 A very warm welcome, everybody, to our CNBC panel, the title of this event, the Remaking of Global Finance. And obviously, there are lots of very interesting trends in the financial community at the moment around technology, around the direction of currencies, around the direction of US trade policy, and so on and so forth. I could spend a lot of time laying out the agenda here, but I think more useful for us to move on quickly and introduce our guests, and then we can get them to talk about some of the issues at heart. So let me very quickly start at my end and work along our distinguished panel. Christine Lagarde is with us. Madame Lagarde is the managing director of the IMF. You're very welcome. Stephen Mnuchin is the US Treasury Secretary. Very much in the news over the last 24 hours on the US dollar. We'll see what progress we can make on that area over the next 60 minutes. Jinka Yu is Professor of Economics at the LSE. She is also a young global leader at the World Economic Forum, and I'm hoping that she can give us some helpful input as to the Chinese position on where global finance is headed. Very pleased to have with us Larry Fink. Thank you for being here. Larry Fink is the chairman and CEO of BlackRock. He's been outspoken about the direction of US tax policy, and very recently decided to write a letter to a lot of CEOs urging them to be more responsible, perhaps in the way they think about their responsibilities to shareholders and society. Paul Ackleitner is with us, the chairman of the supervising board at Deutsche Bank, and I believe the only banker, the only real banker that we have on our panel, even though it is about the direction of global finance. Thank you so much for being with us, and hopefully you can give us a European perspective on some of these issues. And last but not least, of course, Philip Hammond, the chancellor of the United Kingdom. Thanks so much for being here with us on this CNBC event. So let's start off straight away, Treasury Secretary, if I can come to you, and I think you're probably expecting this. We got a further clarification this morning of your earlier remarks here, where you said, I believe, obviously a weaker dollar is good for us. Now, are you actually advocating a weak dollar policy for the United States? Well, let me first say, I guess I would have been disappointed if you didn't start out with me as the first question on the dollar since this is something that people love to ask Treasury Secretaries about. So first of all, let me just say, I think I've actually been quite consistent on my comment on the dollar. And perhaps I've been slightly different than previous Treasury Secretaries because in recent times, previous Secretaries have talked up the dollar. So I've been consistent. And what I've said, not only yesterday and today, but previously is, first of all, the currency markets are probably the most liquid markets in the world. And we fundamentally support free and trading in the currency markets. So my comments have been that in the short term, where the dollar is, is not a concern of mine, that it will fluctuate, that in the short term, there's obviously benefits and issues with a lower dollar. And again, in terms of the benefits, it is beneficial for our trade imbalances. There are also issues for people who hold dollars. So I wanna be clear in acknowledging both. In the long term, I fundamentally believe in the strength of the dollar. It is the reserve currency. I believe it will continue to be the reserve currency given the strength and the confidence in the U.S. markets. So let me just be very clear about that. That is not a shift in the U.S. position on the dollar at all. Well, again, what I'd say is it's not a shift in my position on the dollar at all. It is perhaps slightly different than previous Treasury secretaries who in recent times have just commented on strong dollar, strong dollar. So again, it's an acknowledgement that the dollar is, in essence, again, where it is in the short term will be determined by the markets. I don't wanna be overly tricky with the language, but that to me sounds like as someone who's worked around financial markets for a while and probably nearly as long as you, an implicit acceptance of a weakening of the dollar from here on in. Again, I'm not making a comment whether it's implicit weakening or an implicit strengthening. Again, let me be clear. In the short term, where the dollar is is not a concern of mine and it's not something I spend a lot of time thinking about. There are benefits of where the dollar is and there are costs of where the dollar is depending upon which side of the table you're on. What I am focused is longer term where the dollar is and let me be clear. We've been, the Treasury puts out a currency report where we comment on other people's intervention. We work very closely with the IMF. What we don't support is fixed people who try to fix their currencies. We do support free and floating currencies reflective of the market. This is, I mean, I'm aware of the irony of the fact that I'm asking you this. So I am generating perhaps the third round of verbal intervention that the markets are having to respond to and deal with at this stage. In what sense is the level of the dollar a priority at all for the US administration? Again, where the dollar is right now is not a priority. It's a focus of the free markets. I think we've clarified that, have we now? I think so. You have 53 minutes left if you just want to talk about the dollar. I think the other people may be. But I do realize there's another really attractive thing to talk about, and that's Bitcoin and cryptocurrency. So if you want to come back to me later, I'm happy to talk about that. Well, you know our social media numbers will go off the scale the minute we start talking about it because the millennials will finally start tuning in. But just to take the heat off you for a moment here, Madam Lagarde, we've spent a lot of time in recent years focusing on the risks of currency wars and verbal intervention in currencies and countries using the opportunity to talk down the value of their own currencies as a way of getting trade advantage. And the IMF has been very clear, I think, on its attitude towards that given that we are beginning to see at the margin tariffs now introduced by the US administration on Asian products and non-intervention in the dollar as far as the Treasury Secretary is concerned at this point. Are you worried that actually we may be headed off down a road where we begin to see a response from other nations who worry that this weaker dollar is going to disadvantage them in terms of their trade relationship with the United States? Well, let me just backtrack and at least mention to begin with that the current global economy where it stands is in a very sweet spot. We tend to focus on the latest statement by so-and-so and that's fine with the media. But let's look at the global economy. It's at the moment moving at a pretty solid rate. We forecast 3.9% growth next