Negative impact of globalization on the international financial market. Globalization of financial markets and its impact on the Russian banking system. The Impact of Financial Globalization on Monetary Policy
The basis of the globalization of world financial markets (WFM) is the globalization of the production process, i.e. the situation when the internal, national market of a resident enterprise has lost its primary importance for it and the company no longer focuses on its own country and is engaged in meeting such needs and at this level , which would be typical for the whole world. In this case, a global product life cycle emerges, markets and products are increasingly standardized, and international criteria and evaluations, which mainly have a financial expression, are increasingly used to assess market success. The process of globalization is most consistently carried out by transnational corporations (TNCs), the number of which in the world as of January 1, 2000, according to UNCTAD, exceeded 63,000 and which own 700,000 branches located on all continents.
Another reason for the globalization of the MFR is the need to find financial resources to solve global problems of world development, such as overcoming poverty and underdevelopment; problems of peace, disarmament and prevention of world nuclear war (the problem of peace and demilitarization); food; natural resources (breaking down into two separate ones: energy and raw materials); environmental; demographic; development of human potential, etc. According to available estimates, the annual costs of solving global problems amounted to at least $1 trillion, i.e., about 25% of the gross world product, calculated at purchasing power parity in the late 90s [Bulatov, p. . 381, 382]. If they are resolved in the future, it seems that relatively favorable conditions will be created for the development of human potential in all countries and regions of our planet.
Another reason is the actual financial one, associated with the desire of each financial agent to receive a profit close to that of other agents on the same financial asset, no matter in which financial institution it is placed.
The globalization of financial markets is closely related to the emergence of a virtual economy. It is modern telecommunications that allow international financial markets to function 24 hours a day, i.e., in essence, to be a single living organism.
It was previously noted that international finance is represented by many entities. However, the process of globalization is reflected in the gradual development of organizations that increasingly control and manage the MFR. This began with the founding of the IMF and the World Bank in 1944. The number of financial transactions that these world organizations directly influence, their share in the total volume of financial transactions in the world, can serve as a conditional indicator of the degree of globalization of world finance.
From all this it follows that the globalization of world financial markets means their universalization, i.e. the creation of uniform procedures for the circulation of financial instruments and the standardization of financial institutions using them. For example, the concept of a universal bank has been put forward as a financial institution that would meet the requirements of the global financial system [Doerig]. Some researchers call the process of globalization a financial revolution [Ent, Lis, Mauer. With. 11], which began in 1980, when the financial market system began to function at the global level, i.e., the defining features indicated for globalization began to appear. It was then that a global financial network emerged, connecting the leading financial centers of different countries.
This network linked New York, London, Tokyo and Zurich with centers focused on special functions: Frankfurt am Main, Luxembourg, Amsterdam, Paris, Hong Kong, the Bahamas and Cayman Islands. London is the leading center for the euro currency. The Tokyo price bond market has become more attractive due to large savings volumes and excess capital in Japan. Zurich is also a leading market for foreign bonds, mainly due to the anonymity of foreign deposits.
Strengthening ties between these centers led to the ubiquitous presence of international financial institutions, international financial integration and the rapid development of financial innovation, which, in fact, was the content of financial globalization.
The ubiquitous presence of international financial institutions means increased pressure on individual governments, helping to reduce government intervention in the domestic market and liberalize international financial relations.
The next aspect of financial globalization is associated with international financial integration, that is, with the elimination of barriers between the domestic and global financial markets with the development of multiple connections between them. Financial capital can move without restrictions from the domestic to the global financial market, and vice versa. At the same time, financial institutions establish branches in leading financial centers to perform the functions of borrowing, lending, investing and providing other financial services.
A particularly active role in the integration of global financial flows is played by such a group of corporations as Transnational Banks (TNB), of which there are now more than 100 in the world [Bulatov, p. 208]. Their main clients are industrial and commercial TNCs.
Financial inclusion benefits borrowers and lenders alike. However, both borrowers and lenders are subject to equal risks, including market, interest rate, currency and political risks.
International financial integration poses new challenges for financial institutions and other market participants. First, it may be difficult for investors to obtain case data regarding activity in international capital markets. For example, many financial transactions, such as interest rate swaps, are off-balance sheet items and are not clearly recorded through normal reporting channels.
