What are the potential impacts of Brexit on global financial stability?

Okay, regarding the impact of Brexit on global financial stability, let me try to explain it to you in plain language. You can imagine the global financial market as a super precise, interconnected giant machine, with the UK, especially London, serving as a very core gear within it. Now, this gear has decided to spin in a different way, causing the entire machine to inevitably shake.

The main impacts can be viewed from these aspects:

1. Erosion of London's Financial Hub Status

This is the most crucial point. Previously, London was a top global financial center, arguably Europe's "financial capital."

Loss of "Financial Passport": For example, any bank or financial institution that established a presence in London and obtained a UK "license" (the so-called "financial passport") could freely conduct business across all EU countries. This was incredibly convenient, saving the trouble of applying for licenses in dozens of countries individually.
Business and Job Relocation: After Brexit, this "passport" became invalid. So, what happened? Many large international banks (like JPMorgan Chase, Goldman Sachs) that had their European headquarters in London were forced to move part of their operations and staff to cities within the EU, such as Paris, Frankfurt, and Dublin, in order to continue doing business in the EU. This is akin to a major company losing its regional general agency status and being forced to re-establish operations in numerous smaller locations.

This "relocation," though not instantaneous, will gradually weaken London's central position as a hub for capital and talent, increasing the cost and complexity of financial operations.

2. Market Uncertainty and Volatility

The financial market fears "uncertainty" the most. Brexit, from the referendum to the lengthy negotiations, was full of unknowns.

Sharp Currency Depreciation: The most direct reaction was the pound's exchange rate. As soon as the referendum results were out, the pound sterling plummeted against the US dollar, hitting a multi-decade low. This was like the market casting a "vote of no confidence" in the UK's future.
Stock Market Shocks: Not just the UK stock market, but global stock markets also trembled. Because no one knew how big the fallout would be or if it would trigger a chain reaction, investors tended to sell high-risk assets (like stocks) and buy safer assets (like gold, government bonds). When this risk-off sentiment emerged, the market tended to fall.

You can imagine the market as a driver who suddenly encounters dense fog ahead, unsure of the road conditions. The immediate reaction is to hit the brakes, slow down, or even turn around.

3. Regulatory Rules Become Complex

Previously, the UK and the EU used the same set of financial regulations; everyone played by one rulebook. After Brexit, the UK developed its own set of rules, while the EU continued with its original ones.

"Regulatory Divergence": This led to what's called "regulatory fragmentation." The same multinational company has to comply with one set of rules in the UK and another in the EU. This not only increases compliance costs (requiring two sets of lawyers and experts) but also makes it easier for new risks to emerge in the gaps between rules.
Challenges for Clearing Services: For example, a crucial service called "Euro clearing." Previously, a large volume of euro-denominated financial derivatives transactions were cleared in London. After Brexit, the EU has consistently hoped to bring this critical business back within the Eurozone, as they feel it's unsafe to have such an important financial infrastructure located "offshore" (in the UK). This ongoing struggle also brought a lot of uncertainty to the market.

4. Potential "Contagion Effect"

Brexit also opened a "Pandora's Box."

Impact on the EU Itself: It made people start to worry: could the seemingly stable EU union also disintegrate? What if other countries followed the UK's example and held referendums to leave? While this risk currently seems low, the mere existence of such doubts affects investor confidence in the entire Eurozone economy.
Reversal of Globalization: Brexit is seen as a landmark event in the anti-globalization wave. If countries increasingly prioritize self-interest and erect trade and financial barriers, the free flow of global capital will be hindered. This would reduce the efficiency of the entire financial system and increase the risk of localized crises.

In Summary

Simply put, Brexit is like forcibly removing a crucial gear from a precisely operating machine. In the short term, it caused severe tremors (market panic, currency plunge); in the long term, it forced the machine's internal structure to reorganize (financial institutions relocating), and made the operating rules of the entire system more complex and fragmented. It also made observers worry if more parts of this machine would loosen.

Although the global financial system has strong resilience and has gradually adapted to these changes, Brexit undoubtedly added new cracks and long-term risks to this already complex system.