year, 3.9% growth the year after that. About 120 countries have seen income growth on a per capita basis in the last 12 months. We are still seeing financial conditions that are reasonably accessible if not extremely easy. And we are certainly seeing two clear engines for growth. One is investment and we just had a discussion with various central bank governors, all of them in the main are seeing investments go up. And the second thing that clearly we are seeing is trade, international trade, growing even faster than global growth rates. So any measure that would try to slow down trade, that would try to limit the strength of those engine would be of concern. Because if we're all seeking more growth, better growth, more inclusive growth, sustainable growth, we need to fire from all engines. Trade is one and I think we should make sure that trade is well governed, that the set of rules that apply to trade are fair, reciprocated, properly enforced. And I'm sure that there will be common denominators around the fact that not everything is perfect at the moment. But any measures that would sort of restrict trade would hurt growth. That sounds like a diplomatic way of directing the fire back at the United States and Washington and just pointing out that the IMF doesn't agree with a process that escalates tariffs in either direction. Well, who would agree with measures that would significantly reduce trade, that would significantly impact growth and reduce it thereby? I think that what we agree on is that the rules of the game have to be clear, the rules of the game have to be fair and the rules of the game have to be enforced. And I think, I was listening very carefully to President Macron who is my president and he wasn't saying something vastly different from that. He was saying that the landscape has changed. There have been massive innovations in multiple sectors including finance, but not only. And that we have to just examine the rules under which we operate, but certainly opening barriers under a rules-based system that is well enforced is something that is conducive to growth. And actually, I think Christine and I actually share very similar views on this because our issue is we want more trade, not that we want less trade. We just want reciprocal and fair trade. So our issue is where there are big trade imbalances. The markets may not be as open in one direction as they are. And I would say the United States has probably the most open trading market in the world and the most open investment market in the world. We want to continue that, but we want fair trade. So this is about reciprocal trade and where there are trade issues, we will enforce them. What about China? Does it have a fair trading system? I think we've had very productive conversations. I had conversations yesterday with the Chinese. I think that President Trump and President Xi, we've had very direct conversations about both of our objectives is to shrink the trade imbalance. And that's, from our standpoint, that's about increasing exports to China and shrinking that. We think it's obviously one of the largest growing markets and we want US companies to be able to participate in an open way. The foreign ministry this morning said the hat of protectionism cannot be put on China's head. Professor Jin, do you think the Chinese government would agree with the Treasury Secretary's assessment? Well, China certainly wants to embrace this trade integration and globalization and more trade. And frankly, the pressure is on for reciprocal kind of trade protectionist pressures. But I have to say that China is also trying to shift its trade kind of production away from these lower and manufacturing sectors, excess capacity and solar. But that is not necessarily good signal for the kind of trade tensions that might come about. Also because there's going to be a lot of domestic pressure coming from the Chinese businesses and the Chinese people to pressure the government to react. So they will have to take a stance, the Chinese government. And what do you think that stance will increasingly be as we hear overnight that South Korea's LG says it will have to raise the prices of its white goods in response to this tariff? Well, no, I think it depends on, it's not a good signal for what's going to happen. And I think that China wants to shift its production structure. But this imbalances in terms of trade is not a matter of just commercial policy. It's a balance between saving and investment. And it's not just due to the currency or trade policies that will solve these imbalances. Larry, you're nodding. You wanted to come in on that point. Well, let me just talk about the dollar for a second. The dollar, as the secretary discussed, is the most liquid currency in the world. It is the reserve currency. I think the weakness in the dollar is more due to the successes of Europe and other parts of Asia. I think last year in Davos, we were quite fearful of the European Union. We were looking in front of different elections. The elections turned out quite well. The European economy is doing far better than we expected last year. And in fact, it's doing far better today than we expected even three months ago. So the currency adjusts. And I think we're making way too much out of statements from the secretary. I believe the markets are efficient. They move around. I do believe, as the US economy accelerates because of tax reform, the dollar is going to start appreciating when there is true evidence of a more successful US economy. So I think, quite frankly, the media is making way too much about it. This is a normal course of markets. Markets move around and they adjust to new information. And that's what's happening. It's that simple. You know, what we've done less than 15 minutes here when you're the second speaker that's blamed the media for something. When the media starts being blamed for something, I get suspicious that there's an element of, look over there. Don't look over here. Look over there. I think the media's business is to create information and noise. And you make more money on the velocity of noise. So I think you serve a good purpose. And I do believe what media does by pushing the envelope, by pushing the envelope, it creates a resolution process of valuations. And so this is how the ecosystem we all operate in and you serve it well. Validation by Larry Fink. We're going to put that on a piece of tape and it'll play over and over again on CNBC. But Larry, let me be sensible for a moment. There is a Jekyll and Hyde side to a weaker dollar because a weaker dollar actually could make the funding arrangements for the Treasury Secretary a little tougher going forward. And there's quite a lot of issuance to come over the next 12 months or so here. So what about the risks of a weaker dollar undermining some of the attractiveness of the currency from a global perspective? Well, you're insinuating we're going to have a permanent weaker dollar and I would assert if our economy grows like we think it's going to