Another problem is that the integration of financial markets has led to a simplification of the beginning of the procedure for circulating a financial resource. It is difficult for financial institutions, especially those whose activities have a significant impact on the state of the financial market, to timely predict or detect disruptive flows of funds in order to formulate a corrective strategy, as happened in the Russian financial market in August 1998.
Finally, market integration can increase the vulnerability of the financial market and complicate the problem of monitoring its activities.
The third aspect of financial globalization is financial innovation, i.e. the creation of new financial instruments and technologies. Financial instruments such as Eurodollar certificates of deposit, zero coupon Eurobonds, Eurocurrency syndicated loans, currency swaps and short-term variable interest obligations have become very popular in international financial markets. The decline in the volume of syndicated loans in Eurocurrency after 1982, following the debt crisis of developing countries, accelerated the process of securitization, i.e., the increasing role of securities in financial markets to the detriment of credit. Using this process, a borrower can reduce its dependence on direct bank lending and instead issue short-term commercial paper or short-term bonds that are underwritten by commercial or investment banks. These instruments may be issued from time to time and resold in the secondary market as if they were long-term securities. The Euronote program is an example of such securitization.
Technological innovation has accelerated and intensified the process of globalization. In particular, communications have increased the speed of international transactions and their volume. As a result, information and capital flows faster. Telecommunications help banks attract savings from deposit pools around the world and channel funds to borrowers on the highest return and lowest cost terms. Investment banks can enter into transactions in bonds and foreign currencies through SWIFT. Commercial banks can send letters of credit through electronic payment systems from their headquarters to their representative offices abroad; this connection with local exporters and importers is provided through a computer.
The technologies considered are part of financial engineering, generally defined as a set of financial instruments, innovations and technologies designed to solve problems in the field of finance (for more details, see, for example, [Marshall, Baisal]). Financial technology is a broad term that refers to financial innovations such as open-end money market funds, automated banking machines, derivatives, etc.
From all that has been said, it is clear that financial globalization has certain positive consequences. These undoubtedly include reducing the lack of financial resources in different regions of the world. In addition, globalization increases competition in national financial markets, which is accompanied by both a decrease in the cost of financial services and the already observed process of disintermediation.
However, globalization is also accompanied by certain negative consequences. First of all, this is the increasing instability of national financial markets, since as a result of liberalization they become more accessible to “hot money”, and on the other hand, financial crises that arise in large financial centers manifest themselves more strongly in other countries and regions.
Another negative consequence of financial globalization is the increasing dependence of the real sector of the world economy on its monetary, financial component (Bulatov, p. 206]. This process, having begun in developed countries, is actively spreading to other countries and regions. This means that the state of national economies increasingly depend on the state of national and global finances.
The latter circumstance is also fueled by the fact that in the context of globalization, national finances are increasingly dependent on the orders of non-residents, who are increasingly present in national financial markets. Thus, the financial crisis of 1998 in Russia was largely provoked by the behavior of non-residents, frightened by the financial crisis in Asia.
This, in turn, means that the influence of national governments on national finances is weakening, and the influence of TNCs, international institutional investors and international speculators is increasing. In integration associations, the impact of common decisions and common financial policies increases, as is the case in the Constitutional Court. Moreover, some economists are in favor of creating a new international financial organization, more powerful than the IMF, with much greater rights and resources.
All this may lead to the fact that the benefits of financial globalization resulting from the reduction and elimination of barriers between national financial systems will be distributed unevenly. The greatest benefits will be received by developed countries, and in particular the United States, whose leadership in the processes of financial globalization and in the development of its standards and mechanisms is undoubtedly. As a result, the financial systems of other countries, primarily developing and former socialist countries, and then their economies may become strictly dependent on the US financial system. Due to such unipolarity, world finance may turn out to be much more unstable than at the beginning of its formation. In this regard, obviously, the process of globalization has quite objective boundaries of development and their indicator is the state of the world economy. The problem of the boundaries of globalization must be resolved based on the relationship between the interests of national financial systems and world finance in order to develop the world economy.
Speech at the VII International Banking Congress June 2-6, 1998 in St. PetersburgToday I am faced with a difficult task - to try to give an analysis of how world problems and globalization trends affect the Russian financial and, in particular, banking system, what positive and negative effects of this process we are faced with, what the current situation is. I will try to give my vision of the problems and processes that will be solved and occur in the near future.
