastructure projects across Asia and beyond, China fosters economic development while establishing a financial network that enhances its influence. In fact, Chinese banks lent over $60 billion in infrastructure financing in 2021 alone.
This shift presents both risks and opportunities for established banking powers. Emerging markets provide substantial investment potential, yet their rapid rise challenges existing financial norms. The competition between these new banking players and traditional institutions creates a fluid landscape where power and financial control are keenly contested.
The Future of Banking in a Geopolitical Context
The banking landscape will likely continue to evolve under the influence of geopolitical factors. The rise of digital currencies presents both possibilities and challenges for traditional banking systems.
Around the globe, governments are examining the implications of cryptocurrencies and central bank digital currencies (CBDCs) as potential economic tools. A report by the Bank for International Settlements indicated that 86% of central banks are exploring CBDCs. These innovations could disrupt traditional banking structures and redefine national and international financial relations.
Additionally, the tension between major powers, such as the U.S. and China, will persist and influence global banking strategies. Financial institutions must remain agile to keep up with these shifting dynamics to maintain their competitiveness and resilience.
My Final Thoughts
The geopolitics of banking is a complex, ever-changing subject that warrants careful attention. Understanding the relationship between banking and international relations allows us to see how financial institutions shape and are shaped by geopolitical forces.
As we move forward, having adaptable strategies and innovative approaches in banking will be crucial. The interplay of politics and finance will continue to unfold in ways that present both challenges and opportunities on the global stage.
In this evolving context, banking will play a vital role in influencing not only economies but also societies and governance worldwide. Grasping this relationship is essential for anyone interested in the future of international relations and global finance.
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