grow into 2018 into 19, the dollar probably will strengthen as the economy strengthens. I would say over the long run and I know the Secretary is aware of it and focusing on it, we do have to focus on that we are a user of other people's balance sheet to fund our economy. Japan, Italy has a much greater debt to GDP but they domestically fund their deficits. Over a long horizon, we all know that we are going to have to get our finances in order. If we don't, that will create a real deterioration in the valuation. That's not a today issue, that's an issue that we all live with that we all recognize. And the only issue is if trade became so violent, and I want to underscore violent and I don't see that as an outcome but if trade became a violent issue and you saw a overt reduction in the purchasing of US treasuries by other lenders, that would create a disequilibrium. And I'm not forecasting that but those are the types of things, the tail risks that we all have to focus on and that's a tail risk that we had before we talked about trade. We always had that tail risk but maybe that tail risk has been elevated as trade becomes a front and center issue but I do agree with the secretary. We created trade policies which was a function of post World War II. It was a belief that America will do better when the world does better and the revaluation of 50, 70 year old trade treaties. I don't think that is anti-trade as the secretary said and I do believe that process probably could be a good one. And obviously as the secretary said, it could become a win-win. Now there's gonna be disequilibriums in different industries and different things but let's be clear as the secretary said, the United States is the most open society in terms of trade and as a international company we do face different, I would say impediments other places where we operate. Yeah, you make a great point about growth in Europe just to move the conversation on but this week currency in the United States is gonna cause a headache Paul for Mr. Draghi who is trying to negotiate the very tricky job of showing the world that growth is strong in Europe but maintaining interest rates at near emergency levels all the while a weaker dollar will erode the Euro's competitiveness in international markets. I mean, how does Mr. Draghi square the circle? Well, first of all, I'd like to thank you that you have invited a banker to this panel, a European for that because it implies that you think that banks and European banks will play a role in the remaking of finance which isn't self evident if one goes around Davos and listens to all the money. So thank you for that. Secondarily, as it goes to the Eurozone and specifically also the whole topic of interest rates. I think first of all, I, we fully agree I think on this panel that the next one, two years things look pretty good for the overall global economy and specifically also for Europe and the Eurozone, the UK I think my neighbor to the left has more to say about that, but the fundamental challenge that we have is we think we are in something that you could call a bond bubble, i.e. credits, credit is not priced correctly. So if you actually assume that long-term the interest rates will have to shift and rise and that is of course one of the biggest challenges that Mr. Draghi has, all I can say is be careful what you ask for. In Germany, we are quick and say we wanna have higher interest rates because the low interest rates basically rob the savers of their adequate returns. That's nice, but if the interest rates actually start rising, you will have to review your financing structures. If you are a government, if you are a household, if you are a company, institution and that repricing can be very painful. So I believe that Mr. Draghi is quite right to be very careful in how he approaches this. And headline calls are very dangerous. And let me say the US, frankly, is doing something very smart. As they are exiting the quantitative easing and raising prices, they are actually complimenting that and supporting that with structural changes like the tax reform, which of course provides additional momentum so that the economy can actually digest the fact that credit is being repriced, which again for European governments particularly will be a very challenging experience. Christine, you wanna comment? I think that's particularly true. In particular in those countries which have clearly increased their debt leverage over the last few months. Easy financing has caused that. Tightening of financing, we'd better be watching because there will be capital flow movements, there will be restructuring on the horizon. Just on that. And that applies to corporate and sovereign. Yeah, but I mean, this is the question of the moment, isn't it? Really, this issue of the balance between fiscal stimulus and monetary tightening. Larry, I know you've expressed comments on this in the past. I mean, maybe I could just get you and the secretary to comment on this because whilst Paul says, you know, you're doing a very smart thing, this is also going to increase the debt stock. It's also going to raise government debt in the United States in the short term. Well, in the short run, but if the economy continues to grow over a long run, it won't. And it will continue to grow over the long run if interest rates on the 10-year go above 3%. I don't think 3% is anything magical and I don't think 3% is disruptive to the equity markets. If we saw a spike in inflation that would move interest rates much higher, that would be disruptive. But as long as the ECB, the Bank of Japan continues to be a little more tolerant of quantitative easing, the arbitrage between US rates and other rates will continue and will keep rates probably a little more secure. I would argue the biggest risk we have in this system is not a shiftward upward of interest rates, but a total flattening of the yield curve to possibly an inverted yield curve. That's much more destructive. We've seen a huge tightening right now and in fact, 10s, 30s is what 30 basis points now. So that's one thing that I spend more time focusing on, not the absolute level of interest rates. But will the interest rate rises from the Federal Reserve next year undermine the benefits of the tax cuts? Unquestionably, when you have rising rates, it will moderate the economy. But I think, I was not in the rooms when they determined to do the tax cuts. I would, you know, one would anticipate that. Not the way you would have done it. No, you do tax cuts when you can, you know, in our political system, unfortunately. Our political system does not allow us to do it the most opportune time. One would have thought at a more opportune time when the economy was really in deep trouble than today, the economy's doing quite well. But to doing it now will accelerate the economy. The question is, does it create, as we accelerate our economy with a 4% unemployment rate, with more restrictive immigration policies, does it create more labor shortages? Now, maybe that's a good outcome