First of all, it should be noted that the Russian banking system and the modern Russian economy are very young. Real economic reforms in Russia, denationalization of property, and creation of a real financial market take less than ten years. And Russia faces here the same problems that any country in transition faces. Against the backdrop of globalization of economic processes, this is quite difficult.
What is the globalization of financial markets and what are its main trends?
Financial markets, service markets, etc. are merging. This is no longer a conglomerate of national markets, but one global market. The mobility of capital is truly enormous. The volumes and speed of movement of financial resources across the single international market are increasing every year. This process has its positive and negative sides. The positive side is that capital is known to go where it can make the greatest profit, where there is the best prospect for business development, where economic growth is planned or already occurring.
The negative side is that if investors feel insecure, in the event of any economic or political turmoil, these huge financial resources can easily migrate, thereby bringing not only a positive effect for the countries where they come, but also causing by leaving there is quite serious damage. And for all countries with economies in transition, which includes Russia, there is one big problem related to the fact that these difficulties of globalization are superimposed on unresolved internal economic problems.
It is known that in Russia the basis of economic problems is the budget problem, the tax problem, the problem of government spending.
The same problems exist in one form or another in almost all countries with economies in transition. And if countries successfully cope with these problems, then the globalization of markets is a good thing. Russia has come quite a long way in this direction, and in 1997 there were some positive changes in the basic economy.
As is known, real GDP in 1997 grew by 0.4%, the turnover of foreign trade of the Russian Federation has increased (since 1994), and as a trend, the share of foreign trade transactions in GDP is slowly but steadily growing. Thus, Russia is increasingly integrating into the world economy, and global processes are increasingly influencing it.
If we talk about the financial (and banking) sector, then this influence is also dual. Let us turn to the experience of countries with transition economies and the crisis events that they experienced; we will find a lot in common between Russia and these countries. Or take, for example, Mexico, where in December 1994 there was a serious financial and currency crisis, and in 1995 a crisis in the banking system caused by the devaluation of the national currency, and look at the main preconditions for this banking crisis, you can see a lot of familiar things : a young, denationalized banking system, a large number of non-performing assets, i.e. non-income generating, or non-performing assets, weak management, large volumes of short-term borrowing in foreign currency.
These are the basic reasons against which the devaluation of the Mexican currency caused a severe banking crisis. By the way, I’ll make a small digression. It will probably immediately become clear why the Bank of Russia and the Government are taking all measures to prevent the threat of ruble devaluation. We do not want to provoke a banking crisis in this case. And, being in a very difficult economic situation, it was necessary to choose the lesser of two evils, in particular, a temporary increase in interest rates left hope that they would be reduced, and investors, both external and internal, would return to the market in the medium term will be able to solve the budget problem. Then our difficulties with interest rates will be temporary. Naturally, this is a difficult choice, but the alternative has an even bleaker outlook. The devaluation of the national currency means an almost complete collapse of the banking system. And the Central Bank of the Russian Federation faced a serious choice. And this choice was made, you know about it.
But let's return to our main question. What gives us reason to say that the Russian banking system and the financial system as a whole are already part of the international financial system?
There are very revealing trends, there are numbers, there are facts. For example, in 1997, the volume of foreign investment in the country increased 1.7 times compared to 1996. Foreign obligations of residents of the Russian Federation for portfolio investments in 1997 increased by $18.2 billion. Thus, there is serious borrowing abroad, but a significant part of these funds, unfortunately, still ends up in the financial market and circulates there, but a significant part of these funds still reaches the non-financial sector of the economy and, in the medium term, creates the basis for its economic recovery.
In the last few years, especially in 1997 - early 1998, the Central Bank has been pursuing a gradual liberalization of the foreign exchange sector and foreign exchange regulation. Our general concept is to liberalize the rules and procedures for the access of foreign capital to the Russian market while maintaining a number of significant restrictions on the export of capital by Russian residents. Of course, theoretically, administrative restrictions are not the most effective and reliable way to influence the movement of capital. Everyone understands perfectly well that residents who, for one economic reason or another, want to hide money abroad will do so, and our bans do not fully justify themselves. From a general economic, let’s say, from a general liberal point of view, our prohibitions are not effective, we understand this very well. But we believe that in the transitional state of our economy that we have now, there is no reason to rely solely on economic incentives, because these motives are not yet sufficient. Therefore, we limit the export of capital, but liberalize the import of capital gradually and in different ways. In particular, we have taken a number of steps (and are going to continue to take these steps) to remove most of the administrative restrictions associated with Russian residents attracting loans and borrowings in foreign currency. The current mechanism, in accordance with which permission from the Central Bank is required, is planned to be simplified as much as possible and made permissive, which will greatly facilitate the life of Russian recipients of foreign investments, who can and are ready (in a financial sense) to be responsible for their actions.
