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Financial Globalisation

Explore the forces driving financial globalisation and its consequences. Discuss the historical evolution from Gold Standard to current dynamics, with insights on regulation and market impact.

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Financial Globalisation

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  1. Financial Globalisation

  2. Aims of Lecturer • To explore the extent of financial globalisation • To explore the main forces and agents driving the process of financial globalisation • To explore the social, political and economic consequences of financial globalisation

  3. Structure of Lecture • Part One: Offer a descriptive account of evolution of international monetary system. • Part Two: Explore different incommensurate explanation for why the IMS has evolved in manner that it has since the early 1970s

  4. Part OneFrom Gold to Keynes • Gold Standard Emerged gradually • Features of World Monetary System in late part of C19th: • London as the Global Financial Centre • Relatively Free Flow of Capital (to degree it followed the flag)

  5. Gold Standard important in disciplining domestic actors • Links domestic economic actors to global market disciplines. • Makes the economy ‘knave proof’

  6. System destroyed by WWI • Attempts to resituate Gold Standard failed (‘Gold Standard on the Booze’ (Keynes)). • Problems of International Imbalances and Recycling (Dawes Plan) • Attempts to restore ‘wrong parities’ • Changes in Domestic Politics

  7. 1930s: Things fall apart!!! • International Capital mobility collapsed • Global Deflation • Gold is abandoned.

  8. Bretton Woods Conference 1944 (White and Keynes) • Fixed but adjustable pegs. Dollar tied to Gold • Deregulate Current Account but not the Capital Account • A new form of Liberal World Economy

  9. Bretton Woods never really worked: • Current Account convertibility was not established until 1958 in Europe and 1964 in Japan • From this moment onwards capital account controls came under pressure • Sterling Devalued in 1967 • Dollar devalued in 1971 and came off Gold completely in 1973.

  10. From 1973 see fairly rapid ‘de-regulation’ by major states. • Three aspects: • Deregulation of particular national markets • Removal of controls separating functionally distinct market • Removal of Controls over movement of capital across boarders

  11. Deregulation. International Dynamic. Secure position as a major financial centre • May Day Deregulation 1975 (US), UK ‘Big Bang’ reforms in 1980s (1986), Japan deregulation (2001)

  12. Massive Increase in Volume of Trading across different markets. • The daily volume of share trading on the New York Stock exchange increased from approximately 10 million in 1970 to over 1 billion in 2005.

  13. According to the BIS the size of global financial market increased from about 300 billion in 1974 to 7000 billion in 1996. By 2004 the total daily foreign exchange turnover reached $2317 million compared to $590 million in 1989

  14. High Levels of Volatility • Early 2000s Dow Jones lost half its value • Values of major currencies fluctuant by 50 to 100 per cent • Finance itself becomes critical industry, Between a quarter and a third of UK employees involved in Finance • Cultural normalisation of debt and speculation

  15. Exists semi-globalised world financial system

  16. Explanations for What has Happened • Keynesian (Strange, Grieve, Smith et al): Policy failures and lack of political will. In its slightly more radical forms address social power of key financier group Soultions: Better Supranational Regulation, The Reintroduction of Capital Controls and National Re-regulation

  17. Neo-Liberal: Basically positive view of development. In so far as there are instabilities these are product of government failures.

  18. Marxist interpretation: • Finance is really not the key issue • What we living through extended period of financialisation/ fictitious accumulation • Capital is value in motion, it must do something!

  19. Ideally • Money Capital, Manufacturing Capital, Commodity Capital, Money Capital (Real Accumulation) • But if not possible • Money Capital, Money Capital

  20. The rise in financial volatility since 1973 is not a unfortunate consequence of government decisions but consequence of structural logics of capital • Harvey talks necessary rise in financial volatility • Parallels with dominance of Image and the Simulacrum. Also Parallels with 1920s

  21. Post-modern Interpretation • McGoun • Money is Sign. People want it not to do anything with it but because of the prestige it brings. The real value of money is a ‘sign value’ • Game. Trade for stake of trading!

  22. For McGoun this is new and relatively benign and perhaps sustainable. • Crisis in the Financial Simulacrum do not effect real economy

  23. Conclusions • It clear quite fundamental changes in global financial structure since 1973 • Force us to rethink relationship between Finance and Production • We should not fetishise the spatial or become preoccupied about debates • I have no idea how stable global financial system. When will the Perfect storm hit!

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