Financial Globalization

In the field of creativity and culture, Globalization is a well known word over the years, but Globalization has become a household word literally since early 1990s when Financial Globalization kicked off. During this period, the trade obstructions between nations were broken apart, and the flow of capital and corporate investments between different countries was embarked on.

Financial globalization is also defined as an amalgamation of domestic financial system of a particular country with the international organizations as well as financial markets. Massive growth have been noticed in global economy in the last couple of years, and in the field of technology, more precisely in transport and communications there was a silent revolution which made the globalization of finance an obvious choice. The International Monetary Fund (IMF) and World Bank are the two international institutions of finance which were set up to endorse world trade to keep up with the growth of Financial Globalization.

History of Financial Globalization

During the mid-1970s, the emerging market economies did not experience much of cross-country financial flows. The rate improved during 1980s and 1990s, while in the year 1997 it reached its best. But then it had declined rapidly due to economic and financial catastrophe of the Asian and Russian countries and gradually global capital flows was completely reduced. Instead, in the early 1990s, Financial Globalization inflated noticeably and capital from developed countries to the developing countries started flowing in. From 1973 to 2005, the rate of world trade increased at a great deal. It continues to grow, and in the year 2005, the GDP of world hit 42%.

Impact of Financial Globalization

Although, there is rich history of trans-country capital movements, but the impact of financial globalization is definitely huge in the composition of national and international capital markets. The banking system was mostly stirred and it had to experience dis-intermediation.

Advantages of Financial Globalization

There are loads of advantages that the world is enjoying today due to Financial Globalization. First and foremost, it has enhanced capital flow in each and every country with which a country may always remain prepared to counter any financial crisis. Another most important factor is that, due to Financial Globalization the capital flows between nations increase which causes well-organized world allocation of money. Another important fact is that globalization of finance has improved living standards of the people. Simply speaking, Financial Globalization is the safeguard to defend against national shocks, and an excellent system for more efficient global allocation of resources.

Disadvantages of Financial Globalization

The number of downsides of financial globalization is also not less. If the economy of the country is not strong, it could be affected by the financial shocks of a different country. Not just that, Financial Globalization can also cause severe disorder and cost high for stock market turbulence, bank failures, corporate bankruptcies, currency depreciation, etc. The latest example is recession. Most of the countries are more or less affected due to financial shocks in the U.S. Sudden reversal of capital can also create a great economic turbulence on a large scale due to Financial Globalization.

To reap the benefits of financial globalization, it is a must to have first-rate institutions and quality of governance. For this reason, it has been noticed that the developing countries could hardly derive the benefits of globalization as their infrastructure is not that much of well equipped. On the contrary, it is a proven truth that that Financial Globalization is extremely advantageous for the developed countries.

Last Updated on 5/18/2011