As you know, the corporate securities market in Russia was very liberal from the very beginning. Unfortunately, there were practically no administrative restrictions on it. And unfortunately, here's why. Because the presence of certain restrictions makes it possible to create incentives for the development of the internal infrastructure of the corporate securities market. Now in Russia, only trading systems are extremely effective on the corporate securities market. That's all. There are no depository, clearing, and settlement organizations that serve (by analogy with the West) cheaply and efficiently Russian and foreign investors in Russia. This, in particular, is due to the fact that foreign investors are accustomed to, it is convenient and profitable for them to pay for the purchase and sale of Russian shares abroad in offshore zones through lottery accounts. This reduces risks and overhead costs. And now the creation in Russia of a national system of settlements and clearing for securities is met with misunderstanding and disinterest of the majority of foreign investors. We believe that both the Government and the Central Bank need to take measures aimed at accelerating the creation of such infrastructure. At the same time, it is necessary to provide conditions that would encourage foreign investors to participate in its creation and use its services. Of course, we cannot and will not introduce administrative measures again, but this is precisely what complicates the solution of this problem. If from the very beginning (three or four years ago) a slightly different policy had been adopted, a policy of gradual liberalization of the stock market, creation of a national infrastructure, then now we would have a more stable, efficient stock market. But it is what it is.
A few words about the liberalization of foreigners’ access to the government securities market. In 1996, a program designed for one and a half years was adopted, according to which the Russian Federation opens access to foreign investors to the government securities market. This program was successfully implemented; by the end of 1997, we fulfilled all our obligations, including those arising from Article VIII of the Charter of the International Monetary Fund, which declares freedom of movement of capital for current transactions.
The way we liberalized this market, the procedures that we applied in this process, made it possible not only to attract foreign investors, but also to create a good national infrastructure that will attract foreign investors. Therefore, technologically (and from the point of view of the financial results of 1997), we consider this program of access for foreign investors to the Russian government securities market to be very, very successful.
Unfortunately, we all know that at the end of 1997, troubles began in the financial markets of Southeast Asia and in other countries, in particular in Russia, but in Russia this external push was superimposed on the weakness of the domestic market and, as I already noted the weakness of the fiscal system. What happened? The rapid liberalization of capital compared to other components of the Russian economic system has played a cruel joke on us. We find ourselves in a situation where absolutely correct and correct steps in the financial market are far ahead of corresponding steps in other areas of the economy. We hoped that the financial market would pull government finances with it, give the budget the opportunity to breathe more freely and begin restructuring the revenue/expenditure base, and give enterprises the opportunity to partially cope with the payment crisis, replenish working capital, capital and move on to industrial restructuring.
However, as practice has shown, the real economy reacts to rapid changes in the financial market very slowly; this requires a fairly long period of financial stability. Unfortunately, we did not have such a period, the global financial crisis complicated the development of events, aggravated internal problems, and now, in the month of May, we have a rather serious, tense, but not hopeless situation.
However, despite the existing difficulties, we do not intend to retreat from the liberalization steps that have already been taken.
We probably shouldn't rush too much into the next steps, but we won't go back in this regard.
If we talk about the banking system itself, the banking industry as one of the sectors of the economy, then here too there are pros and cons associated with the process of globalization. You remember how five or six years ago in Russia there was a very serious discussion on the topic of whether or not foreign banking organizations should be allowed into the Russian banking system, whether this is good or bad. And here, as well as throughout the world, various arguments and motivating factors were used. On the one hand, these are the rights and interests of consumers of banking and financial services - depositors, enterprises with accounts in the banking system, and creditors. They, of course, want the banks in which they keep their money, where they place funds for a term that finance their current production, to be large, reliable and stable.
Therefore, from the consumer’s point of view, there is sense (and convincing arguments) in the accelerated admission of foreign capital into the banking system, in the use of modern banking technologies, and in expanding the range of banking services.
