The rise in SWFs is closely linked to the global macroeconomic imbalances that have characterized the world economy since the mid 1990s. Since these imbalances are unlikely to unwind in the near term, SWFs are likely to keep growing disproportionably for some time. The rapid rise of SWFs has undoubtedly brought a number of benefits. One of them has recently become particularly evident. Against the backdrop of the current market turmoil, SWFs have been a welcome source of capital, strengthening the vulnerable balance sheets of some of the world’s largest financial institutions. I will return to this important point at the end of my lecture. But the investments made by SWFs have also given rise to considerable political controversy and media coverage. Slide 2 provides a sample of some of the most pertinent recent headlines. The political controversy does not derive from the fact that SWFs are new. They are not. Political leaders are anxious because the rapid rise of SWFs and their increasing visibility as large investors in mature markets challenge some long-held assumptions about how the global economy works. In the process, the investment decisions of SWFs run the risk of triggering defensive reactions in mature countries. If left unchecked, this process could feed financial protectionism, which would clearly be to the detriment of global economic welfare. To provide some context, I will first describe the rise of SWFs. I will then discuss in more detail what I view to be the primary challenge arising from SWFs.
1  See A. Espitia, A. Mattoo, N. Rocha, M. Ruta and D. Winkler (2021), Pandemic Trade: COVID-19, Remote Work and Global Value Chains, Policy Research Working Papers, no 9508, World Bank  2 www.ecb.europa.eu/press/key/date/2017/html/ecb.sp170825.en.html 3 www.oecd.org/officialdocuments/publicdisplaydocumentpdf/? cote=ECO/WKP(2018)63&docLanguage=En#:~:text=We%20find%20that%20the%20EU%20ETS%20led%20to%20a%20statist  4/4  BIS central bankers' speeches