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Global Finance

Global Finance

Definition of the Global Financial System (GFS):
“  The financial system consisting of institutions, their customers, and financial regulators that act on a global level “
The WHO defines it as ” various official and legal arrangements that govern international financial flows in the form of loan investment, payments for goods and services, interest and profit remittances. The main elements are the surveillance and monitoring of economic and financial stability, and provision of multilateral finance to countries with balance of payments difficulties. The organization at the centre of the system is the International Monetary Fund (IMF), which has the mandate to ensure its effective running.”.
The Financial Times lexicon defines it as:” interplay of financial companies, regulators and institutions operating on a supranational level. The global financial system can be divided into regulated entities (international banks and insurance companies), regulators, supervisors and institutions like the
European Central Bank or  the International Monetary Fund. The system also includes the lightly regulated or non-regulated bodies – this is known as the “shadow banking” system.
Mainly, this covers hedge funds, private equity and bank sponsored entities such as off-balance-sheet vehicles that banks use to invest in the financial markets.”
The term global is often used synonymously with the terms “international” or “multinational”.
Economists do not have a standard definition for a global versus a multinational company.

Public International Financial Institution: 

  • The International Monetary Fund keeps tabs of international balance of payments accounts of member states. The IMF acts as a lender of last resort for members in financial distress, e.g., currency crisis, problems meeting balance of payment when in deficit and debt default. Membership is based on quotas, or the amount of money a country provides to the fund relative to the size of its role in the international trading system.
  • The World Bank aims to provide funding, take up credit risk or offer favorable terms to development projects mostly in developing countries that couldn’t be obtained by the private sector. The other  multilateral development banks  and other international financial institutions also play specific regional or functional roles.
  • The World Trade Organization settles trade disputes and negotiates international trade agreements in its rounds of talks (currently the Doha Round).
  • The Bank for International Settlements (BIS) in Basel Switzerland, which is both a bank as well as an intergovernmental organization for central banks worldwide. It has numerous subsidiary bodies, most importantly the Basel Committee on Banking Supervision, the  Financial Stability Board, and the BIS Joint forum on financial conglomerates

Private International Financial Institution:

  • The Institute of International Finance (IIF), a trade organization of the world’s largest commercial banks and investment banks.
  • The World Federation of Exchanges (WFE) which publishes global stock capitalization information in annual reports.
  • The Global Financial Markets Association(GFMA), which consists of European, Asian and North American financial market associations: The Association for Financial Markets in Europe (AFME) in London and Brussels, the Asia Securities Industry & Financial Markets Association (ASIFMA) in Hong Kong, and the Securities Industry and Financial Markets Association (SIFMA) in New York and Washington DC.

There are three primary approaches to viewing and understanding the global financial system.

  1. The liberal view holds that the exchange of currencies should be determined not by state institutions but instead individual players at a market level. This view has been labeled as the Washington Consensus.
  2. The  social democratic view which advocates the tempering of market mechanisms, and instituting economic safeguards in an attempt to ensure financial stability and redistribution. Examples include slowing down the rate of financial transactions, or enforcing regulations on the behavior of private firms.
  3. Neo Marxists are holding the view that the political North (for definition see global North–South divide) abuses the financial system to exercise control of developing countries’ economies promoting inequality between state players.

References:

1.Adams, J (1999), Foreign Direct Investment and the Environment: The Role of Voluntary Corporate Environmental Management, Paper Presented at an OECD Conference on Foreign Direct Investment and the Environment, 28-29 January, 1999; The Hague, Netherlands.
2. Barton, J.R. (1999), Environmental Regulations, Globalizations of Production and
Technological Change in the Iron and Steel Sector, Paper Presented at a conference on Environmental Regulations, Globalizations of Production and Technological Change, University of East Anglia, 1-2 July 1999.
3.Bartzokas, A. & Yarime, M. (1999), The European Fertilizer Industry, Research Project for the EU on Environmental Regulation, Globalizations of Production and Technological Change, United Nations University, Institute for New Technologies, Brussels.
4. BIAC – Business and Industry Advisory Committee to the OECD (1999), BIAC Discussion Paper on FDI and the Environment, Paper presented at an OECD
Conference on Foreign Direct Investment and the Environment, 28-29 January, 1999; The Hague, Netherlands.
5. BIAC (1998), BIAC delegation statement, OECD Workshop on the OECD Guidelines for Multinational Enterprises, Budapest; 16-18th November 1998.
6. BIAC and ICC – International Chamber of Commerce (1998), Letter to the Financial Times, January 15th, 1998.
7. Blackman, A. & Wu, X. (1998), Foreign Direct Investment in China’s Power Sector:
Trends, Benefits and Barriers, Discussion Paper 98-50, Washington D.C, Resources for the Future, September Bretons Woods Project, (1998), Drowning by Numbers, Briton Woods Project, London Dasgupta, S, Hettige, H & Wheeler, D (1998), ’What Improves Environmental Performance? Evidence from Mexican Industry’, Policy Research Working Paper 1877, World Bank Development Research Group, January 1998.
8.Demandt, I. (1999), The World Phosphate Fertilizer Industry, Research Project for the EU on Environmental Regulation, Globalizations of Production and Technological Change, United Nations University, Institute for New Technologies, Brussels.
9. DFID (1997), Eliminating World Poverty: A Challenge for the 21st Century, UK Government White Paper on International Development, HMSO, London, 1997.

 

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