But there are other arguments that also speak about national producers of banking services, who are taxpayers, employers and, if you like, in a sense, ideologists of national economic development.
But there still remains the problem of supervision (also one of the serious arguments), when it is often more convenient and profitable for the state to work with national providers of banking services than with foreign ones, due to undeveloped ties with foreign banking supervisory authorities and the threat of liberalization of the movement of “gray” capital, which in the absence of effective supervision can lead to serious negative consequences.
These arguments are always put forward both in Russia and in other countries. Usually, they are not afraid to open the national market for foreign access when it has already been formed. It was this ideology that prevailed in the early 90s, when it was decided that first we would create a national banking system, and then we would gradually let in foreigners to increase the “boiling temperature” of competition. Which, in fact, has been carried out by the Government and the Central Bank over the past five years.
Now we can draw some intermediate results. There are, of course, both positive and negative results from the work of foreign financial organizations in the Russian market. The positives include the following. Almost all banks with a predominance of foreign participation (and there are 27 of them, of which 17 have 100 percent participation and 10 have more than 50 percent participation) in Russia are profitable, developing, do not have bad assets, comply with standards, and the dynamics of their development is higher than the average dynamics of development of Russian banks, including those of similar class and size.
Thus, our Russian practice confirms the fact that the experience, professionalism and, as they say, foresight of Western bankers “plays a plus” for the Russian banking system. And the Central Bank is satisfied with this development of events. Although there are some alarming moments. We came to this conclusion when we examined the results of the October, November and December financial crises and analyzed the work of foreign banks in Russia: what they do, what they pay attention to.
What incentives exist for opening a foreign bank in Russia? One of these motives is the provision of banking services to national consumers: the development of a network of ATMs, exchange offices, acceptance and issuance of deposits, lending to national enterprises. This is one area where it would be interesting for foreign banking service providers to work.
The second area is foreign trade, financing trade between the bank’s country of origin and the Russian Federation.
The third area is support for foreign corporations in Russia. It is known that McDonald's, Coca-Cola and others are serviced by banks whose capital belongs to foreign banks. This is support for foreign corporations and the development of their business in Russia.
The fourth area is financial intermediation between foreign financial markets and the Russian financial market.
Of the four incentives mentioned above in Russia, the first was the last one - financial intermediation. This is no secret to anyone. The financial market and its infrastructure in Russia are more or less developed, and you can make a good profit here. The task is simple - a minimum of investments, new technologies, because our financial market, especially the government securities market, is structured approximately the same as in all countries of the world, and foreign banks have not brought any special innovations here. They have become another operator of our market.
But, as you know, the economy is an equilibrium system, but it is not always in stable equilibrium. And then, when the economy and the financial market are on the rise, the participation of foreign banks helped this economy, as was done in 1997. The main increase in domestic public debt in the GKO market is associated precisely with the attraction of funds from non-residents, and the budget was replenished quite solidly. This made it possible to pay off many debts in the first half of 1997.
But when the economy and situation deteriorate, the financial market intensifies this deterioration, and foreign financial intermediaries aggravate the process of capital flight. You can't blame them for this. Of course, they have short-term profitable “horizons” of work in this market, what is called “financial speculation”. This is absolutely rational economic behavior, but nevertheless, for the economy (for our economy) this fact turned out to be not very pleasant.
Following the results of the autumn-winter crisis, we saw that at least half of the foreign banks in Russia are very active in this sector. This did not add positive emotions.
Why did this happen? In my opinion and the opinion of other Central Bank specialists, these banks do not feel like Russian residents, they do not feel like they are “sitting in the same boat” with other banks in the Russian banking system. We understand this objectively. And therefore, one of the measures that the Central Bank is going to take is to encourage foreign banks to increase their bank investments in Russia, to increase the capital of these banks in Russia, either by increasing their authorized capital or in some other way.
When the risk level of these banks is high enough, it will not be possible to simply write off 10 - 15 million dollars. at a loss. If the extent of these banks' participation in Russia is greater than what can be safely written off as a loss, then these banks will feel involved in the affairs of the Russian banking community.
I think our foreign colleagues will not be offended by me for such conclusions. We came to this conclusion as a result of the analysis.
In addition to financial intermediation, foreign banks, of course, participate in foreign trade, in supporting foreign corporations, and some are even beginning to provide banking services to Russian residents in the same way as Russian banks. We would like the latter to develop at a faster pace now.