because, you know, we have talked about stagnation and wages in a long time. So maybe there's something called good inflation and good inflation can be wages. So, and maybe the financial markets don't like it as much, but maybe the average citizen will love it. And so, this will all work out. I'm not terribly worried. Yes, so let me just comment. President Trump's number one economic agenda was to create sustained economic growth for too long. We've been at around 2% GDP. We fundamentally believe we needed to get the economy back to 3% or higher sustained GDP. And a prime focus of that was the Tax Cuts Act, which is not just tax cuts, it's also tax reform. It's been 30 years since we've done this. We revolutionized the corporate tax system. We've gone from a worldwide system with deferrals to a territorial system with expensing. I think you see in the stock market the response to the Trump economic program. And we've had over 2.5 million employees that now have received special bonuses, have received increased wages. As Larry said, our objective is to create wage growth. I mean, what we heard on the campaign was that this has been a time that's been good for financial investors, but the average American had not seen their wages go up and that's what this is all about. So we expect that wages will go up about $4,000 for the average family, and that's a big focus of what we're doing. Now, we fundamentally believe that the growth will pay for the tax cuts, but that's over a reasonable period of time. And the way we've structured this will cost money in the beginning and then will be paid for. But that's something we're very comfortable with. Now, again, let me just finish with one other comment. The debt, I mean, we're comfortable with where the debt to GDP is, but the fact that the debt went up from 10 trillion to 20 trillion in the previous administration is quite concerning and the amount of money that was spent on wars and other issues. That's something that we'll have to deal with over a longer period of time, but we're comfortable with where the debt is now. And again, our focus is on economic growth and we couldn't be happier with the response we're getting from American companies, from international companies, that the US is open for business, we're open for investment, and I think, by the way, 3% or greater growth for the US is great for the world economy. So this can be a win-win. But briefly, President Macron said yesterday, we don't need a race to the bottom in tax rates. You're not kicking off a race to the bottom in tax rates. Absolutely not. I mean, we went from one of the highest tax rates to a competitive tax rate. So we're not looking for a race to the bottom. Quite frankly, we're restructured around having a system that encouraged our companies to do business in tax havens that had very low rates. We've transformed the system away from that to encourage people to invest in the US, bring jobs to the US, and we couldn't be more pleased with that. So no, this is not a race to the bottom in any way. And just briefly, the guests that we've had on our programming who've been focused on inequality issues have expressed some concern that corporate tax rates are dropping very quickly, but the tax rates for individual taxpayers are not going down quite as generously. Could you get to comment on that? Is that a risk? Again, I would put it slightly differently. The rate for small and medium-sized businesses is the lowest rate it's been in the United States since the 1930s. So not only did we just drop the corporate rate, we dropped the rate on pass-throughs, which is mostly small and medium-sized businesses. This is the engine of growth. That's something that's been a great focus. And I think we fundamentally believe that in excess of 70% of the cost of business taxes are passed on to the worker. So this really is about creating wage increases for workers, as Larry mentioned. That type of inflation is something we would consider to be good inflation and something we're comfortable with. Yeah, just on inflation. Chancellor, I've sort of left you alone so far, but I think I'd rather bring you in on this because the UK has been written up as a laggard, I think, in the IMF report as to where growth is headed. We're sort of coming up the rear somewhat generous growth, but it's not what it might be. And inflation is one of the issues that was cited in the report as a concern for the UK. I mean, obviously Brexit is partly responsible, I think, for the decline in sterling. But could you just comment on inflation risk in the UK and why we are and also ran at the moment in the growth race? Can I qualify? Can I qualify? Because we've never called the UK a laggard. No, I called it a laggard. But I think it's pretty clear that if you come out in the report and you say... It's the only advanced economy where we have not upgraded growth at the midterm review, that's all. I think, didn't you actually downgrade the outlook? No. Seven, was it for...? So I think the answer to the question, first of all, is that the UK economy has performed a lot better than most people expected it would after the shock of the referendum decision in 2016. And obviously there has been a spike in inflation which has been driven by a depreciation of the currency in late 2016. Against the dollar, we've recovered a great deal of that ground and this morning we seem to be recovering quite a bit more, Steve. Thanks very much. And of course, the effect of that, this spike in inflation at a time when the economy has been relatively weak, has had an impact on real wage growth and that is a really crucially important issue for us. But it looks as though inflation has peaked now. We've seen a slight decline in the latest numbers. Depending on what happens to oil, we would expect to see inflation slowly falling throughout 2018. We're a very open economy. So I would argue maybe even a more open economy than the US in terms of percentage of trade in our GDP. So we are affected by currency movements both ways and we'll have to wait and see what happens during the course of the year. But I would expect inflation to begin to decline now and as we create more certainty and clarity about our future relationship with the European Union and with other trading partners, I would expect to see Christine being able to revise up forecasts for UK growth once that clarity and certainty comes back. Well, since you raised the issue of clarity and certainty, why won't you publish the Treasury research, the positioning paper on what the consequences of Brexit may be for the financial services industry going forward? A lot of bankers I'm talking to here say they're still a little bit mystified as to what the landscape is going to look like and that Treasury paper might help. Well, look, we're engaged in a negotiation with the European Union and while it would suit some people to have all of our analysis laid out for everybody to see, to some extent we need to play our cards close to our chest. We'll publish what we think