Possible Government Policies To Cope With Financial Globalization Case Study
V. Possible Government Policies to Cope with Financial Globalization
As mentioned above, it is agreed by economists that financial globalization would be beneficial in the long run, but, in the short-run, it has certain links to the happening of financial crises. Thus, countless economists are suggesting that certain government policies should be imposed to stabilize to stabilize foreign and domestic financial markets. In general, there are three different types of arguments adopted by economists to suggest how governments should intervene or react to the integration process.
To begin with, the first view embraces a relatively neo-liberalised ideology, suggesting that recent crisis was the result of government intervention. This …show more content…
However, things will develop in the opposite direction when it reaches extreme. As economists suggest, heavy net capital inflows may threaten macroeconomic stability. Thus, capital it became one of governments’ main concern. Capital controls are often used by governments in times of massive capital flows.
Governments sometimes introduce direct controls, which imposes quantitative or money value limits on the total amount of foreign capital transactions in the country. While on some occasions, governments would also use indirect capital controls such as taxing foreign investments or imposing unfavourable exchange rates on capital transactions to discourage the entrance of foreign saving. By discouraging foreign investors to invest in domestic financial markets, the government would be able to regain control over the independence of its monetary policies, thus, tends to soothe the pressure imposed on rising exchange rates. Moreover, by limiting the amount of capital entering the country, governments are reducing its dependence on foreign capitals, which could decrease the likelihood of the collapse of domestic sectors during sudden withdrawal or entry by …show more content…
Since the interdependence of nations meant that domestic financial crises are more likely now, to spread across the globe. Countries should stand side by side with one another to improve the global regulatory network, underpin the system of global capital flows, as well as reinforce central governments in their capability of providing contingency liquidity. There are, certainly other ways to protect the stability of international and domestic financial markets. However, inarguably, as financial globalization proceeds, there would be growing demands for international cooperation on improving the “international financial architecture,” which further integrates the world, more closely,
As mentioned above, it is agreed by economists that financial globalization would be beneficial in the long run, but, in the short-run, it has certain links to the happening of financial crises. Thus, countless economists are suggesting that certain government policies should be imposed to stabilize to stabilize foreign and domestic financial markets. In general, there are three different types of arguments adopted by economists to suggest how governments should intervene or react to the integration process.
To begin with, the first view embraces a relatively neo-liberalised ideology, suggesting that recent crisis was the result of government intervention. This …show more content…
However, things will develop in the opposite direction when it reaches extreme. As economists suggest, heavy net capital inflows may threaten macroeconomic stability. Thus, capital it became one of governments’ main concern. Capital controls are often used by governments in times of massive capital flows.
Governments sometimes introduce direct controls, which imposes quantitative or money value limits on the total amount of foreign capital transactions in the country. While on some occasions, governments would also use indirect capital controls such as taxing foreign investments or imposing unfavourable exchange rates on capital transactions to discourage the entrance of foreign saving. By discouraging foreign investors to invest in domestic financial markets, the government would be able to regain control over the independence of its monetary policies, thus, tends to soothe the pressure imposed on rising exchange rates. Moreover, by limiting the amount of capital entering the country, governments are reducing its dependence on foreign capitals, which could decrease the likelihood of the collapse of domestic sectors during sudden withdrawal or entry by …show more content…
Since the interdependence of nations meant that domestic financial crises are more likely now, to spread across the globe. Countries should stand side by side with one another to improve the global regulatory network, underpin the system of global capital flows, as well as reinforce central governments in their capability of providing contingency liquidity. There are, certainly other ways to protect the stability of international and domestic financial markets. However, inarguably, as financial globalization proceeds, there would be growing demands for international cooperation on improving the “international financial architecture,” which further integrates the world, more closely,