We feel that there is a demand for banking services from enterprises and organizations, that the Russian banking system is psychologically ready, but cannot financially afford a sharp increase in lending to Russian industry. And if the economy of the Russian Federation this year gives some positive impetus, and there is hope for this, then one could hope that foreign banks will begin to engage in Russia not only in financial intermediation, but also in classical banking operations.
This leads to our other approaches to regulating the activities of foreign banks in Russia. We intend to leave the level of their participation at 12%; now it is not yet half exhausted. There is no threat that foreign banks will become the main, predominant banks in Russia. But we assume that if all the existing applications that are now submitted by foreign banks are fulfilled, and also if the authorized capital is increased according to the principles that we want to propose, then in this case, if not 12%, then something In about two years, the banking system of Russia will account for the share of foreign capital.
Another approach of ours, which we have insisted on before and will insist on even more now, is that foreign banks should operate in Russia in the form of subsidiary banks. There is another alternative - branches of foreign banks. But from the point of view of risks, and from the point of view of responsibility, and from the point of view of supervision, we believe that now the Russian banking system, Russian banking supervision, are not ready to work with branches of foreign banks. This is the problem of consolidated reporting, and the problem of risk control, and the problem of compensation for losses if they were caused by a branch, or the problem of bankruptcy of the head office. In this case, we have offered and will continue to offer foreigners the establishment of banks as independent legal entities in Russia, as Russian residents. The Bank of Russia will not allow the opening of branches. Moreover, in the future we would like to see foreign banks opening in Russia in the form of joint-stock companies, rather than limited liability companies. Why? Because Russian legislation for limited liability companies provides for the possibility of participants leaving the company, including in difficult situations. For banks, both Russian and foreign, this option is the most undesirable. A joint stock company is the most effective way to make shareholders responsible for the losses of their bank in the event that there is oversight on the part of the shareholders over the work of the bank.
Further, Russian joint stock companies have higher standards of information disclosure. Prospectuses are published, quarterly reports are disclosed, and corporate events are reported. It is advisable to introduce this culture of disclosure among Russian banks. But we would like foreign banks to lead the way in terms of information disclosure culture, setting a professional example for their Russian colleagues.
Summarizing the problems of the banking system and our policy towards it, speaking about the participation of foreigners in the Russian banking system, it should be noted that there are two serious problems: the migration of capital, the openness of the participation of foreign banks and their interest in stimulating the development of the Russian banking sector.
An important function of globalization is the international movement of long-term capital in the form of direct and portfolio investments, the main subjects of which are TNCs. About 2/3 of direct investment is concentrated in industrialized countries. Recently, this process has accelerated due to international mergers and acquisitions of firms.
The movement of capital between industrialized countries is mainly associated with international mergers and acquisitions of firms. If previously foreign investment was seen as a threat to national independence, today many countries associate it with the opportunity to create new jobs and acquire the latest technology. Investments in developing countries in order to overcome protectionist barriers are now increasingly dictated by the desire of countries to join the system of the international division of labor.
Global finance, closing in on itself as a separate sector of the world economy, having a huge gap in profitability compared to the real sector, diverts part of the productive capital, creates virtual money and debts.
Thus, the turnover of currency exchanges in a few days exceeds the volume of world trade in a year. In the early 1990s. The daily turnover of foreign exchange exchanges exceeded the total foreign exchange reserves of the central banks of the major countries of the world. The expansion of the financial and banking sector in the economies of many countries threatens the stability of economic development, causing financial and economic crises in different regions of the world almost every two years. Thus, globalization primarily covered the sphere of financial circulation and led the world economy to a global crisis.
Guided by the main goal of making a profit, transnational capital, which is not limited in the possibilities of its movement around the world, is naturally speculative at its core, focusing on the most profitable markets.
Comparing the total volume of the secondary securities market with the combined fund of 23 developed countries, which amounts to about $550 billion, some economists draw a conclusion that is difficult to disagree with: there is no real force capable of resisting transnational capital in the world today2. The total foreign exchange reserves of TNCs are now several times greater than the reserves of all central banks combined, and the free movement of only 1 - 2% of this mass of money can change the parity of any two national currencies. In fact, the global financial market, in which TNCs and TNBs act as the main subjects, has turned into an independent, independent and isolated force, acting according to its own rules and capable of nullifying the efforts of any government to regulate the national economy.
