Finance
Global financial system must adapt to better serve economy, UN trade agency says
Published by Global Banking and Finance Review
Posted on December 2, 2025
3 min readLast updated: January 20, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on December 2, 2025
3 min readLast updated: January 20, 2026
UNCTAD highlights the need for financial system reforms to support global trade and economy, focusing on risks to developing countries.
By Catarina Demony
LONDON, Dec 2 (Reuters) - The financial system risks undermining global trade if it fails to adapt to the economy's needs, with developing countries likely to suffer the most, the UN Trade and Development Agency said on Tuesday.
Shifts in financial markets now drive global trade almost as much as real economic activity, with financial conditions increasingly determining global trade flows and shaping development prospects worldwide, the UNCTAD report, which was presented in London, said.
"Trade is not just a chain of suppliers. It is also a chain of credit lines, payment systems, currency markets and capital flows," UNCTAD's secretary-general, Rebeca Grynspan, said in a statement.
Grynspan told Reuters in an interview that the financial and trade systems are so closely synchronised that any rise in market volatility or uncertainty will have a significant impact on global trade.
UNCTAD said global growth was expected to slow from 2.9% in 2024 to 2.6% in 2025 due to rising financial volatility and geopolitical tensions.
More than 90% of global trade relies on bank financing, with dollar liquidity and cross-border payment systems remaining essential to international commerce.
"This deep reliance on financial channels makes trade closely linked to global financial and monetary conditions," the report said. "A shift in interest rates or investor sentiment in a major financial centre can affect trade volumes worldwide."
The report said although developing economies are expected to grow faster than advanced ones, they face higher financing costs, volatile capital flows, and rising climate-related risks, factors that constrain the fiscal and investment space needed to sustain growth.
The dollar remains central to global finance. That offers stability in uncertain times, but it also ties developing economies to financial cycles they have little power to influence, the agency said.
"We need to find ways in which the instruments of the payment system, of the insurance, of the capacity of these countries to lend or do things in their own currency will be part of the resilience of the system for the future," Grynspan said.
UNCTAD called for reforms to align trade and finance and ensure long-term stability, including modernising trade rules, reforming the international monetary system to limit damaging currency and capital-flow volatility, and strengthening capital markets to expand affordable long-term finance.
"What does genuine resilience require? Integrated policy frameworks that recognise links between trade, finance and sustainability," Grynspan said. "Fundamentally, we cannot understand trade isolated from finance."
(Reporting by Catarina Demony; Editing by Sharon Singleton and Leslie Adler)
Financial stability is a condition where the financial system operates effectively, allowing for smooth functioning of markets, and preventing financial crises.
Monetary policy is the process by which a central bank manages the supply of money, often targeting inflation rates to ensure price stability.
Developing countries are nations with lower income levels, industrialization, and human development indicators compared to developed countries, often facing unique economic challenges.
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