we can publish without prejudicing our negotiating room for manoeuvre. And what is your clear message here today to the financial services sector and other Europeans who are watching as to where we are going in the Brexit negotiation at the moment? Well, first of all we've made significant progress. The discussions, the conclusions that we reached in December are a big step forward. We're now moving forward with the discussion around a transition period which we hope to finalise at the March European Council. So that will itself be a big piece of progress which gives business and investors clarity over the next three years or so. But the message to the financial services sector is that financial services is very important to us. It will be at the centre of our negotiating strategy. Those who casually suggest that financial services won't be part of a deal are not looking at the numbers. Services and financial services have to be part of a deal. We run a £100 billion trading goods deficit with the European Union, which is partially offset by a £40 billion trading services surplus. The only deal that can ever get done is one which is fair to both parties and a deal which included goods but didn't include services could never be fair, it could never be attractive to the UK. And apart from that, European Union businesses need access to the UK's financial services market because of their competitiveness in a global economy. The scale and sophistication of the UK's financial services market is an asset for real economy businesses across the European Union. There's a win-win solution here, we just have to unlock it in the course of the negotiations that will take place during the course of this year. I mean, there is a fear that because of this interregnum, until we have real clarity, that the business and the flow is going to New York. It is not staying in Europe and while Paris and Frankfurt and others may be pitching for London's liquidity, in reality the traders are taking it to the US, they're not taking it to Europe. If we do not get a deal with Brussels that satisfies you and the financial services industry, is there still an option on the table that actually you might look to New York rather than Brussels as a key partner for developing the financial services industry in London going forward? Well, look, I don't think it's about us looking to New York, it's about what the markets will do, what investors and clients will do. And we've been saying this consistently since the beginning of this debate. The risk for Europe is that if it's not London, it will be New York or Singapore. The idea that you can recreate in Frankfurt or Paris or Madrid or Amsterdam or Luxembourg or Dublin, London's global financial centre, I honestly think is a fantasy. That isn't going to happen. The winner will be New York or Singapore if London is damaged by this process and the loser will be not only the UK but the European Union. Paul, you've also talked about this, about the business going to New York. How precarious is the position at the moment of the financial services industry? Well, I think the fact that people need to appreciate is financial institutions bank need to plan ahead. We've got the ironic situation that we have no certainty about are we going to end up what I personally like to call a braxident, where there is a hard stop because there is an accident, while we're going to end up what I like to call the braxidus, which is a transfer period over a long time where people get to plan and implement these things over time. Regulators ask us, what is your planning for either one of those? But particularly the braxident case, the stress tests and everything else. Then they look and say, okay, is that implementable? And you have to say, well, in order to implement that, I need a lead time of 12 months, 14 months, 8 months. They say, okay, well, deadline is arriving. So where are you? So we find ourselves in the ironic situation that you do not have the flexibility to just totally wait for whatever happens at the end and I can be as an optimist. Of course, I'm on the braxidus side, I do believe there is going to be a meaningful, longer term type of solution, but as a management of a bank, I cannot just place a one-sided bet on that happening. And that puts enormous pressures on. My own institution has, for once, a little bit of an advantage because we have a scalable operation already inside the Eurozone. Investors do not, they need to build that up. And that means decisions, investments, investment decisions in people as well as in money, capital and infrastructure need to be made now. We're talking about moving people, you're talking about school systems, you're talking about international schools and other things. These decisions need to be made with a lead time and therefore the uncertainty that we currently have with all understanding for the negotiation positions is just poison. Hang on, Chancellor, I just want to ask this follow-up question and then you can come back in. Are you getting enough information from the UK Treasury to help you make those planning decisions? I think the UK Treasury can only tell us what they currently have on the table and I understand their negotiation positions. And we have no complaints about information flows and being kept in the loop, but if the overall situation is uncertain, the planning environment is uncertain. And again, even if it's a management team, you say, I live with that uncertainty, the regulator said, excuse me, what are you doing? Where's your risk management? Regulation there is all focused on the downside, which is fine. Chancellor. I think Deutsche is in a slightly different position from many other financial institutions in London because you have a plan for all sorts of other reasons as well to restructure your operations. But surely the points that Paul has made has just underpins the need for the transition phase to give people more time to plan. It isn't just financial institutions, it's across the economy, it's across government agencies. If I take a simple example, the physical and logistical structures at our borders, and not just this is not just the UK problem, this is a problem for France, for Belgium, for Ireland, for the Netherlands, how we do our physical trade together will take time to modify, will take time to build and deploy systems. Certainly if their government mandated IT systems, they will take lots of time to build and deploy effectively. So a transition period, which allows us to continue under the present rules where everybody understands those rules, gives us time to do this in an orderly fashion, gives us time to address some of the financial stability challenges. We've got 26 trillion euros in unclear derivatives, in euro-denominated derivatives in London that have to be resolved. Their contractual status has to be resolved. We've got billions of euros worth of insurance contracts open between European Union entities and UK entities. All of this needs to be done in a sensible and orderly