Financial Globalization and Financial Stability

Globalization is a complex process and it has different facets. Among all of them, financial globalization is the most powerful dimension. It has caused great impact on the global economy and constituted a remarkable change in the exhaustive cross-border financial and cost flows. In addition, financial globalization also has great impact in international risk-sharing management. There are myriad of aspects of Financial Globalization, and financial globalization and financial stability is one of them.

Due to financial globalization, a massive change has been noticed in the market operators and institutions, in expanding the stakes of cross-border properties as well as the growing international profile in the financial stability of economic markets. These changes have been called as the ‘second wave’ of financial globalization.

When the financial markets cannot perform at its best due to an unrelenting predicament, the situation is called as financial instability. To counteract this instability, financial globalization takes an important role. First of all, it changes the traditional government-ruled exchange rate to a flexible exchange rate system. In addition, a precise application of liberalization and formation of institution is the crucial factor in all emerging markets.

Reasons of financial globalization

Technological advancement is considered as the prime cause of financial globalization. Especially, the transport and communications sectors have experienced an enormous growth which caused a change in the financial system. A combined effort of the technological advancement and the expansion of financial liberalization ensured active financial globalization in today’s global economy.

History

Due to financial globalization there was a huge crisis in banking sector which affected almost all the countries in the world. The first impact had been noticed in the Nordic countries and Japan in the 1980s, while in the 1994, there was Mexican crisis, and crisis in banking sector in the Asian countries took place during the 1997-98. In the Russian countries it was in 1998.

Impact of Financial Globalization and financial stability

Earlier the system was mainly political dominated, but financial globalization and financial stability has reformed the entire system, and gave birth to the market-directed system. This system performs important role in determining the conditions of flexible accessibility in economy, and exchange rates. In addition, it also helps to cope up with any sort of financial crisis.

There was massive impact of financial globalization on the countries and regions across the world. A total transmission noticed, and in the place of bank-centered financial system, a market-driven financial system has taken the charge. As a result, there was a downfall in the banking sector, and they need to search for other options in domestic and global markets to rejuvenate the sector.

Advantages of Financial Globalization and Financial Stability

It can undoubtedly be said that due to financial globalization and financial stability there is boom in the economic sector. Plenty of options have been opened and the sources of global financing have become cheaper and easily accessible as well. Due to financial globalization numerous countries are enjoying financial stability which is widely accepted. The most important thing is that, for the developing countries, financial globalization and financial stability is really a boon. They have been highly benefited from the security markets of the developed countries. Furthermore, to keep the inflation rate in control, financial stability has been very much effectual. In a word, financial globalization and financial stability is definitely a perfect step for boosting up the economy in different countries worldwide.

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Last Updated on 5/18/2011