Globalization and the International Financial System
My basic message is the following: Against the backdrop of many complex disputes about globalization, the challenges faced by individuals and institutions participating in the international financial system are challenging, and there is a need to take these challenges seriously. Let me explain this for three reasons.
Firstly, in relation to our domestic economies, the level of understanding about the role of finance is very limited. Establishing the main road activities is not easy. For example, I have been asked to explain hundreds of times in the last 30 years, either in banks or in the context of the purchase of equities and the economist of investment, in terms of savings and investment, because they account for national income as an economist My failure is that I have a satisfactory one-sentence answer.
Second, and still in the context of our domestic economies, even for those who feel a bit comfortable for the role of finance, a passionate emotion among those who borrow money or loan by nature Having the ability to take, the local banker gets a certain degree of respect. Their community, but hard work is done to find love or warm feelings for big financial institutions, their representatives, or their leaders, or any other country.
Third and last, turning to the international financial sector, two elements strongly influenced historical trends in international finance: integration and technical change. These basic forces have shaped the development of international finance for centuries. Global integration of money and capital markets is the essence of international finance; Through such channels, purchasing power on real resources is transferred from the regions of the world today, where the rate of return rates is expected to return to the world where the return rates are high. (At least this is the theory.) This process, in turn, is helped by technical changes in important issues which have helped only to accelerate the money, but also about investment opportunities about the flow of information. So far, so good!
However, remember that an important part of the debate about globalization and its impact on the real economy revolves around what the process of globalization calls is in the dissemination of global integration of "creative destruction" trends, one-handed, and what part is responsible . Technological change trends on the other hand. If someone can establish that an important part of the process of disruptive change in our economies is due to technological change, not global integration, debate about globalization, more than per cross, clearly one who can develop economic growth and The side is about, which is a few easy debates for the Proglodiser to be strong. Of course, trying to dislike the effects of those two trends in the performance of the real economy is a challenge, for example, in relation to job losses, but many observers believe they are different, at least At low ideological level. Thus, the protector of globalization in the field of business makes it clear that the economic impact of the technological change should not be attributed primarily to the effect of globalization. When it comes to international finance, this attempt to separate global integration from the technical change is not concrete, even as a point of debate.
In this way, my argument is that international finance is particularly vulnerable to those who oppose the increased globalization, because our economies are poorly understood, financial competitors do not win popularity competitions, and the process Apart from technological change it is the process of global integration. I am right, then who work in the international financial system and are responsible for its institutions, public and private, they face unique challenges from anticidentiser.
In their criticisms, antiglodiser gives information about the international economy and financial performance.
Thus, countries and the international financial community are justified in an effort to discourage the excessive dependence on short-term external borrowings, especially when it is not hedged; Both lenders and borrowers make mistakes. However, a systemic response to this phenomenon, which, for example, proposes to restrict the short-term external borrowing, will be like tying up the children when they go out in all seasons of the year, because only winter The risk of not doing this increases the risk of catching them.
Apart from this, a wrong concentration by some analysts on banking exposes the fact that short-term financing for all participants in the financial system, with the financing of international trade in developing countries, is the main source of liquidity. In 1998, the experience of Indonesia shows this; Because it was cut from business finance as a result of the failure of its domestic financial institutions and the uncertain status of many of its enterprises, not only did Indonesian imports fall, as was expected of one, but due to the fall in its exports, due to the lack of trade finance Decrease
With the same lines, some observers argue that long term loan liabilities are better for short-term obligations. However, long-term debt liabilities also come regularly, and when the borrower comes under the pressure of the borrower compared to short-term banking obligations, they are less likely to be rolled. For example, in early 1998 a large proportion of the deficit of Brazil's foreign exchange reserves was used to pay the long-term debt obligations of Brazilian private and public sectors during that period in early 1999. With similar lines, supervisors often argue that portfolio investments are better for investment debt obligations, but foreign investors can sell their portfolio investments, revert earnings, and thus, the reserves of any country or its Can put pressure on the currency.
Thus, many observers argue, with the economist, that foreign direct investment portfolio is better for investment. The reality is that foreign direct investment flows can also dry up, and they can not be trusted as a stable equivalent for the current account deficit of the countries, as Brazil has learned during 2001. In addition to the expiry of capital inflows in the form of FDI, foreign direct investors can hedge their positions, increasing the pressure on the exchange rate and international reserves. They can repatriate their earnings, and they can cut on the expansion of credit and other financial flows.
More fundamentally, keeping in view the simplicity of today's financial markets and their ability to reduce risk and reduce risk, different forms of international investment are essentially impossible to distinguish. For example, a foreign direct investor can still be the owner of a firm's stake, but the investor can finance or refinance that stake in the domestic currency, and thus can avoid any foreign currency risk.
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