fashion and transition is the answer. Just to move the conversation on, we've talked about a lot of the positives in terms of the direction of the global financial system going forward and I think we all feel a lot better about the growth dynamic. But the last 10 years has really been a decade of fighting the consequences of the global financial crisis. We've had a slew of bankers that we've talked to over the last few days, James Gorman at Morgan Stanley, Bill Winters, Stanna Chartered and others. Jess Staley was on this morning from Barclays who were kind of saying it feels really good, but 2006 felt a little bit like this as well. Christine, are we at risk of irrational complacency as some of our guests have used that term about where we are in the financial markets and what the consequences ultimately could be if that $230 trillion worth of debt that is sat out there? Well certainly complacency is one of the major risks that we have identified, where people feel that this is nice being in that sweet spot and why should we continue to worry about anything in particular and as part of the deal regulation movement that we see here and there focusing on bureaucracy and red tape, the necessary regulatory environment that has been framed, that has been put together laboriously over the course of the last 10 years is, in jeopardy, is eventually dismantled. And I think that we should really guard against it because the last thing we want is financial instability and disorder yet again. I would say this and for the bankers to decide whether that's accurate, we're seeing it from a global basis, but we are seeing a financial system that is particularly a banking system that is significantly stronger, better equipped to deal with difficulties, with much higher capital ratios, leverage ratios, final clarifications now on some of the regulatory definitions that we're lacking. So the situation is reasonably stable. I think the bankers after having moaning and groaning a lot about excess of regulations and why would we have to bother about all that, there is now a platform which is generally well accepted. I think we should hang on to that and we should be really also cautious about what happens outside the banking sector. We have tended to rationalize and think in terms of institutions much more than activity. The movement is underway now to move towards activity to encapsulate under this regulatory platform the shadow banking, different financial institutions as we see them, different financial transactions as they occur. That's a necessary move that we need to continue. Added to that, I would say that there are macroprudential tools that bankers have, that policy makers have, that they should certainly use micro or macroprudential actually, that they should use when they see erratic movements which are not welcome. Larry Fink. I agree with Christine. The system is inherently much safer. The leverage in the system is much reduced. Debt levels in the private sector are much reduced. Public sector debt is increased dramatically. But we're sitting here with record equity prices worldwide. I think the question is not about the stability of the financial system but the inclusiveness of the financial system and we don't talk about that at all. I think one of the foundations of the marketplace is there's record amounts of cash sitting in the sidelines. The greatest market rally in our lifetimes since the financial crisis. I mean, the Dow Jones average was down below 7,000 and now we've seen a 3X increase in equity markets over the last 10 years. And the problem is we have so much money sitting on the sideline. We have record amounts of cash sitting in France, sitting in Germany, sitting in China. The biggest problem that we see is where do you put your money? And the fundamental problem that I see is those who own equities have done fantastically well. It's been brilliant for me, brilliant for many people in this room. It has not been as impactful for so many people because we have not addressed the issue of inclusiveness in terms of financial being. And the financial being has to come from working with the majority of the population on financial literacy and improving that financial literacy so they don't feel frightened of moving their money into long-term instruments. So the problem we have is in France and Germany and China where we have huge savings rates and the savings sitting in a bank account. As much as 72% of all savings is sitting in bank accounts in Germany and France. Missing one of the biggest market rallies ever. Why? They're frightened of the future. And we're addressing the sanctity of a marketplace. We're not addressing the issue of inclusion of having more participation in the marketplace. And I do believe if we had more participation in the markets, or less fear of financial assets, properly managing your retirement, because most retirement now isn't a defined contribution, not a defined benefit, understanding the liability that for a 30-year-old is a 40-year liability. And sitting in cash is very destructive. And that's one of the fundamental problems we have. We don't talk about it enough. We're just creating a greater disparity of income, even with higher wages that I hope we're going to see worldwide. That's not going to solve as much anger as we think, because there's so many, it may help the millennials and the young people. Those men and women who are sitting without enough savings or just did not enjoy the compounding of the returns we had are 40 and 50 years old and are saying, gosh, I do not have adequacy of savings. I may have to work longer. And that creates incredible amount of fear. And the worst case is they may have to live with their children, and God forbid, that would be terrible. So what was the purpose of your letter to CEOs then? Because you told CNBC that it wasn't about strong-arming CEOs, perhaps to increase salaries or treat employees better. What were you trying to do? I didn't say any of that in the letter. The letter was the fifth letter I've written on the concept of long-termism. And much of the foundation of the letter is the issues that I talked about, that we are not, society should become more inclusive. And I do believe there's a fundamental role of every business. And I know a lot of people have cited Milton Friedman in his essay in The New York Magazine in 1970. That essay was written at a time when President Nixon created price controls. Incorporations lost a lot of their sanctity. And that was one of the main motivations of that article. But he wrote also in that article, he discussed, if you're a small company, you must work within your community if you believe that will produce returns. In my letter, I said it is paramount that management and boards focus on profitability. But I did say companies that have purpose, companies that work towards that long responsibility of working with communities, having a purpose that can connect your employees, having a purpose that can connect with your clients. Those are the