However, attempts at critical reflection are ongoing. Even J. Soros, who made a huge fortune from financial speculation, presented to the world his vision of the modern international financial system in a number of books, such as “The Alchemy of Finance” and “The Crisis of Global Capitalism” with the subtitle “The Open Society is in Danger.”
J. Soros sees the main reason for financial and economic instability in the lack of national and international control over global financial markets.
Source: Osmova M. The changing face of economic globalization // The Economist, No. 1, January 2017, pp. 57-62 Indices of global competitiveness of the financial market How asymmetry of information interferes with the effective operation of the capital market Financial literacy of the population and the financial literacy index Problems of investment in the Russian economy Russian companies - where to invest in 2018 According to analysts, prices for shares of Russian metallurgical companies, the energy sector, and healthcare will remain stably high. Factors of competitiveness of national financial markets Financial paradox
(No ratings yet)In the financial community, no one doubts the fact that the world is increasingly turning into a single market. Over the past two decades, everyone has seen the acceleration of the globalization of financial markets.
This is expressed, first of all, in the fact that international financial markets have expanded significantly, and the volume of transactions in the foreign exchange market and capital markets has increased significantly. Advances in information and telecommunications technologies, liberalization of capital markets and the development of new financial instruments will certainly continue to stimulate the growth of international capital flows, leading to the expansion and efficiency of international financial markets.
As often happens with quickly popularized terms, the definition of globalization has not been fully unified. The United States was the first to talk about the formation of a global market. The term "globalization" was proposed by T. Levitt in 1983. By this word he meant the phenomenon of merging markets for individual products produced by transnational corporations. The new term was given a broader meaning at Harvard Business School, and its main popularizer was K. Homais, who published the book “A World Without Borders” in 1990. According to Homais, the state of the global economy is now determined by the triad formed by the European Union, the United States and Japan. Due to the growth of the global market, the economic nationalism of individual states, in his opinion, has now become meaningless.
Despite numerous attempts to define the term “globalization,” a unified understanding of this process has not been achieved. The globalization of the economy now refers to a number of directions: the formation of global transnational corporations, regionalization of the economy, intensification of world trade, convergence trends and, finally, financial globalization. In domestic economic science, attempts are also being made to understand the new phenomenon. In particular, S. Dolgov, author of the book “Globalization of the Economy: A New Word or a New Phenomenon?”, believes that globalization is “essentially the same thing that has long been called the “internationalization of economic life.” In his opinion, financial globalization consists of an increase in the turnover of international capital markets, the emergence of new financial instruments and increased opportunities for investors and borrowers. His description of financial globalization is based on an analysis of the growth of international capital markets, so it is actually about financial internationalization.
However, there are significant differences between internationalization and globalization. Internationalization is the development of sustainable economic ties between countries. The term "internationalization" largely refers to a situation where there is an increase in transactions in foreign markets, while "globalization" refers to the greater and greater integration of national economies, including financial markets, ultimately leading to the creation of a single market . For example, if a country decides to resort to special measures to protect the domestic market, then under these conditions internationalization can still develop, but globalization can no longer develop. Thus, internationalization refers to the expansion of international markets, while globalization refers to the creation of a common market without borders.
What is the driving force behind globalization? Globalization is based on international activities
transnational corporations.
Financial globalization has become a consequence of international investments by transnational corporations. This statement has not lost its relevance even now. A study by the United Nations Conference on Trade and Development, published in 1997, states: “Foreign direct investment continues to drive the globalization process that characterizes the modern international economy. The current boom in foreign direct investment highlights the increasingly important role played by multinational corporations in developed and developing countries.”
Initially, financial markets served primarily the real sector of the economy: they helped insure corporate losses from foreign exchange risk, financed short-term operations, etc. Over time, however, financial markets began to acquire independent significance. This transformation has led to enormous quantitative growth in markets and a manifold increase in the ability to profit from transactions with financial instruments. By now we can already say that in the international market it is not the real sector that shapes the financial sector, but, on the contrary, financial markets often determine the state of the real economy. Indeed, when only 10% of daily foreign exchange transactions serve foreign trade, the main influence on the exchange rate is not fundamental economic factors, but the current situation in financial markets.
