Tackle 'gray rhinos' before it's too late

The term "gray rhino" has been frequently cropping up in international discussions. Gray rhinos are crises that develop slowly and are usually ignored until it is too late. Examples include accumulating financial risks from rising debt levels, wild fluctuations in the exchange rates of major currencies (like the US dollar), increasing tensions between major powers (such as the United States and Russia), and rising tensions in regional hot spots (such as the Korean Peninsula and the Middle East).

Gray rhinos pose serious risks to global governance, and to counter them, the international community must take concerted actions. Yet the lukewarm global economic recovery and some half-hearted cross-border regulations have lulled the world into complacency on financial stability. But alarm bells have kept ringing as the US debt level continues to rise, Europe's debt crisis remains unresolved, and the risk of deteriorating and emerging economies' high domestic and foreign debt levels threaten to disrupt their growth. The large amount of quantitative easing and extremely low interest rates in advanced countries have left many bombs ticking in the form of asset bubbles in the bond, stocks and property markets.

Since 2009, key central banks have bought $11 trillion worth of government bonds and other assets, and have only now started to shrink their balance sheets following moves by the US Federal Reserve, and the European Central Bank last October. The inevitable rate increases and shrinking of balance sheets have already caused drastic fluctuations in capital movement in many countries, which could lead to financial crises.