companies that are going to be the leading companies in the future. And I know we're worried about some types of monopolistic companies because the larger companies are getting larger and larger. Quite frankly, they're getting larger because they're serving a better purpose. They're serving a strong purpose that relates to more and more people. And so I think this is a great success story. But the letter was about long-termism because approximately $4 trillion of the money we manage on behalf of people are index products in which we are the ultimate long-term investor. We can never express our displeasure by selling those shares. And so we have to have a voice. And our voice is going to be working alongside with companies. I am very proud that we vote 91% with the companies. Most people argue that's a bad statement. The reason why we vote 91% with the investors, we're more engaged with our companies. And the companies are working alongside with us and we vote with them. We're not trying to shake the system up. We're trying to just, you know, focus on how do we improve our shareholders' economic gains over a long horizon, not a short horizon. And I do believe if we have a more inclusive society, greater participation, we're all benefiting. And I know Stephen believes in that and, you know, Phillip believes in that. That's just one of the foundations of good government. Okay, Kay, I want to bring you in here because you've got some interesting thoughts on actually the new paradigm for finance. The system's not reforming itself. It will be reformed. The conversation is missing some fundamental trends. The new paradigm. Larry talked about financial inclusion, talked about China. The new paradigm is that it's the first time that a middle-income country is the second largest economy. We're asking it, you know, from IMF or International Pressures for capital count liberalization, exchange rate, you know, flexibility. What that does is that we are not prepared for the volatility that China will bring to the world economy if it does open up. Microfoundations of the financial infrastructure is very weak, predominated by speculators rather than institutional investors. So we need to think about this dilemma. We want it to open up. It has a massive amount of saving, connect with the rest of the world for investment. And yet it's going to introduce so much extra volatility, typical of a developing country. And the world is not prepared for that yet. And I think that is the number one challenge that we need to think about because that is the financial story written today. We also did not mention the dollar challenge, which is the confidence in the dollar. Now we have emerging markets growing. There's a huge demand for dollars. That is rising. But on the other hand, what is backing the dollar or the liquidity is the fiscal capacity. We just talked about the fiscal stimulus. The share of GDP of the US is going down. We have geopolitical issues, which is very strong determinant to how much a country wants to hold US treasuries. All of this push out to a multi-polar paradigm. And we're not discussing that either. The US maintains the status as a dollar predominantly because a lack of present alternatives. I disagree with that completely. There's plenty of different alternatives and investors vote on their alternatives every day. So again, I would say people have the dollar as the reserve currency because of the confidence in the US financial system, the confidence of the US political system, the fact that we have an open society. And I think that's why people hold dollars. Safety, liquidity, trade, denomination, financial services. I think that it's hard to match up with the US. Do you think the US administrations have been a good steward of the robustness of the dollar over the years? Let me be clear. I think President Trump gets this absolutely right. Our focus for the American economy is an American first, making sure that we're doing things that are good for Americans. That doesn't mean that we're not doing things that are good for the rest of the world. That is, whether it's military issues we have around the world, whether it's foreign policy. But again, our objective is to create a good US economy so that people can invest here, so that it creates jobs. That I believe is consistent with something that's good for the world. And again, I just, you know, we'll just comment on the dollar. I just want to put this stuff in perspective of where you look at the dollar and everything else depends on whether you look at one minute, one day, one year, three year, five years. Again, I think people have a lot of confidence in the US economy and that's why you see the US markets where they are. And if anything, I think with tax reforms and tax cuts, it's even more attractive going forward. We all want a strong America that have no doubt about that and you haven't come to Davos to be lectured. But we are concerned, I think, about what we see as an American exceptionalism view. And America first can't be seen as anything other than that, can it? I think quite the opposite. And again, I would just comment, we have the largest delegation this year that we've ever had at Davos. We have over 10 cabinet secretaries and senior people, the president coming to speak. The president is very excited to be here and tell this story and we look forward to his arrival. Previous administrations have not measured their policy success by how high the Dow or the S&P are trading. Is the president going to take responsibility for the Dow and the S&P when they sell off? Again, over the long term, absolutely. We believe that there's no... Okay, you can clap. We're recording. But again, let me just be clear. The measure of success is not just the Dow. It's the American worker. We comment on wages. A big focus of ours is that wage growth has been way too low and the American worker has been left behind. So we're going to look at success as, what's happened to GDP? Where is GDP growth? How is our economy growing? Are we creating jobs? Are we creating opportunities? Are we creating wage growth? And ultimately, the markets will reflect all that. You know, it's not just the American worker who's been left behind. You go to every country in the world and they will argue they've been left behind because governments have not been responsive enough to the challenges of globalization. Don't we need a unified approach then? Well, again, these are issues that I talk about, whether it's the G7 or the G20. And again, I would encourage... I mean, if you look at Brexit, and again, I think we're supportive of the U.K. that they had the right. The people had the right to choose what they wanted to do. And they decided to have Brexit because they thought that was in their best interest. And I think that the U.K. can continue to be very successful and will trade with the rest of the world. And I agree. This uncertainty is not great for the financial market. So, you know, I've encouraged our European counterparts to try to resolve