This situation would not have developed if national authorities at the macroeconomic level did not support financial globalization. After all, the movement towards a common market needs constant stimulation: the elimination of restrictions on foreign investment and international financial transactions. This is what has been happening over the past twenty years and this process is called “liberalization”. Thanks to the liberalization policies pursued by many states, national borders have weakened to a large extent, and financial flows have poured into neighboring countries. It is thanks to liberalization in the financial sector that the main feature of globalization has become the international movement of capital.
The globalization of the financial market is characterized by several phenomena: 1)
Expansion of gross capital flows. Gross capital flows have increased significantly over the past ten years. Capital flows will play an even greater role in the global economy than at present. In the short term, such an increase in capital mobility may cause instability in the global financial system. 2)
Interest rate arbitrage. As international capital flows become more mobile, the differences in interest rates across the market should become less and less noticeable. 3)
Synchronization of price movements. The strengthening of international capital movements and the associated increase in the efficiency of interest rate arbitrage lead to one very important consequence -
synchronization of asset price movements. In theory, due to price synchronization, there should be a gradual weakening of international investment diversification. Synchronization of asset price movements can lead to synchronization of economic cycles in countries that are major participants in the international market.
Globalization is a natural process that occurs in the world economy. It represents the gradual transformation of the entire world economy into a common pool of resources, goods, knowledge, services, etc., common to all countries. Globalization of financial markets- an integral part of this process.
Origin and development
The process of globalization of financial markets began in the last century, when the first transnational companies and corporations appeared. At first, national monetary associations were formed, which was due to the low cost of Asian labor and the intensification of investment cash flows to Asian countries. The funds were sent to the East, from where they were returned in the form of inventory items to the West.
This process, in turn, spurred national capitals to mutual integration in order to maximally protect the interests of transnational companies and investments. The globalization of financial markets included increased capitalization and a significant redistribution of funds. The volume of money flow increased, new management portfolios were created, and the struggle for control over capital intensified.
The most important goal of the globalization of financial markets is the free movement of capital into the economy of any country, increasing the efficiency of investments by minimizing costs and increasing profitability. The process is still quite far from completion, but in the end many positive changes are expected:
- Standardization of all investment management processes among all market participants.
- Development and adoption of stricter antimonopoly laws, agricultural and tax policies.
- Unification of macroeconomic management policies.
Ultimately, the world will move to common standards; the globalization of financial markets will make it possible to control all economic sectors, culture and even religion.
Reasons for speeding up processes
The main reason lies in the development and consolidation of industrial production. First of all, this is due to the manufacturer’s exit beyond the borders of their country. That is, the company is no longer focused on its own country as the main consumer of its product, and is reaching a global level of meeting needs. Help in this movement is provided by the standardization of basic parameters and processes; the assessment of activities, quality of goods and other criteria occurs in monetary terms with reference to.
Another reason for the globalization of financial markets lies in the search for resources to solve world problems (poverty, technical backwardness, disarmament and demilitarization, food problems, ecology, use of natural resources, demography, healthcare, etc.). According to expert estimates, solving these global problems requires annually about one trillion dollars, and this amount is constantly growing.
Naturally, every capitalist, investor or bank strives to obtain the maximum profit on each of its assets, at least a profit comparable in size to other types of placement of free capital. This is another reason for the movement towards globalization of financial markets.
The impetus for the growth in the dynamics of combining economies was given by the virtual economy, which is rapidly developing. Thanks to telecommunications, international banks have the opportunity to operate around the clock and have become a single organism that instantly responds to any important changes and signals anywhere in the world.
Until recently, international capital was represented exclusively by national entities. But since the middle of the last century, organizations (IMF, IBRD, etc.) began to develop that manage and control global flows. It is safe to assume that the level of influence of these organizations and their total share in operations is a kind of indicator of the globalization of financial markets.
What does this mean for the global economy?
The unification and development of financial markets stimulates the creation of universal tools and procedures for internal and external banking operations. Thus, a universal network was created that connected together. With the strengthening of ties, international institutions emerged, the consequence of which was increasing pressure on some governments. The purpose of this pressure was to reduce the intervention of government bodies on internal development processes and liberalize international interaction at the capital level.
The globalization of financial markets eliminates barriers between global and domestic capital, allows for unlimited movement of funds within the planet, borrowing, etc. Already today, the movement of international capital exceeds real trade turnover by 50 times.