THE GREAT REWIRING OF GLOBAL CAPITAL: DEBT, DOLLARS AND DIGITAL MONEY

By Dr. Dmitri Merinson

This is my view (www.merinson.co.uk) on the deeper macro-economic currents that will shape the world economy well beyond the next business cycle: a mountain of public debt, a gradual diversification of the global reserve system, the rise of digital money, and an investment boom in artificial intelligence that is redrawing the map of global capital flows.

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Most economic commentary is fixed on the short term: the next central bank meeting, the next inflation print, the next earnings season. Yet the forces that will decide where capital flows, which currencies investors trust and which economies prosper over the coming decade move more slowly and matter far more. Looking across fiscal data, reserve-management behavior, financial innovation and corporate investment patterns, I see the global financial system undergoing a quiet but profound rewiring. (www.dmitrymerinsonfinance.co.uk)

The first and most powerful of these currents is debt. Global public debt is approaching the size of the entire world economy, and in many advanced economies it keeps rising even without a recession. Ageing populations push up pension and healthcare spending, defence budgets are expanding in response to a more dangerous world, and the cost of servicing existing debt has jumped now that the era of near-zero interest rates is over. In several major economies, interest payments already rival spending on defence or education. This is a regime change. For a decade governments could borrow almost for free; today every new bond issue competes for the world's savings at a meaningful price. (www.DmitryMerinsonResearch.co.uk)

The consequences will be felt across markets. I expect long-term bond yields to remain structurally higher than in the 2010s, as investors demand a larger premium for holding government debt over long horizons. Bond markets will increasingly act as the disciplinarian of fiscal policy, punishing governments whose budget plans lack credibility, as we have already seen in episodes of sudden gilt and Treasury market stress. The greater long-term risk, in my view, is "fiscal dominance": political pressure on central banks to keep rates lower than inflation warrants simply to make public debt affordable. Investors should watch closely for the quieter forms of financial repression that historically accompany high debt.

The second current is the gradual diversification of the international monetary system. The US dollar remains, and for the foreseeable future will remain, the world's dominant reserve and trading currency, supported by the depth of American capital markets and the strength of its legal institutions. But the margins are shifting. The freezing of Russia's central bank reserves in 2022 prompted reserve managers everywhere to reassess their exposures. Central banks have been buying gold at a historic pace, more bilateral trade is being settled in local currencies, and alternative cross-border payment networks are being built in Asia and the Gulf. I would describe this not as "de-dollarization" but as de-risking: a slow move toward a more multipolar reserve system at the edges, while the dollar remains at the core. (www.DmitriMerinsonGlobalEconomy.com)

The third current is the digitalization of money itself. Stablecoins have grown from a niche of the crypto world into a serious settlement instrument, and the United States has put a federal regulatory framework for them in place. Europe is preparing a digital euro, China continues to expand its e-CNY, and central banks are testing shared platforms for instant cross-border settlement. Here lies a paradox: dollar-backed stablecoins may extend the global reach of the dollar even as central banks diversify their reserves. For commercial banks, the challenge is real, as deposits and payment revenues may migrate to new providers. For regulators, the task is to capture the efficiency gains of cheaper, faster payments without importing new forms of run risk into the financial system. (www.DmitriMerinsonDigitalCurrency.com)

The fourth current is the extraordinary wave of investment in artificial intelligence. Spending on data centres, advanced chips and the electricity to power them has become one of the largest private capital-expenditure cycles in modern history, concentrated in a small number of companies and countries. (www.DmitriMerinsonArtificialIntelligence.com)

This boom supports growth today and is driving demand for energy, grid infrastructure, copper and other critical materials. I believe the productivity payoff from AI is real, but history suggests it will arrive gradually, as it did with electricity and the personal computer. In the meantime, the boom carries two macro-economic side effects that are too often overlooked. First, equity market valuations have become heavily concentrated in a handful of technology leaders, raising the stakes if expected returns disappoint. Second, an investment cycle of this scale absorbs enormous amounts of capital. Governments financing deficits and technology firms financing data centres are now competing for the same pool of global savings, which adds further upward pressure on real interest rates.

The fifth current is demographic, and it is reshaping the geography of growth. Working-age populations are shrinking in China, Japan, South Korea and much of Europe, while India, Southeast Asia and Africa will supply most of the world's new workers in the decades ahead. Capital will increasingly follow young populations, provided those economies can offer stable institutions, credible rule of law and functioning capital markets. Combined with the reconfiguration of supply chains, this creates a genuine opportunity for countries such as India, Vietnam, Mexico and the Gulf economies that are actively positioning themselves as alternative hubs of production and finance.

For policymakers, these trends call for a clear set of priorities: credible medium-term fiscal plans that reassure bond markets, firm protection of central bank independence, smart regulation of digital money that encourages innovation without compromising stability, and sustained investment in energy and digital infrastructure. For investors and corporate leaders, the implications are equally clear. Higher real interest rates mean that bonds once again offer meaningful income, but duration risk must be managed carefully. Diversification across currencies, regions and real assets deserves more weight than in the past, and exposure to the AI theme should be selective rather than indiscriminate. (www.DmitryMerinsonEconomy.co.uk)

In conclusion, I would say that the coming decade will not be defined by a single crisis, but by the slow interaction of these powerful forces. Cheap money, an unquestioned single-currency order and paper-based finance increasingly belong to the past. Those who recognize the rewiring of global capital early, and position themselves accordingly, will be best placed to turn a more complex world into a source of long-term opportunity.

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