these issues. But we look forward to a very prosperous world economy where countries are trying to be inclusive of growth and things that are good for their workers. And, by the way, we have a big technology challenge, how we train workers for the future, how we embrace technology more and more. These are all issues that all of our economies are going to have to address. Without stealing the president's thunder and Air Force One has already landed in Zurich and the president will be on his way up, no doubt, what do you think he will say that will help ease some of the concerns that I've expressed through my questions. And you may have heard while you've been here from the Davos men and women attending. Again, I think you're going to hear that America is open for business, that we want to do business with the rest of the world, but we want to do it on fair and reciprocal terms. And we've been very consistent on that. And in the last two minutes, I think we better get in some Bitcoin and cryptocurrency stuff for your millennials who are going to be really disappointed in this panel. You sound like you're my producer in my ear. She said exactly the same thing 30 seconds ago. So, on the direction of the Treasury Secretary, let's talk about cryptocurrencies. What role will they play, do you think, going forward in the financial system? Sure, so my number one focus on cryptocurrencies and whether that be digital currencies or Bitcoin or other things is that we want to make sure they're not used for illicit activities. So, in the United States, our regulations, if you're a Bitcoin wallet, you're subject to the same regulations as a bank. Those entities, you have to know your customer, you have money laundering issues. We want to make sure that the rest of the world, and many of the G20 countries are already starting on this, have the same regulations. And we encourage fintech, we encourage innovation, but we want to make sure that all of our financial markets are safe and aren't being used for illicit activities. Madame Lagarde, the French President yesterday said we would like the IMF to be a super cop, investigating the cryptocurrencies and the shadow banking system. Is the IMF going to step up to that role through the G20 and start going out and looking more carefully at these areas where there are shadows? Well, we're accountable to 189 countries, not just the G20, although we work very closely with them. And we have already started monitoring, surveying and analyzing the risks associated with the development of cryptocurrencies with the potential benefits out of it. And I totally agree with what Stephen was saying about the fact that the anonymity, the lack of transparency and the way in which it conceals and protects money laundering, financing of tourism and all sorts of dark trades is just unacceptable and needs to be taken into account. But there will be new things. There will be innovations coming out of these movements, and we just have to keep them under our watch and make sure that it does not fall in the traps that Stephen was saying. Before we close, I just want to say one thing, because Larry has talked about inclusion. And I think there is a definition of inclusion that applies to those who are saving in banks rather than investing in assets and securities. I think inclusion is also about the 2 billion people who currently don't have access to the financial markets, who do not have a bank account, who cannot bank and who cannot transact. And I think that what is happening in the various innovation fields that we see in the markets, using mobile, using algorithms that can actually facilitate and reduce the number of intermediaries is actually going to help with the inclusion of those people. I have to say that what's happening on the Chinese market is of great interest in that respect. The consolidation of platform, the micro or mini-landing, depending on how you want to call it, is really showing the way in which more people will be included, not through investment, but also through activities, both at the manufacturing and at the consumer level. Final point on China, because you won't give me the floor again. I think our friend is right to say that coming to that second position of a middle-income market is something that we have to really try to understand well. I don't think that anybody is asking the opening of the capital account just overnight. I don't think anybody is asking financial stability to be questioned by this eruption under unguarded conditions of China. So we all have invested interest in keeping the system stable and solid, and that process to be gradual, as long as the rules are respected. That requires global coordination in the role of the US. Very briefly, because we're very close to the end of the panel. Anybody want to add anything on the cryptocurrency story? Larry, are you ready to start investing in cryptocurrencies with some of that six trillion under management? Well, presently, it's more of an index of money laundering than anything more than that. But it is a real technology. It has created a fascination with millions and millions of people. It's real. It's going to transform how we do our business, and we should not turn our back to it. We should embrace it and work towards a global solution, because if we don't work towards a global solution, it will create systemic risk. Paul? Look, I think we've got to distinguish between the technology and cryptocurrencies. What do you want from a currency? You want it to be liquid? You want it to be stable? Well, then Bitcoin has a hyperinflationary environment of inflation that you would count in a normal currency. And you want it not to be forged. Now there, we are in the crypto space. So there are elements here, but central banks control the creation of money. They delegate some of that to banks. There's a high price banks pay for that. It's called regulation. So why central banks would actually sit back and watch how somebody is creating money, I think it's just a temporary phenomenon. And again, that takes nothing away from the fundamental promises of the blockchain technology that is behind some of these quote-unquote cryptocurrencies. And therefore I think we've got to distinguish between the two, look away from the hype, take the long-term benefits out of it, invest in the technology, which has a lot of potential for the remaking of financial, which is the topic of our thing today, and focus on that as opposed to be focused on short-term types of are you investing in X or Y? And then we wrap it up and we leave the last voice that of a banker just giving us some stare on the global financial system. Ladies and gentlemen, if we could thank our honorable guests for their contribution. Thank you so much. Thank you. And ladies and gentlemen, thank you for tuning in from home. Let me just tell you CNBC will be interviewing the US president later on this evening. So make a point of staying with our coverage for that. For the time being, let me send you back to our US colleagues.